SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

For the quarterly period ended March 31, 2007

                                       or

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

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

Commission File Number:  1-8389

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

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

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

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

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

                                 [X] Yes [ ] No

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer or a  non-accelerated  filer.  See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

 Large Accelerated Filer [X] Accelerated Filer [ ] Non-accelerated Filer [ ]


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

                                 [ ] Yes [X] No

Indicate the number of shares  outstanding of the registrant's  common stock, as
of May 7, 2007:

Common Stock, $.10 par value per share - 170,486,015 shares





<PAGE>


                              PUBLIC STORAGE, INC.

                                      INDEX


                                                                         Pages

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

Item 1.    Financial Statements (Unaudited)

           Condensed Consolidated Balance Sheets at
              March 31, 2007 and December 31, 2006                             1

           Condensed Consolidated Statements of Income for the
              Three Months Ended March 31, 2007 and 2006                       2

           Condensed Consolidated Statement of Shareholders' Equity
              for the Three Months Ended March 31, 2007                        3

           Condensed Consolidated Statements of Cash Flows
              for the Three Months Ended March 31, 2007 and 2006           4 - 5

           Notes to Condensed Consolidated Financial Statements           6 - 38

Item 2.    Management's Discussion and Analysis of
              Financial Condition and Results of Operations              39 - 74

Item 3.    Quantitative and Qualitative Disclosures about Market Risk    74 - 75

Item 4.    Controls and Procedures                                            76

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

Item 1.    Legal Proceedings                                                  77

Item 1A.   Risk Factors                                                  77 - 82

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds        82

Item 6.    Exhibits                                                           82





<PAGE>



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

<TABLE>
<CAPTION>

                                                                                        March 31,          December 31,
                                                                                          2007                 2006
                                                                                   ------------------ ---------------------
                                                                                       (Unaudited)
                                     ASSETS
                                    --------

<S>                                                                                      <C>                  <C>
Cash and cash equivalents....................................................      $      90,700        $     555,584
Real estate facilities, at cost:
   Land......................................................................          2,973,445            2,959,875
   Buildings.................................................................          8,365,829            8,301,990
                                                                                   ------------------ ---------------------
                                                                                      11,339,274           11,261,865
   Accumulated depreciation..................................................         (1,844,609)          (1,754,362)
                                                                                   ------------------ ---------------------
                                                                                       9,494,665            9,507,503
   Construction in process...................................................             76,592               90,038
                                                                                   ------------------ ---------------------
                                                                                       9,571,257            9,597,541

Investment in real estate entities...........................................            301,711              301,905
Goodwill.....................................................................            174,634              174,634
Intangible assets, net.......................................................            329,372              414,602
Other assets.................................................................            151,473              154,207
                                                                                   ------------------ ---------------------
              Total assets...................................................      $  10,619,147        $  11,198,473
                                                                                   ================== =====================

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

Borrowings on bank credit facilities.........................................      $     132,000        $     345,000
Notes payable................................................................          1,032,056            1,466,284
Debt to joint venture partner................................................             37,304               37,258
Preferred stock called for redemption........................................                  -              302,150
Accrued and other liabilities................................................            296,383              333,706
                                                                                   ------------------ ---------------------
         Total liabilities...................................................          1,497,743            2,484,398
Minority interest:
   Preferred partnership interests...........................................            325,000              325,000
   Other partnership interests...............................................            177,109              181,030
Commitments and contingencies (Note 15)
Shareholders' equity:
   Cumulative Preferred Stock, $0.01 par value, 50,000,000 shares authorized,
     1,732,600 shares issued (in series) and outstanding, (1,712,600 at
     December 31, 2006) at liquidation preference............................          3,355,000            2,855,000

   Common Stock, $0.10 par value, 200,000,000 shares authorized, 169,310,601
     shares issued and outstanding (169,144,467 at December 31, 2006)........             16,931               16,915
   Equity Stock, Series A, $0.01 par value, 200,000,000 shares authorized,
     8,744.193 shares issued and outstanding.................................                  -                    -
   Paid-in capital...........................................................          5,651,677            5,661,507
   Cumulative net income.....................................................          3,563,070            3,503,292
   Cumulative distributions paid.............................................         (3,997,123)          (3,847,998)
   Accumulated other comprehensive income....................................             29,740               19,329
                                                                                   ------------------ ---------------------
         Total shareholders' equity..........................................          8,619,295            8,208,045
                                                                                   ------------------ ---------------------
              Total liabilities and shareholders' equity.....................      $  10,619,147        $  11,198,473
                                                                                   ================== =====================

</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
                                                                           March 31,
                                                                  ---------------------------
                                                                     2007             2006
                                                                  ------------- -------------

Revenues:
<S>                                                             <C>              <C>
   Self-storage rental income..............................     $    398,781     $    251,347
   Ancillary operating revenue.............................           33,461           22,096
   Interest and other income...............................            2,125            5,075
                                                                  ------------- -------------
                                                                     434,367          278,518
                                                                  ------------- -------------

Expenses:
  Cost of operations (excluding depreciation and amortization):
      Self-storage facilities..............................          148,920           87,703
      Ancillary operations.................................           21,001           15,274
  Depreciation and amortization............................          176,481           50,028
  General and administrative...............................           16,516            6,779
  Interest expense.........................................           16,808            1,557
                                                                  ------------- -------------
                                                                     379,726          161,341
                                                                  ------------- -------------

Income from continuing operations before equity in earnings
 of real estate entities, casualty gain, foreign currency
 exchange gain, expense from derivatives and minority
 interest in income........................................           54,641          117,177

Equity in earnings of real estate entities.................            3,977            3,466
Casualty gain .............................................            2,665                -
Foreign currency exchange gain.............................            5,040                -
Expense from derivatives, net..............................             (762)               -
Minority interest in income................................           (5,783)          (7,159)
                                                                  ------------- -------------
Income from continuing operations..........................           59,778          113,484
Cumulative effect of a change in accounting principle......                -              578
Discontinued operations....................................                -              154
                                                                  ------------- -------------
Net income.................................................     $     59,778     $    114,216
                                                                  ============= =============
Net income allocation:
----------------------
   Allocable to preferred shareholders:
     Based on distributions paid ..........................     $     58,776    $      46,615
   Allocable to Equity Stock, Series A.....................            5,356            5,356
   Allocable to common shareholders........................           (4,354)          62,245
                                                                  ------------- -------------
                                                                $     59,778     $    114,216
                                                                  ============= =============
Net income (loss) per common share - basic
------------------------------------------
   Continuing operations...................................     $      (0.03)    $       0.49
   Discontinued operations.................................             -                -
                                                                  ------------- -------------
                                                                $      (0.03)    $       0.49
                                                                  ============= =============
Net income (loss) per common share - diluted
--------------------------------------------
   Continuing operations...................................     $      (0.03)   $        0.48
   Discontinued operations.................................             -                -
                                                                  ------------- -------------
                                                                $      (0.03)    $       0.48
                                                                  ============= =============
Net income per depositary share of Equity Stock, Series A
   (basic and diluted) ....................................     $       0.61     $       0.61
                                                                  ============= =============
Basic weighted average common shares outstanding...........          169,229          128,122
                                                                  ============= =============
Diluted weighted average common shares outstanding.........          169,229          129,009
                                                                  ============= =============
Weighted average shares of Equity Stock, Series A (basic
   and diluted) ...........................................            8,744            8,744
                                                                  ============= =============

</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>
Balance at December 31, 2006...........................   $  2,855,000      $  16,915  $  5,661,507  $  3,503,292

Issuance of cumulative preferred stock:
   Series M (20,000 shares)............................        500,000              -       (15,233)            -

Issuance of common stock in connection with:
   Exercise of employee stock options (131,201 shares).              -             13         5,340             -
   Vesting of restricted stock (34,933 shares) ........              -              3            (3)            -

Stock-based compensation expense (Note 13) ............              -              -            66             -

Net income.............................................              -              -             -        59,778

Cash distributions:
   Cumulative preferred stock (Note 11)................              -              -             -             -
   Equity Stock, Series A ($0.613 per depositary share)              -              -             -             -
   Common Stock ($0.50 per share)......................              -              -             -             -

Accumulated other comprehensive income:
   Foreign currency translation adjustments............              -              -             -             -
                                                         ---------------- ------------ --------------- -------------
Balance at March 31, 2007..............................   $  3,355,000      $  16,931  $  5,651,677  $  3,563,070
                                                         ================ ============ =============== =============
</TABLE>

<TABLE>
<CAPTION>
                                                                          Accumulated
                                                                            Other             Total
                                                         Cumulative      Comprehensive     Shareholders'
                                                        Distributions         Income           Equity
                                                        -------------- ----------------  ----------------

<S>                                                     <C>                   <C>           <C>
Balance at December 31, 2006........................... $ (3,847,998)   $     19,329      $  8,208,045

Issuance of cumulative preferred stock:
   Series M (20,000 shares)............................            -               -           484,767

Issuance of common stock in connection with:
   Exercise of employee stock options (131,201 shares).            -               -             5,353
   Vesting of restricted stock (34,933 shares) ........            -               -                 -

Stock-based compensation expense (Note 13) ............            -               -                66

Net income.............................................            -               -            59,778

Cash distributions:
   Cumulative preferred stock (Note 11)................      (58,776)              -           (58,776)
   Equity Stock, Series A ($0.613 per depositary share)       (5,356)              -            (5,356)
   Common Stock ($0.50 per share)......................      (84,993)              -           (84,993)

Accumulated other comprehensive income:
   Foreign currency translation adjustments............            -          10,411            10,411
                                                        -------------- ---------------  ----------------
Balance at March 31, 2007.............................. $ (3,997,123)   $     29,740      $  8,619,295
                                                        ============== ===============  ================
</TABLE>
                             See accompanying notes.
                                        3
<PAGE>


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

                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                                      For the Three Months Ended
                                                                                              March 31,
                                                                                     ----------------------------
                                                                                         2007            2006
                                                                                     ------------- --------------
Cash flows from operating activities:
<S>                                                                                  <C>             <C>
   Net income..................................................................      $   59,778      $  114,216
   Adjustments to reconcile net income to net cash provided by operating
     activities:
    Amortization of note premium, net of increase in debt to joint venture
       partner (Notes 7 and 8).................................................          (1,084)           (236)
    Depreciation and amortization...........................................            176,481          50,028
    Equity in earnings of real estate entities..............................             (3,977)         (3,466)
    Foreign currency exchange gain..........................................             (5,040)              -
    Expense from derivatives, net...........................................                762               -
    Distributions received from the real estate entities (Note 5)...........              4,171           5,776
    Minority interest in income.............................................              5,783           7,159
       Other operating activities...........................................            (35,930)        (10,644)
                                                                                     ------------- --------------
       Total adjustments....................................................            141,166          48,617
                                                                                     ------------- --------------
       Net cash provided by operating activities............................            200,944         162,833
                                                                                     ------------- --------------
Cash flows from investing activities:
    Capital improvements to real estate facilities .........................             (8,307)         (8,379)
    Construction in process.................................................            (19,080)        (21,188)
    Acquisition of real estate facilities...................................            (22,593)        (46,489)
    Consolidation of partnerships (Note 2)..................................                  -           2,865
    Proceeds from sales of real estate and real estate investments..........                322           1,970
    Proceeds from sales of held-to-maturity debt securities (Note 2)........              4,777           2,359
                                                                                     ------------- --------------
       Net cash used in investing activities................................            (44,881)        (68,862)
                                                                                     ------------- --------------
Cash flows from financing activities:
    Principal payments on notes payable and bank credit facilities..........           (449,604)        (12,104)
    Net repayments on bank credit facilities................................           (213,000)              -
    Proceeds from borrowings on European notes payable......................             13,152               -
    Net proceeds from the issuance of common stock..........................              5,353           1,541
    Net proceeds from the issuance of cumulative preferred stock............            484,767         101,492
    Redemption of cumulative preferred stock................................           (302,150)       (172,500)
    Distributions paid to shareholders......................................           (149,125)       (116,269)
    Distributions paid to holders of preferred partnership interests (Note
       10)..................................................................             (5,403)         (3,591)
    Distributions paid to other minority interests..........................             (5,501)         (3,712)
                                                                                     ------------- --------------
       Net cash used in financing activities................................           (621,511)       (205,143)
                                                                                     ------------- --------------
Net decrease in cash and cash equivalents...................................           (465,448)       (111,172)
Net effect of foreign exchange translation on cash..........................                564               -
                                                                                     ------------- --------------
Cash and cash equivalents at the beginning of the year......................            555,584         493,501
                                                                                     ------------- --------------
Cash and cash equivalents at the end of the period..........................         $   90,700      $  382,329
                                                                                     ============= ==============
</TABLE>

                             See accompanying notes.
                                        4
<PAGE>


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

                                   (UNAUDITED)

                                   (CONTINUED)
<TABLE>
<CAPTION>


Supplemental schedule of non-cash investing and financing activities:
<S>                                                                                  <C>             <C>
    Real estate acquired in exchange for assumption of mortgage note...........      $        -      $   (4,590)
    Mortgage note assumed in connection with acquisition of real estate........               -           4,590
    Consolidation of entities pursuant to Emerging Issues Task Force Topic 04-5:
       Minority interest.......................................................               -           3,963
       Real estate facilities..................................................               -         (22,459)
       Investments.............................................................               -          20,687
       Other assets............................................................               -
                                                                                                           (167)
       Accrued and other liabilities...........................................               -
                                                                                                            841

   Foreign currency translation adjustment:
       Real estate facilities, net of accumulated depreciation..............            (14,029)              -
       Construction in process..............................................               (239)              -
       Intangible assets, net...............................................               (245)              -
       Other assets.........................................................               (178)              -
       Notes payable........................................................              3,307               -
       Accrued and other liabilities........................................                337               -
       Minority interests...................................................              1,200               -
       Accumulated other comprehensive income...............................             10,411               -

</TABLE>

                             See accompanying notes.
                                        5
<PAGE>


                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)


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

            Public  Storage,  Inc.  (referred to herein as "the Company",  "we",
     "us" or "our") 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,   generally  on  a
     month-to-month  basis,  for  personal and  business  use. Our  self-storage
     facilities are located  primarily in the United States.  As a result of the
     merger with Shurgard Storage Centers, Inc. ("Shurgard") on August 22, 2006,
     we  have  self-storage  facilities  located  in  several  Western  European
     countries (Note 3).

            In addition to our self-storage facilities,  we own (i) interests in
     commercial  properties,  containing commercial and industrial rental space,
     (ii) interests in facilities that lease storage containers, and (iii) other
     ancillary  operations  conducted at our  self-storage  locations  comprised
     principally of  reinsurance  of policies  against losses to goods stored by
     our  self-storage  tenants,  retail sales of storage  related  products and
     truck rentals.

            At March 31, 2007,  we had direct and indirect  equity  interests in
     2,005  self-storage  facilities  located in 38 states  operating  under the
     "Public  Storage" name, and 168  self-storage  facilities  located in seven
     Western European nations which operate under the "Shurgard Storage Centers"
     name. We also have direct and indirect equity interests in approximately 20
     million net rentable  square feet of commercial  space located in 11 states
     in the United States.

            Any reference to the number of properties, square footage, number of
     tenant reinsurance  policies outstanding and the aggregate coverage of such
     reinsurance policies are unaudited and outside the scope of our independent
     registered public  accounting firm's review of our financial  statements in
     accordance  with the standards of the Public Company  Accounting  Oversight
     Board (United States).

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

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

            The  accompanying   unaudited   condensed   consolidated   financial
     statements  have been prepared in accordance with U.S.  generally  accepted
     accounting  principles  ("GAAP") for interim financial  information and the
     instructions  to Form 10-Q and Article 10 of Regulation  S-X.  Accordingly,
     they do not include  all of the  information  and notes  required by United
     States  generally  accepted  accounting  principles for complete  financial
     statements.  In the opinion of management,  all adjustments  (consisting of
     normal  and  recurring   adjustments)   considered  necessary  for  a  fair
     presentation have been reflected in these unaudited condensed  consolidated
     financial  statements.  Operating  results for the three months ended March
     31, 2007 are not necessarily indicative of the results that may be expected
     for the year ended December 31, 2007. The accompanying  unaudited condensed
     consolidated   financial  statements  should  be  read  together  with  the
     consolidated  financial  statements  and  related  notes  included  in  the
     Company's Annual Report on Form 10-K (and amendments  thereto) for the year
     ended December 31, 2006.

                                        6
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

            Certain  amounts  previously  reported  have  been  reclassified  to
     conform to the March 31,  2007  presentation.  In  previous  presentations,
     property  management  contracts were reported  separately  from goodwill as
     intangible assets on the Company's  consolidated balance sheet. We have now
     reclassified  these  intangible  assets  to  goodwill  (see  "Goodwill  and
     Intangible Assets" below). In previous presentations,  revenues and cost of
     operations  with respect to our  Commercial  facilities  and  Containerized
     Storage  facilities  were  reported  on  separate  lines  on our  condensed
     consolidated  statements of income. In our current  presentation,  revenues
     with  respect to each of these  operations,  along with  revenues  from our
     tenant reinsurance,  retail, truck and property management operations,  are
     included under the caption "Revenues: Ancillary operations" and the related
     cost  of  operations  are  included  in  "Expenses:  Cost of  operations  -
     Ancillary operations" on our accompanying condensed consolidated statements
     of  income.  Certain  reclassifications  have also been made from  previous
     presentations as a result of discontinued operations.

     Consolidation Policy
     --------------------

            Entities  in  which  we have an  interest  are  first  evaluated  to
     determine  whether,  in  accordance  with the  provisions  of the Financial
     Accounting  Standards  Board's  Interpretation  No. 46R,  "Consolidation of
     Variable  Interest  Entities," they represent  Variable  Interest  Entities
     ("VIE's").  VIE's in which we are the primary beneficiary are consolidated.
     Entities that are not VIE's that we control are consolidated.

            For  purposes  of  determining  control,  when  we are  the  general
     partner,  we are considered to control the  partnership  unless the limited
     partners  possess  substantial  "kick-out"  or  "participative"  rights  as
     defined in Emerging Issues Task Force Statement 04-5 - "Determining whether
     a general  partner or the general  partners as a group,  controls a limited
     partnership  or similar  entity  when the  limited  partners  have  certain
     rights"  ("EITF  04-5").   All   significant   intercompany   balances  and
     transactions have been eliminated.

            The accounts of the  entities we control  along with the accounts of
     the  VIE's  that we are  the  primary  beneficiary  of  (collectively,  the
     "Consolidated   Entities")  are  included  in  our  consolidated  financial
     statements  along with those of the Company.  We account for our investment
     in entities that we do not control, or entities that we are not the primary
     beneficiary  of, using the equity method of accounting.  Collectively,  the
     Company  and the  Consolidated  Entities  own a total of 2,160 real  estate
     facilities,  consisting  of 1,983  self-storage  facilities  in the  United
     States (of which 487 were acquired in the Shurgard merger),  168 facilities
     in Europe  (of which  160 were  acquired  in the  Shurgard  merger),  three
     industrial  facilities used by the containerized storage operations and six
     commercial properties.

            At  March  31,  2007,  we had  equity  investments  in five  limited
     partnerships  in  which we do not have a  financial  controlling  interest.
     These limited  partnerships  collectively  own 22 self-storage  facilities,
     which are managed by the Company.  In addition,  at March 31, 2007,  we own
     approximately  44% of the common equity of PS Business Parks, Inc. ("PSB"),
     which has interests in approximately  19.4 million net rentable square feet
     of  commercial  space at March 31, 2007.  Our  investment  in these limited
     partnerships  and PSB  (collectively,  the  "Unconsolidated  Entities") are
     accounted for using the equity method.

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

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

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

            For all taxable years subsequent to 1980, the Company  qualified and
     intends to continue to qualify as a REIT,  as defined in Section 856 of the
     Internal  Revenue  Code. As a REIT, we are 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 2007 and,
     accordingly,   no  provision   for  income  taxes  has  been  made  in  the
     accompanying condensed consolidated financial statements.

                                        7
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

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

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

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

            Due  to  the  short   period  to  maturity  of  our  cash  and  cash
     equivalents,  accounts receivable,  other financial instruments included in
     other assets,  and accrued and other  liabilities,  the carrying  values as
     presented on the  consolidated  balance sheets are reasonable  estimates of
     fair value.

            Financial  assets that are exposed to credit risk consist  primarily
     of cash  and  cash  equivalents  and  accounts  receivable.  Cash  and cash
     equivalents,  consisting 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 small individual customer balances.

            Due to the  acquisition of European  subsidiaries in the merger with
     Shurgard,  the results of our  operations  and our  financial  position are
     affected  by the  fluctuations  in the value of the  euro,  and to a lesser
     extent,  other European  currencies,  against the U.S. dollar. Also, we are
     exposed  to  foreign   currency   exchange  risk  related  to  intercompany
     transactions, including debt, with or between our European subsidiaries.

            Included  in  cash  and  cash  equivalents  at  March  31,  2007  is
     $24,460,000  ($32,496,000  at  December  31,  2006)  held  by  our  captive
     insurance  entities.  Insurance  and other  regulations  place  significant
     restrictions on our ability to withdraw these funds for purposes other than
     insurance  activities.  Other assets at March 31, 2007 include  investments
     totaling   $1,987,000   ($6,764,000   at  December  31,   2006)   primarily
     held-to-maturity  Federal  government agency securities stated at amortized
     cost, which  approximates  fair value.  Other assets at March 31, 2007 also
     include derivative financial  instruments totaling $3,626,000  ($11,810,000
     at  December  31,  2006)  reported  at fair  value.  See Note 9 for further
     discussion of the fair value of our derivative  financial  instruments.  At
     March 31, 2007, we believe that the carrying value of our notes payable is,
     in aggregate, approximately $3 million lower than their fair value.

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

            Real estate  facilities are recorded at cost.  Costs associated with
     the acquisition, development,  construction, renovation, and improvement of
     properties  are  capitalized.  Interest,  property  taxes,  and other costs
     associated with  development  incurred during the  construction  period are
     capitalized as building cost.  Expenditures for repairs and maintenance are
     charged  to expense  when  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.

                                        8
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

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

            We  evaluate  impairment  of  goodwill  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, 2006.

            We evaluate impairment of long-lived 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.  No impairment  was identified  from our
     evaluations as of March 31, 2007.

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

            We  utilize  the  Fair  Value  Method  (as  defined  in Note  13) of
     accounting for our employee stock options. Restricted stock unit expense is
     recorded over the relevant vesting period.  See Note 13 for a discussion of
     our accounting with respect to employee stock options and restricted  stock
     units.

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

            Other assets primarily consists of prepaid expenses,  investments in
     held-to-maturity  debt securities,  accounts receivable,  assets associated
     with our containerized  storage business,  merchandise inventory and rental
     trucks.  Included in other assets is $62,059,000  and  $91,937,000 at March
     31, 2007 and December 31, 2006, respectively, from our European operations.

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

            Accrued and other liabilities consist primarily of real property tax
     accruals, value-added tax accruals with respect to our European operations,
     prepayments  of  rents,   trade   payables,   losses  and  loss  adjustment
     liabilities  for our  self-insured  risks  (described  below),  and accrued
     interest.  Prepaid rent totaled  $68,352,000 at March 31, 2007 ($64,291,000
     at  December  31,  2006),  while  property  and  value-added  tax  accruals
     approximated  $80,235,000  at March 31, 2007  ($80,336,000  at December 31,
     2006).

            We are  self-insured  for a portion of the risks associated with our
     property  and  casualty  losses.  We  also  utilize  third-party  insurance
     carriers to provide property and liability  insurance coverage to limit our
     self insurance  exposure.  We accrue  liabilities for uninsured  losses and
     loss  adjustment  expense,  which at March  31,  2007  totaled  $32,729,000
     ($31,532,000  at  December  31,  2006).  Liabilities  for  losses  and loss
     adjustment  expenses  include an amount we determine  from loss reports and
     individual  cases  and  an  amount,   based  on  recommendations   from  an
     independent  actuary that is a member of the American  Academy of Actuaries
     using  a  frequency  and  severity  method,  for  losses  incurred  but not
     reported.  Determining  the liability for unpaid losses and loss adjustment
     expense is based upon estimates.

                                        9
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

            Through a  wholly-owned  subsidiary,  we reinsure  policies  against
     claims  for  losses  to  goods  stored  by  tenants  in  our   self-storage
     facilities. For our United States operations, we have third-party insurance
     coverage  for  losses  from any  individual  event  that  exceeds a loss of
     $1,500,000,  to a maximum of  $9,000,000.  Estimated  uninsured  losses are
     accrued as ancillary costs of operations.

            While we believe  that the amount of estimated  accrued  liabilities
     with  respect  to tenant  claims  and  property  and  casualty  losses  are
     adequate,  the ultimate losses may be in excess of or less than the amounts
     that we have  accrued.  The  methods  for  making  such  estimates  and for
     establishing the resulting liabilities are regularly reviewed.

            Included  in  accrued  and  other  liabilities  is  $89,504,000  and
     $108,331,000  at March 31, 2007 and December 31, 2006,  respectively,  from
     our European operations.

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

            Goodwill  represents  the excess of  acquisition  cost over the fair
     value of net  tangible  and  identifiable  intangible  assets  acquired  in
     business  combinations.  Each business  combination from which our goodwill
     arose was for the  acquisition of single  businesses and  accordingly,  the
     allocation of our goodwill to our business segments  (principally  Domestic
     Self-Storage) is based directly on such  acquisitions.  Our goodwill has an
     indeterminate  life in  accordance  with the  provisions  of  Statement  of
     Financial Accounting Standards No. 142 ("SFAS 142").

            In prior periods,  intangible  assets (original  acquisition cost of
     $165,000,000  and net book value of  $98,081,000 at December 31, 2006) were
     presented on our condensed  consolidated  balance  sheets.  For all periods
     presented  herein,  we have  reclassified this intangible asset to goodwill
     and,  in  accordance  with the  provisions  of SFAS 142 as  applied  to the
     reclassification effective April 1, 2006, we ceased amortization.  Included
     in depreciation and  amortization  expense for the three months ended March
     31, 2006, is $1,651,000 with respect to these assets.  Our goodwill balance
     of $174,634,000 is reported net of accumulated  amortization of $85,085,000
     at March 31,  2007 and  December  31,  2006 on our  accompanying  condensed
     consolidated balance sheets.

            As a result of the  merger  with  Shurgard  (Note  3),  we  acquired
     finite-lived intangible assets comprised of storage tenants in place valued
     at  $530,528,000,  certain  land leases with rent  payments  that are below
     market  valued  at  $34,813,000,  and the  "Shurgard"  tradename,  which we
     continue to use in Europe,  valued at  $18,824,000.  Our intangible  assets
     were increased by $245,000 during the three months ended March 31, 2007 due
     to the impact of changes in exchange rates.  During the quarter ended March
     31, 2007, our intangible  assets increased  $309,000 for storage tenants in
     place with respect to self-storage facility acquisitions.  Our finite-lived
     intangible   assets  are  reported  net  of  accumulated   amortization  of
     $261,728,000 as of March 31, 2007 ($175,944,000 as of December 31, 2006).

            The tenant intangible assets are amortized  relative to the expected
     future  benefit of the tenants in place to each period,  and the land lease
     intangibles  are  amortized  relative  to the  benefit of the  below-market
     lease. The Shurgard tradename has an indefinite life and,  accordingly,  we
     do not  amortize  this asset but instead  analyze it on an annual basis for
     recoverability.

            Amortization   expense  of   $85,784,000   was   recorded   for  our
     finite-lived  intangible  assets for the three months ended March 31, 2007.
     The estimated annual amortization  expense for our finite-lived  intangible
     assets for the current year and each of the next four years ending December
     31 is as follows:


                                       10
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

   2007 (remainder of)                                         $   157,498,000
   2008                                                             70,518,000
   2009                                                             22,395,000
   2010                                                             13,830,000
   2011                                                             10,847,000
   2012 and beyond                                                  35,460,000


     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  income  when  collected.  Tenant
     reinsurance  premiums  are  recognized  as  premium  revenue  when  earned.
     Revenues  from  merchandise  sales and truck  rentals are  recognized  when
     earned. 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 Entities.

            We  accrue  for  property  tax  expense  based  upon  estimates  and
     historical trends. If these estimates are incorrect,  the timing and amount
     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.

     Foreign Exchange Translation
     ----------------------------

            The local  currency  is the  functional  currency  for our  European
     subsidiaries. Assets and liabilities (other than for intercompany balances,
     which are discussed below) are translated at  end-of-period  exchange rates
     while revenues and expenses are translated at the average exchange rates in
     effect during the period.  Equity is translated at historical rates and the
     resulting cumulative translation adjustments are included as a component of
     accumulated  other  comprehensive   income  (loss)  until  the  translation
     adjustments  are  realized.  Included  in other  accumulated  comprehensive
     income was a cumulative  foreign  currency  translation  adjustment gain of
     $29,740,000 at March 31, 2007 ($19,329,000 at December 31, 2006).

            With   respect  to   intercompany   balances   among  our   European
     subsidiaries  and  our  domestic   operations,   when  settlement  of  such
     intercompany  balances  are not  expected in the  foreseeable  future,  the
     impact of  end-of-period  exchange rate changes on the expected  settlement
     amounts in U.S.  Dollars are reflected in accumulated  other  comprehensive
     income  (loss).   However,  for  any  other  intercompany   balances  where
     settlement is expected in the foreseeable future, changes in exchange rates
     are  recorded in income in the period in which the change  occurs.  For the
     three months ended March 31, 2007, we recorded  foreign  currency  exchange
     gains of  $5,040,000  on our  condensed  consolidated  statement of income,
     principally related to such intercompany balances. Substantially all of our
     intercompany  balances are expected to settle in the foreseeable future. At
     March 31,  2007 and  December  31,  2006,  our  European  subsidiaries  had
     intercompany  balances  payable to our United  States  operations  totaling
     $530,565,000 and $542,162,000, respectively.

                                       11
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

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

            Our policy is to record  casualty  losses or gains in the period the
     casualty  occurs  equal to the  differential  between (a) the book value of
     assets  destroyed  and (b)  insurance  proceeds,  if any, that we expect to
     receive in accordance  with our insurance  contracts.  Potential  insurance
     proceeds  that are  subject to  uncertainties,  such as  interpretation  of
     deductible  provisions  of the governing  agreements  or the  estimation of
     costs of  restoration,  are treated as a contingent  proceeds in accordance
     with Statement of Financial  Accounting Standards No. 5 ("SFAS 5"), and not
     recorded until the uncertainties are satisfied. During the first quarter of
     2007,  we recorded a casualty gain totaling  $2,665,000,  representing  the
     realization  of such  contingent  proceeds  relating  to  hurricanes  which
     occurred in 2005.

     Derivative Financial Instruments
     --------------------------------

            In connection  with our merger with  Shurgard,  we acquired  certain
     preexisting   derivative  financial   instruments  held  by  Shurgard  (the
     "Shurgard Derivatives"), including interest rate caps, interest rate swaps,
     cross-currency   swaps  and  foreign  currency  forward  contracts.   These
     derivatives were entered into by Shurgard in order to mitigate currency and
     exchange rate fluctuation risk in connection with European borrowings,  and
     are not for speculative or trading purposes.

            In  accordance   with  the  provisions  of  Statement  of  Financial
     Accounting   Standards  No.  133,   Accounting  for  Derivative   Financial
     Instruments  and Hedging  Activities  ("SFAS  133"),  derivative  financial
     instruments  are measured at fair value and recognized on the balance sheet
     as assets or liabilities.

            As of  March  31,  2007,  none  of  the  Shurgard  Derivatives  were
     considered effective hedges because we believe it is not highly likely that
     the debt and the related derivative instruments will remain outstanding for
     their  entire  contractual  period.  Accordingly,  all  changes in the fair
     values of the derivatives are reflected in earnings, along with the related
     cash flows from these instruments, under "Expense from derivatives, net" on
     our condensed consolidated statement of income.

     Other Comprehensive Income
     --------------------------

            Our comprehensive income is as follows (amounts in thousands):

                                                    For the Three Months Ended
                                                             March 31,
                                                  -----------------------------
                                                        2007             2006
                                                  --------------- --------------
     Net income................................    $    59,778      $   114,216
     Accumulated other comprehensive income:
        Foreign currency translation
        adjustments............................         10,411                -
                                                  --------------- --------------
     Total comprehensive income................    $    70,189      $   114,216
                                                  =============== ==============

            The  foreign   currency   translation   adjustment  of   $10,411,000
     represents the net currency translation adjustment gains and losses related
     to our European subsidiaries,  which have not been reflected in net income,
     measured    from    December   31,   2006    through    March   31,   2007.

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

            Our  policy is to accrue  environmental  assessments  and  estimated
     remediation  costs when it is probable  that such  efforts will be required
     and the related costs 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 our facilities, which individually or in the
     aggregate would be material to our overall business,  financial  condition,
     or results of operations.

                                       12
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

     Discontinued Operations
     -----------------------

            We segregate  all of our disposed  components  that have  operations
     that  can be  distinguished  from  the  rest  of the  Company  and  will be
     eliminated  from  the  ongoing  operations  of the  Company  in a  disposal
     transaction. Discontinued operations principally consists of the historical
     operations  related  to  facilities  that were  closed and are no longer in
     operation  and  facilities  that  have  been  disposed  of  either  through
     condemnation by a local  governmental  agency or sale. In the quarter ended
     March 31,  2006,  income from  discontinued  operations  totaled  $154,000,
     including revenues totaling $278,000,  cost of operations totaling $82,000,
     and depreciation expense totaling $42,000.

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

            In computing  net income  allocated to our common  shareholders,  we
     first allocate net income to our preferred shareholders. Distributions paid
     to the holders of our Cumulative  Preferred Stock totaling  $58,776,000 and
     $46,615,000   for  the  three   months  ended  March  31,  2007  and  2006,
     respectively,  have been  deducted  from net income to arrive at net income
     allocable to our common shareholders.

            When we call any of our Cumulative  Preferred  Stock for redemption,
     we record an additional allocation of income to our preferred  shareholders
     equal to the excess of a) the cash required to redeem the securities and b)
     the "Book  Value"  (the net  proceeds  from the  original  issuance  of the
     securities) of the securities. No such additional allocations were recorded
     in the quarters ended March 31, 2007 or 2006.

            The remaining 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 are determined  according to dividends
     declared  (or  accumulated)  and  participation   rights  in  undistributed
     earnings.  Under the  two-class  method,  the Equity  Stock,  Series A, was
     allocated net income of $5,356,000 for each of the three months ended March
     31,  2007 and  2006,  respectively.  A loss of  $4,354,000  and  income  of
     $62,245,000   for  the  three   months  ended  March  31,  2007  and  2006,
     respectively, was allocated to the regular common shareholders.

            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 impact if dilutive, of stock options and restricted stock
     units  outstanding).  The stock  options  and  restricted  stock units were
     anti-dilutive  in the three months ended March 31, 2007 and were  therefore
     not  reflected  in diluted  net income  per common  share for that  period.
     Weighted  average common shares excludes  shares owned by the  Consolidated
     Entities as described in Note 11 for all periods presented, as these shares
     of common stock are eliminated in consolidation.

                                       13
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

     Recently Issued Accounting Standards
     ------------------------------------

     Accounting for Uncertainty in Income Taxes
     ------------------------------------------

            In July 2006, the Financial  Accounting Standards Board (the "FASB")
     issued  Interpretation No. 48, "Accounting for Uncertainty in Income Taxes"
     ("FIN 48").  This  interpretation,  among other things,  creates a two step
     approach for  evaluating  uncertain tax positions.  Recognition  (step one)
     occurs when an enterprise  concludes  that a tax position,  based solely on
     its  technical  merits,  is   more-likely-than-not  to  be  sustained  upon
     examination.  Measurement  (step two) determines the amount of benefit that
     more-likely-than-not  will be realized upon settlement.  Derecognition of a
     tax  position  that was  previously  recognized  would occur when a company
     subsequently   determines   that  a  tax   position  no  longer  meets  the
     more-likely-than-not  threshold  of being  sustained.  FIN 48  specifically
     prohibits   the  use  of  a  valuation   allowance  as  a  substitute   for
     derecognition   of  tax   positions,   and  it  has   expanded   disclosure
     requirements.  FIN  48 was  effective  for  fiscal  years  beginning  after
     December 15, 2006, in which the impact of adoption  should be accounted for
     as a  cumulative-effect  adjustment  to the  beginning  balance of retained
     earnings.  We adopted the  provisions of FIN 48 as of January 1, 2007.  The
     adoption  of FIN  48 had no  material  impact  on our  financial  position,
     operating results or cash flows. See Note 16 for further  discussion of our
     adoption of FIN 48.

     Fair Value Measurement
     ----------------------

            In 2006,  the FASB  issued SFAS No.  157,  "Fair Value  Measurement"
     (SFAS No.  157).  SFAS No. 157  provides  guidance  for using fair value to
     measure assets and liabilities.  The standard expands required  disclosures
     about the extent to which companies  measure assets and liabilities at fair
     value,  the information  used to measure fair value, and the effect of fair
     value  measurements  on  earnings.  SFAS No.  157  applies  whenever  other
     standards  require (or permit) assets or liabilities to be measured at fair
     value.  SFAS  No.  157  does not  expand  the use of fair  value in any new
     circumstances.  SFAS No. 157 is effective for financial  statements  issued
     for fiscal years  beginning  after November 15, 2007,  and interim  periods
     within  those fiscal  years.  We do not expect the impact to be material to
     our financial condition or results of operations.

3.       Merger with Shurgard
         --------------------

            On August 22, 2006, we merged with Shurgard  Storage  Centers,  Inc.
     ("Shurgard"),  a REIT which had interests in 487 self-storage facilities in
     the United States and 160  self-storage  facilities  in Europe.  We believe
     this merger  provides a number of  strategic  and  financial  benefits  and
     growth  opportunities  for us by  solidifying  our  position as the largest
     owner  and  operator  of  self-storage  facilities  in the  United  States,
     eliminating duplicative general and administrative expenses, improving cost
     efficiencies,   increasing  growth   opportunities  and  providing  greater
     geographic and financial diversification.

            Shurgard  shareholders  received 0.82 shares of our common stock for
     each share of Shurgard common stock they owned. Total consideration for the
     merger  approximated  $5,323,956,000,  comprised  of (i)  the  issuance  of
     38,913,187  shares of Public Storage common stock (valued at  approximately
     $3,116,850,000  based upon the average of Public  Storage's  share  closing
     price for five days before,  the day of and five days after the acquisition
     announcement  date of March 7, 2006),  (ii) the  assumption  of  Shurgard's
     domestic and European notes payable and capital leases with a fair value of
     approximately  $1,396,777,000 of which $67,275,000 was repaid following the
     merger,  (iii)  the  assumption  of  Shurgard's  line  of  credit  totaling
     $603,772,000,  which was repaid following the merger,  (iv) the issuance of
     vested common stock options in exchange for Shurgard stock options, with an
     estimated   intrinsic   value  of   approximately   $69,296,000,   and  (v)
     $137,261,000  in cash,  comprised  of  $137,916,000  to  redeem  Shurgard's
     outstanding preferred stock at liquidation value, approximately $47,524,000
     in direct costs of the merger, less $48,179,000 in cash held by Shurgard at
     the date of the merger.

                                       14
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

            We have allocated this aggregate  purchase price to the tangible and
     intangible net assets, as follows (amounts in thousands):

      Operating real estate facilities                         $   4,887,507
      Construction in process                                         91,000
      Intangible assets (Note 2)                                     584,165
      Other assets                                                    95,899
      Accrued and other liabilities                                 (190,419)
      Minority interest                                             (144,196)
                                                              ---------------
        Total allocated Purchase Price to net assets acquired  $   5,323,956
                                                              ===============

            As described more fully in Note 2, intangible  assets consist of the
     estimated  value of  Shurgard's  existing  tenants in place,  the estimated
     value of  Shurgard's  existing  land  leases,  and the  estimated  value of
     Shurgard's  tradename,  which  we  expect  to  continue  to use in  Europe.

            The results of operations of the  facilities  acquired from Shurgard
     have been  included  in our  consolidated  financial  statements  since the
     merger date of August 22,  2006.  The  unaudited  pro forma data  presented
     below assumes that the merger  occurred as of January 1, 2006, and includes
     pro forma adjustments to (i) increase  depreciation  expense to reflect our
     book basis for the buildings acquired,  (ii) increase  amortization expense
     to reflect the  intangible  assets  acquired in the merger,  (iii) decrease
     interest income and increase income allocated to preferred  shareholders to
     reflect the financing of the merger with cash on hand and the proceeds from
     preferred   stock,   and  (iv)   decrease   the   historical   general  and
     administrative  expense of Shurgard that was  eliminated as a result of the
     merger.  The unaudited pro forma results have been prepared for comparative
     purposes  only  and do not  purport  to be  indicative  of the  results  of
     operations that would have occurred had the merger been  consummated at the
     beginning of the period presented.

                                      For the Three Months
                                        Ended March 31,
                                            2006
                                      ---------------------
                                         (Amounts in
                                      thousands, except per
                                         share data)
                                         (Unaudited)
Revenues.......................       $    401,053
Net loss.......................       $     (6,646)
Loss per common share:
  Basic and Diluted............       $      (0.40)

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

                                                              Three Months Ended
                                                                  March 31, 2007
                                                              ------------------
                                                                  (Amounts in
                                                                   thousands)
Real estate facilities, at cost:
   Balance at December 31, 2006........................        $   11,261,865
   Newly developed facilities opened for operations....                32,765
   Acquisition of real estate facilities...............                22,284
   Disposition of real estate facilities...............                  (322)
   Capital improvements................................                 8,307
   Impact of foreign exchange rate changes.............                14,375
                                                              ------------------
   Balance at March 31, 2007...........................            11,339,274
                                                              ------------------
Accumulated depreciation:
   Balance at December 31, 2006........................            (1,754,362)
   Additions during the year...........................               (89,901)
   Impact of foreign exchange rate changes.............                  (346)
                                                              ------------------
   Balance at March 31, 2007...........................            (1,844,609)
                                                              ------------------

Construction in process:
   Balance at December 31, 2006........................                90,038
   Current development.................................                19,080
   Newly developed facilities opened for operations....               (32,765)
   Impact of foreign exchange rate changes.............                   239
                                                              ------------------
   Balance at March 31, 2007...........................                76,592
                                                              ------------------
Total real estate facilities at March 31, 2007.........        $    9,571,257
                                                              ==================

                                       15
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

            During the three  months ended March 31,  2007,  we completed  three
     development   and  four  expansion   projects  which  in  aggregate   added
     approximately  266,000 net rentable square feet of self-storage  space at a
     total cost of  $32,765,000.  In  addition,  we  acquired  one  self-storage
     facility  (79,000  net  rentable  square  feet)  from a third  party  at an
     aggregate cost of $22,593,000,  in cash;  $22,284,000 was allocated to real
     estate facilities and $309,000 was allocated to intangibles, based upon the
     relative fair values of the land, buildings and intangibles.

            Construction  in  process at March 31,  2007  includes  48  projects
     (2,270,000  net  rentable  square  feet),  consisting  of  newly  developed
     self-storage  facilities,  conversion  of  space  at  facilities  that  was
     previously  used for  containerized  storage  and  expansions  to  existing
     self-storage  facilities,  with costs  incurred of $37,460,000 at March 31,
     2007 and total estimated costs to complete of $154,183,000. In addition, we
     have  seven  projects  to develop  new  self-storage  facilities  in Europe
     (351,000  aggregate net rentable square feet), with costs incurred at March
     31,  2007  of  $39,132,000   and  total  estimated  costs  to  complete  of
     $35,102,000.

            We  capitalize  interest  incurred  on debt  during  the  course  of
     construction of our self-storage  facilities.  Interest capitalized for the
     three  months  ended March 31,  2007 and 2006 was  $741,000  and  $716,000,
     respectively.

            During the quarter ended March 31, 2007, we disposed of a portion of
     a self-storage facility for an aggregate of $322,000.  There was no gain or
     loss on this transaction.

            Included in real estate facilities,  accumulated  depreciation,  and
     construction  in  process is $1.3  billion  with  respect  to our  European
     operations at March 31, 2007.

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

            At March 31, 2007, our investments in real estate  entities  consist
     of ownership interests in the Unconsolidated  Entities. 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  entities.  The  accounting
     policies of these entities are similar to those of the Company.

            For the three  months ended March 31, 2007 and 2006,  we  recognized
     earnings from our  investments  in real estate  entities of $3,977,000  and
     $3,466,000, respectively.

            Equity in  earnings of real estate  entities  includes  our pro rata
     share of the net impact of  gains/losses  on sales of assets and impairment
     charges relating to the impending sale of real estate assets as well as our
     pro rata  share of the  impact of the  application  of EITF  Topic  D-42 on
     redemptions of preferred securities recorded by PSB. Our net pro rata share
     from these items  resulted in a net  increase of equity in earnings of none
     and  $312,000  for  the  three  months  ended  March  31,  2007  and  2006,
     respectively.  See the condensed financial  information with respect to PSB
     below for further information regarding these items recorded by PSB.

            We received cash  distributions  from our investments in real estate
     entities for the three months ended March 31, 2007 and 2006,  of $4,171,000
     and $5,776,000, respectively.

                                       16
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

              The following table sets forth our investments in real estate
     entities at March 31, 2007 and December 31, 2006, and our equity in
     earnings of real estate entities for the three months ended March 31, 2007
     and 2006 (amounts in thousands):

<TABLE>
<CAPTION>

                                                                    Equity in Earnings of Real
                                   Investments in Real Estate        Estate Entities for the
                                          Entities at              Three Months Ended March 31,
                                 ------------------------------- ------------------------------
                                   March 31,       December 31,
                                      2007              2006            2007           2006
                                 -------------- ---------------- ---------------- -------------

<S>                             <C>                <C>              <C>            <C>
PSB..........................   $   283,500        $     283,700    $     3,490    $     2,976
Other Investments............        18,211               18,205            487            490
                                 -------------- ---------------- ---------------- -------------
  Total......................   $   301,711        $     301,905    $     3,977    $     3,466
                                 ============== ================ ================ =============
</TABLE>

     Investment in PSB
     -----------------

            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 March 31,  2007.  This common  equity
     interest is comprised of our ownership of 5,418,273  shares of PSB's common
     stock and 7,305,355 limited partnership units in the operating  partnership
     at both March 31, 2007 and  December 31, 2006;  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
     March 31, 2007 ($70.52 per share of PSB common stock), the shares and units
     had a market value of  approximately  $897.3  million as compared to a book
     value of $283.5 million.

            At March 31, 2007, PSB owned approximately 19.4 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  selected  financial  information of
     PSB;  the amounts  represent  100% of PSB's  balances  and not our pro-rata
     share.
<TABLE>
<CAPTION>

                                                                      2007             2006
                                                              ------------------ -----------------
                                                                       (Amounts in thousands)
 For the three months ended March 31,
 -----------------------------------
<S>                                                           <C>                <C>
   Total operating revenue..............................      $       65,307     $       58,903
   Costs of operations and other operating expenses.....             (22,141)           (19,596)
   Other income and expense, net........................                 694              1,487
   Depreciation and amortization........................             (21,640)           (20,586)
   Discontinued operations..............................                   -                458
   Minority interest....................................              (3,629)            (4,349)
                                                              ------------------ -----------------
     Net income.........................................      $       18,591     $       16,317
                                                              ================== =================

                                                                At March 31,        At December 31,
                                                                      2007               2006
                                                              ------------------ -----------------
                                                                      (Amounts in thousands)

   Total assets (primarily real estate).................      $    1,562,251     $    1,462,864
   Total debt...........................................              61,716             67,048
   Other liabilities....................................              46,021             42,394
   Preferred equity and preferred minority interests....             811,000            705,250
   Common equity and common minority interests..........             643,514            648,172

</TABLE>

                                       17
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

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

            Other  investments  consist primarily of an average of approximately
     22%  common  equity  ownership  in five  limited  partnerships  that own an
     aggregate of 22 self-storage facilities.

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

                                                  2007             2006
                                           ------------------ ------------------
                                                 (Amounts in thousands)
 For the three months ended March 31,
 -----------------------------------
 Total revenue........................     $          4,338    $        4,291
 Cost of operations and other expenses               (1,703)           (1,672)
 Depreciation and amortization........                 (537)             (492)
                                           ------------------ ------------------
     Net income.......................     $          2,098    $        2,127
                                           ================== ==================

                                             At March 31,     At December 31,
                                                 2007              2006
                                           ------------------ ------------------
                                                 (Amounts in thousands)

 Total assets (primarily storage
     facilities)......................     $         49,164    $       48,002
 Total liabilities....................                1,031             1,104
 Total Partners' equity...............               48,133            46,898

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

            On December  27,  2006,  we entered  into a $300  million  unsecured
     short-term credit agreement (the "Bridge Loan") with a commercial bank that
     matured April 1, 2007.  Pursuant to the credit agreement,  we borrowed $300
     million at an initial  interest rate of LIBOR plus 0.30% (5.63% at December
     31, 2006).  At December 31, 2006,  our  outstanding  borrowings  under this
     facility totaled $300 million.  On January 10, 2007,  borrowings under this
     facility were repaid in full and the Bridge Loan terminated.

            On March 27,  2007,  we entered  into a five-year  revolving  credit
     agreement (the "Credit  Agreement") with an aggregate limit with respect to
     borrowings  and  letters  of  credit of $300  million,  and bears an annual
     interest rate ranging from the London Interbank Offered Rate ("LIBOR") plus
     0.35% to LIBOR plus 1.00% depending on our credit ratings (LIBOR plus 0.35%
     at March  31,  2007).  In  addition,  we are  required  to pay a  quarterly
     facility fee ranging  from 0.10% per annum to 0.25% per annum  depending on
     our  credit  ratings  (0.10%  per  annum at March  31,  2007).  Outstanding
     borrowings  on our revolving  line of credit  totaled $132 million and $100
     million  at March  31,  2007 and May 8,  2007,  respectively.  This  credit
     agreement  replaced  our  previous  revolving  line  of  credit.  We had no
     outstanding borrowings on the previous credit facility at March 31, 2007.

            The  Credit   Agreement   includes  various   covenants,   the  more
     significant  of which  require  us to (i)  maintain  a  leverage  ratio (as
     defined  therein) of less than 0.55 to 1.00,  (ii)  maintain  certain fixed
     charge and interest  coverage ratios (as defined  therein) of not less than
     1.5 to 1.0 and 1.75 to 1.0,  respectively,  and  (iii)  maintain  a minimum
     total shareholders' equity (as defined therein). We were in compliance with
     all covenants of the Credit Agreement at March 31, 2007.

            At March 31, 2007, we had undrawn standby  letters of credit,  which
     reduce our borrowing  capability  with respect to our line of credit by the
     amount of the  letter  of  credit,  totaling  $21,053,000  ($21,068,000  at
     December 31, 2006).  The  beneficiaries  of these standby letters of credit
     were primarily  certain  insurance  companies  associated  with our captive
     insurance and tenant re-insurance activities.

                                       18
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

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

              The carrying amounts of our notes payable at March 31, 2007 and
     December 31, 2006 consist of the following (dollar amounts in thousands):

<TABLE>
<CAPTION>

                                                                                 March 31,       December 31,
                                                                                    2007             2006
                                                                              ----------------- -----------------
  DOMESTIC UNSECURED NOTES PAYABLE:

  5.875% effective and stated note rate, interest only and payable
<S>                                                                            <C>               <C>
     semi-annually, matures in March 2013................................      $     200,000     $    200,000
  5.73% effective rate, 7.75% stated note rate, interest only and payable
     semi-annually, matures in February 2011 (carrying amount includes
     $13,456 of unamortized premium at March 31, 2007) ..................            213,456          214,033
  6.53% effective rate, 7.625% stated note rate, interest only and payable
     semi-annually, matures in April 2007 (carrying amount includes $1 of
     unamortized premium at March 31, 2007) .............................             50,001           50,119
  7.66% senior unsecured note due January 2007...........................                  -           11,200

   DOMESTIC MORTGAGE NOTES:

  Fixed rate mortgage notes payable, secured by 63 real estate facilities with a
     net book value of $454,983 at March 31, 2007, average effective interest
     rates of 5.59% and stated note rates between 4.95% and 7.76%, due between
     April 2007 and August 2015 (carrying amount includes $3,988
     of unamortized premium at March 31, 2007) ..........................            165,721          166,737
  Variable rate mortgage notes payable, secured by one real estate facility
     with a net book value of $310 at March 31, 2007, interest rate of 8.00%
     at March 31, 2007 which approximates market rate, due December 2007.                585            8,428
  Fixed rate mortgage  notes  payable,  secured by 33 real estate  facilities
     with a net book value of $190,981 at March 31, 2007, stated note rates
     between 5.40% and 8.75%, principal and interest payable monthly, due at
     varying dates between October 2009 and September 2028 (carrying amount
     includes $4,239 of unamortized premium at March 31, 2007)...........             90,315           91,489

  EUROPEAN SECURED NOTES PAYABLE:

  (euro)325 million notes payable due in 2011.................................            -           428,760
  First and Second Shurgard credit agreement,  due in 2008 and 2009,  secured
     by 65 real estate facilities with a net book value of $468,618 at March 31,
     2007 (interest rate of EURIBOR + 2.25%, 5.922% average for the three months
     ended March 31, 2007, 6.112% rate at March 31, 2007 which
     approximate market rates)...........................................           305,333           288,918
  Liability under Capital Leases.........................................             6,645             6,600
                                                                              ----------------- -----------------
         Total notes payable.............................................       $ 1,032,056       $ 1,466,284
                                                                              ================= =================

</TABLE>

            The 5.875%, 5.73%, and 6.53% effective rate domestic unsecured notes
     payable were assumed in connection with the merger with Shurgard. The notes
     were recorded at their  estimated  fair value based upon  estimated  market
     rates for debt with similar  terms and ratings upon  assumption.  As of the
     date of the merger with  Shurgard,  the aggregate fair value of these notes
     was  approximately  $465,692,000 as compared to the actual assumed balances
     of  $450,000,000.  This initial  premium of $15,692,000 is being  amortized
     over the remaining term of the notes using the effective interest method.

                                       19
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

            The  domestic  unsecured  notes  payable  have  various  restrictive
     covenants, the more significant of which require us to (i) maintain a ratio
     of debt to total  assets (as  defined  therein)  of less than 0.60 to 1.00,
     (ii) maintain a ratio of secured debt to total assets (as defined  therein)
     of less than 0.40 to 1.00, (iii) maintain a debt service coverage ratio (as
     defined therein) of greater than 1.50 to 1.00, and (iv) maintain a ratio of
     unencumbered  assets to unsecured debt (as defined therein) of greater than
     150%, all of which have been met at March 31, 2007.

            The 5.59% fixed rate  domestic  mortgage  notes were also assumed in
     connection  with the merger.  These  mortgage  notes were recorded at their
     estimated fair value based upon the estimated  market rate upon  assumption
     of  approximately  5.59%,  an aggregate of  approximately  $184,592,000  as
     compared to the actual  assumed  balances of an aggregate of  $179,827,000.
     This initial  premium of $4,765,000 is being  amortized  over the remaining
     term of the  mortgage  notes using the  effective  interest  method.  These
     mortgage notes require  interest and principal  payments to be paid monthly
     and have various restrictive covenants, all of which have been met at March
     31, 2007.

            We also  assumed an  additional  $671,047,000  in debt in the merger
     with   Shurgard,   comprised  of   Shurgard's   line  of  credit   totaling
     $603,772,000,  and certain variable rate notes totaling  $67,275,000.  This
     debt was repaid immediately following the merger.

            We  assumed a 5.58%  mortgage  note in  connection  with a  property
     acquisition  during the first quarter of 2006. The note was recorded at the
     stated  rate,  which we believe  approximates  the market  rate for similar
     mortgage notes.

            On January 2, 2007, we repaid the (euro)325  million  collateralized
     European notes that were otherwise  payable in 2011. We also terminated the
     related European currency and interest rate hedges.

            First Shurgard and Second  Shurgard (see Note 10) have senior credit
     agreements  denominated in euros to borrow,  in aggregate,  up to (euro)271
     million ($361.3 million as of March 31, 2007; $357.5 million as of December
     31, 2006).  As of March 31, 2007,  the available  amount under those credit
     facilities was, in aggregate, (euro)42 million ($56.0 million) and (euro)52
     million ($68.6 million),  respectively.  Our draws under the First Shurgard
     and Second  Shurgard  credit  facilities  are  determined  on a development
     project  basis,  or on an  acquisition  project basis when  applicable  for
     Second  Shurgard,  and can be limited if the  completion of projects is not
     timely and if we have certain cost  overruns.  The credit  facilities  also
     require us to maintain a maximum loan to value of the collateral  ratio and
     a minimum debt service  ratio.  As of March 31, 2007, we were in compliance
     with these financial covenants.

            At March 31, 2007,  approximate  principal  maturities  of our notes
     payable are as follows (amounts in thousands):
<TABLE>
<CAPTION>

                                       Domestic            Domestic
                                      Unsecured          Mortgage Notes          European      Capital Leases
                                     Notes Payable         Payable             Notes Payable     - Europe          Total
                                   ------------------ -------------------  ------------------ -------------- --------------
<C>                                  <C>                  <C>                  <C>             <C>           <C>
2007 (remainder of)..........        $     52,132         $    7,339           $    2,400      $     95      $     61,966
2008.........................               3,353             27,523              172,267           104           203,247
2009.........................               3,550              9,018              130,666           114           143,348
2010.........................               3,759             10,913                    -            79            14,751
2011.........................             200,663             27,703                    -           723           229,089
Thereafter...................             200,000            174,125                    -         5,530           379,655
                                   ------------------ -------------------  ------------------ -------------- --------------
                                      $   463,457         $  256,621           $  305,333      $  6,645      $  1,032,056
                                   ================== ===================  ================== ============== ==============
Weighted average effective rate             5.9%               5.5%                6.1%            9.9%            5.9%
                                   ================== ===================  ================== ============== ==============

</TABLE>

                                       20
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

            On April 25, 2007, the 6.53% effective rate domestic unsecured notes
     payable that we assumed in connection with the merger with Shurgard matured
     and we paid these amounts in full.

            We incurred  interest  expense  with  respect to our notes  payable,
     capital  leases,   debt  to  joint  venture  partner  and  line  of  credit
     aggregating $17,549,000 and $2,273,000 for the three months ended March 31,
     2007 and 2006,  respectively.  These amounts were  comprised of $18,633,000
     and  $2,509,000 in cash for the three months ended March 31, 2007 and 2006,
     respectively,  less  $1,084,000  and $236,000 in  amortization  of premium,
     respectively.

            The net book value of the  properties  under capital leases was $6.4
     million as of March 31, 2007,  which is net of accumulated  depreciation of
     $1.6 million.

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

            On December 31, 2004,  we sold seven  self-storage  facilities to an
     unconsolidated  affiliated  joint venture for  $22,993,000.  On January 14,
     2005, we sold an 86.7% interest in three additional self-storage facilities
     to the joint venture for an aggregate amount of $27,424,000.  Our partner's
     combined  equity  contribution  with  respect  to  these  transactions  was
     $35,292,000.  Due to our  continuing  interest in these  facilities and the
     likelihood  that we will  exercise  our  option to  acquire  our  partner's
     interest,   we  have  accounted  for  our  partner's  investment  in  these
     facilities as, in substance,  debt  financing.  Accordingly,  our partner's
     investment with respect to these facilities is accounted for as a liability
     on our  accompanying  consolidated  balance sheets.  Our partner's share of
     operations  with  respect to these  facilities  has been  accounted  for as
     interest expense on our accompanying consolidated statements of income.

            The  outstanding  balances of $37,304,000  and  $37,258,000  due the
     joint  venture  partner  as of  March  31,  2007  and  December  31,  2006,
     respectively, approximate the fair value of our partners' interest in these
     facilities as of each respective  date. On a quarterly basis, we review the
     fair value of this  liability,  and to the extent  fair value  exceeds  the
     carrying  value of the  liability,  an  adjustment  is made to increase the
     liability  to fair value,  and to  increase  other  assets,  with the other
     assets  amortized over the remaining  period term of the joint venture.  We
     increased  the note  balance by  $1,386,000  during 2006 as a result of our
     periodic review of fair value.

            A total of $788,000 and $758,000 was recorded as interest expense on
     our condensed consolidated statements of income with respect to our Debt to
     Joint  Venture  Partner  during the three  months  ended March 31, 2007 and
     2006,  respectively,  representing  our  partner's  pro  rata  share of net
     earnings with respect to the  properties we sold to the  Acquisition  Joint
     Venture (an 8.5% return on their  investment).  This  interest  expense was
     comprised  of a total of $745,000 and  $715,000  paid to our joint  venture
     partner  (an  8.0%  return  payable   currently  in  accordance   with  the
     partnership  agreement)  during the three  months  ended March 31, 2007 and
     2006,  respectively,  and increases in the Debt to Joint Venture Partner of
     $43,000 for each of the three month  periods ended March 31, 2007 and 2006,
     respectively.

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

                                       21
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

9.   Derivative Financial Instruments
     --------------------------------

            As described in Note 2, under Derivative Financial  Instruments,  we
     report  these  derivative  financial  instruments  at  fair  value  on  our
     consolidated  balance sheet and changes in fair values for the three months
     ended March 31, 2007,  have been  recognized  in earnings.  The  respective
     balances of these  financial  instruments  are included in other assets and
     accrued and other liabilities as follows:

<TABLE>
<CAPTION>


                                                                March 31, 2007        December 31, 2006
                                                              -------------------- ---------------------
                                                                        (Amounts in thousands)
Assets:
<S>                                                            <C>                    <C>
   Interest rate contracts.............................        $        3,626         $       11,810
   Foreign currency exchange contracts.................                     -                      -
                                                              -------------------- ---------------------
                                                               $        3,626         $       11,810
                                                              ==================== =====================
Liabilities:
   Interest rate contracts.............................        $          (89)        $       (4,162)
   Foreign currency exchange contracts.................                (1,293)                (7,837)
                                                              -------------------- ---------------------
                                                               $       (1,382)        $      (11,999)
                                                              ==================== =====================

</TABLE>


            For  the  three  months  ended  March  31,  2007,  net  income  from
     derivatives  was comprised of a change in value of the related  instruments
     representing  a loss of  $665,000,  combined  with  $97,000 in net payments
     incurred during the period under the underlying instruments.

            On  January  2,  2007,  in  connection  with our  prepayment  of the
     (euro)325  million  collateralized  notes at our  European  operations,  we
     terminated the related European currency and interest rate hedges.

10.  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  condensed  consolidated  financial  statements.  Minority
     interest  in  income  consists  of the  minority  interests'  share  of the
     operating results of the Consolidated Entities.

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

            The  following  table  summarizes  the preferred  partnership  units
     outstanding at March 31, 2007 and December 31, 2006:

<TABLE>
<CAPTION>

                                                              March 31, 2007             December 31, 2006
                                                        -------------------------- --------------------------
                    Earliest Redemption
                       Date or Dates      Distribution     Units       Carrying       Units        Carrying
      Series              Redeemed            Rate      Outstanding     Amount     Outstanding      Amount
------------------ --------------------- ------------- ------------- ------------- ------------- ------------
                                                                       (Amounts in thousands)
<S>                            <C> <C>         <C>           <C>      <C>               <C>       <C>
Series NN........        March 17, 2010        6.400%        8,000    $   200,000       8,000     $   200,000
Series Z.........      October 12, 2009        6.250%        1,000         25,000       1,000          25,000
Series J.........           May 9, 2011        7.250%        4,000        100,000       4,000         100,000
                                                        ------------ ------------- ------------- ------------
Total............                                           13,000    $   325,000      13,000     $   325,000
                                                        ============ ============= ============= ============

</TABLE>

            Income  allocated  to  the  preferred   minority  interests  totaled
     $5,403,000  and  $3,591,000  for the three  months ended March 31, 2007 and
     2006, respectively, comprised of distributions paid.

            On May 9, 2006, one of the  Consolidated  Entities issued  4,000,000
     units of our 7.25% Series J Preferred  Partnership  Units for cash proceeds
     of $100,000,000.
                                       22
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

            Subject to certain  conditions,  the Series NN  preferred  units are
     convertible into shares of our 6.40% Series NN Cumulative  Preferred Stock,
     the  Series Z  preferred  units are  convertible  into  shares of our 6.25%
     Series Z Cumulative  Preferred  Stock and the Series J preferred  units are
     convertible  into shares of our 7.25% Series J Cumulative  Preferred Stock.
     The  holders of the Series Z  preferred  partnership  units have a one-time
     option  exercisable five years from issuance (October 12, 2009), to require
     us to  redeem  their  units  for  $25,000,000  in  cash,  plus  any  unpaid
     distribution.

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

            Income is allocated to the minority  interests  based upon their pro
     rata interest in the operating  results of the Consolidated  Entities.  The
     following  tables set forth the  minority  interests  at March 31, 2007 and
     December 31, 2006 as well as the income allocated to minority interests for
     the three  months  ended March 31, 2007 and 2006 with  respect to the other
     partnership interests (amounts in thousands):


<TABLE>
<CAPTION>

                                                                              Minority Interests in Income (Loss)
                                              Minority Interest at                for the Three Months Ended
                                          -------------------------------   --------------------------------------
                                          March 31,       December 31,            March 31,          March 31,
                Description                 2007              2006                  2007               2006
     ---------------------------------   --------------- ----------------   ------------------- -------------------
<S>                                       <C>              <C>                  <C>               <C>
     European joint ventures..........    $   135,961      $   140,034          $    (3,754)      $         -
     Shurgard domestic joint ventures.          7,813            8,023                  165                 -
     Convertible Partnership Units....          5,586            5,710                   (8)              116
     Other consolidated partnerships..         27,749           27,263                3,977             3,452
                                         --------------- ----------------   ------------------- -------------------
     Total other partnership interests    $   177,109      $   181,030          $       380       $     3,568
                                         =============== ================   =================== ===================
</TABLE>


            Distributions  paid to minority interests for the three months ended
     March  31,  2007 and 2006 were  $5,501,000  and  $3,712,000,  respectively.
     Minority  interests  increased  $1,200,000  as a result  of the  impact  of
     foreign currency translation in the three months ended March 31, 2007.

              European Joint Ventures
              -----------------------

            Through the merger with  Shurgard,  we  acquired  two joint  venture
     entities: First Shurgard SPRI ("First Shurgard") formed in January 2003 and
     Second Shurgard SPRL ("Second  Shurgard")  formed in May 2004.  Those joint
     ventures were expected to develop or acquire up to approximately 75 storage
     facilities  in Europe.  Through a  wholly-owned  subsidiary,  we have a 20%
     interest in each of these ventures.  We have determined that First Shurgard
     and Second Shurgard are each VIEs, and that we are the primary beneficiary.
     Accordingly,  First Shurgard and Second Shurgard have been  consolidated in
     our consolidated  financial  statements.  At March 31, 2007, First Shurgard
     and Second  Shurgard had aggregate  total assets of $504.8 million  ($497.2
     million at December 31, 2006),  total liabilities of $337.8 million ($322.1
     million at December 31,  2006),  and credit  facilities  collateralized  by
     assets with a net book value of $468.6 million  ($467.2 million at December
     31,  2006).  At March 31,  2007,  First  Shurgard's  and Second  Shurgard's
     creditors  had no  recourse  to the  general  credit of Public  Storage  or
     Shurgard Europe other than a commitment,  previously  made by Shurgard,  to
     subscribe to up to $20 million and an additional  (euro)7.5  million ($10.0
     million  as of March  31,  2007) in  preferred  bonds  in order  for  First
     Shurgard to fulfill its obligations under its senior credit  agreement.  We
     have an option to put 80% of the bonds issued by First Shurgard to Crescent
     Euro Self  Storage  Investments,  Shurgard  Europe's  partner  in the joint
     venture.

            On September  5, 2006,  we informed  the joint  venture  partners of
     First  Shurgard  and Second  Shurgard of our  intention  to purchase  their
     interests  in First  Shurgard  and Second  Shurgard,  pursuant  to an "exit
     procedure"  that we believe is provided for in the  respective  agreements.
     The exit procedure can, in certain  circumstances,  result in a third party
     acquiring the facilities owned by First and Second Shurgard,  including our
     interest in these facilities.  Our joint venture partners currently contest
     whether we have the right to purchase their interests under this procedure.
     On January 17, 2007, we filed an arbitration  action with our joint venture
     partner  related to our intention to terminate the joint venture early.  As
     part of our efforts to resolve our dispute with our joint venture  partner,
     we've  entered into an agreement  to exchange  their  interest in the joint
     venture for shares in the proposed public company discussed below.

                                       23
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

            During the second  quarter of 2007,  we expect a share  offering  of
     Shurgard  Europe.  In  connection  with the  offering,  which is subject to
     Belgian regulatory approval, market conditions and other factors, we expect
     to reduce our ownership in Shurgard  Europe,  but will retain a significant
     equity interest.

            Shurgard Domestic Joint Ventures
            --------------------------------

            In connection with the merger with Shurgard,  we obtained interests,
     in entities which we consolidate, that had minority interests. The minority
     interests  are  presented  as  the  "Shurgard   Domestic  Joint  Ventures."
     Following the merger with Shurgard,  we acquired the minority  interests in
     certain of Shurgard's  joint  ventures,  for an aggregate of  approximately
     $62,300,000  in cash.  As a result of these  transactions,  we obtained the
     remaining  interest  in  a  total  of  68  self-storage  facilities.   This
     acquisition  was  recorded as a reduction  in  minority  interest  totaling
     $12,177,000, with the remainder allocated to real estate ($50,123,000).

            The partnership  agreements of the Shurgard  Domestic Joint Ventures
     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.

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

            At March 31, 2007 and  December 31,  2006,  one of the  Consolidated
     Entities  had   approximately   231,978   convertible   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 common stock of the
     Company at the option of the unit-holder.  Minority interest in income with
     respect to Convertible  Units reflects the Convertible  Units' share of our
     net income, with net income allocated to minority interests with respect to
     weighted average outstanding Convertible Units on a per unit basis equal to
     diluted earnings per common share.

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

            The partnership  agreements of the Other  Consolidated  Partnerships
     included  in  the  table  above  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.

            At March 31, 2007 and  December  31,  2006,  the Other  Consolidated
     Partnerships  reflect  common  equity  interests  that  we do not own in 27
     entities owning an aggregate of 102 self-storage facilities.

                                       24
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

            Impact of SFAS No. 150
            ----------------------

            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 setting 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  that the Other  Minority
     Interests  would  have  to  be  treated  as  a  liability,   because  these
     partnerships have termination dates that cannot be unilaterally extended by
     us and,  upon  termination,  the net  assets  of  these  entities  would be
     liquidated  and paid to the minority  interest  and us based upon  relative
     ownership  interests.  However,  on October 29,  2003,  the FASB decided to
     defer  indefinitely a portion of the  implementation of SFAS No. 150, which
     thereby  deferred our  requirement  to recognize  these  minority  interest
     liabilities.  We  estimate  that the fair  value of the  Other  Partnership
     Interests is approximately  $450 million at December 31, 2006 and March 31,
     2007.

11.      Shareholders' Equity
         --------------------

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

              At March 31, 2007 and December 31, 2006, we had the following
series of Cumulative Preferred Stock outstanding:

<TABLE>
<CAPTION>

                                                                 At March 31, 2007            At December 31, 2006
                           Earliest                       ----------------------------- -----------------------------
                          Redemption        Dividend          Shares        Carrying         Shares         Carrying
       Series                Date             Rate          Outstanding      Amount        Outstanding       Amount
--------------------    --------------  ----------------  --------------- ------------- ---------------- ------------
                                                                      (Dollar amounts in thousands)
<S>                        <C>  <C>           <C>              <C>      <C>                   <C>      <C>
Series V                   9/30/07            7.500%           6,900    $   172,500           6,900    $   172,500
Series W                   10/6/08            6.500%           5,300        132,500           5,300        132,500
Series X                  11/13/08            6.450%           4,800        120,000           4,800        120,000
Series Y                    1/2/09            6.850%       1,600,000         40,000       1,600,000         40,000
Series Z                    3/5/09            6.250%           4,500        112,500           4,500        112,500
Series A                   3/31/09            6.125%           4,600        115,000           4,600        115,000
Series B                   6/30/09            7.125%           4,350        108,750           4,350        108,750
Series C                   9/13/09            6.600%           4,600        115,000           4,600        115,000
Series D                   2/28/10            6.180%           5,400        135,000           5,400        135,000
Series E                   4/27/10            6.750%           5,650        141,250           5,650        141,250
Series F                   8/23/10            6.450%          10,000        250,000          10,000        250,000
Series G                  12/12/10            7.000%           4,000        100,000           4,000        100,000
Series H                   1/19/11            6.950%           4,200        105,000           4,200        105,000
Series I                    5/3/11            7.250%          20,700        517,500          20,700        517,500
Series K                    8/8/11            7.250%          18,400        460,000          18,400        460,000
Series L                  10/20/11            6.750%           9,200        230,000           9,200        230,000
Series M                    1/9/12            6.625%          20,000        500,000               -              -
                                                          -------------- ------------- --------------- -------------
      Total Cumulative Preferred Stock                     1,732,600    $ 3,355,000       1,712,600    $ 2,855,000
                                                          ============== ============= =============== =============

</TABLE>

            The  holders  of  our  Cumulative   Preferred   Stock  have  general
     preference rights with respect to liquidation and quarterly  distributions.
     Holders of the  preferred  stock,  except under certain  conditions  and as
     noted below, will not be entitled to vote on most matters.  In the event of
     a  cumulative  arrearage  equal to six  quarterly  dividends  or failure to
     maintain  a  Debt  Ratio  (as  defined)  of  50% or  less,  holders  of all
     outstanding  series of preferred  stock  (voting as a single class  without
     regard to series)  will have the right to elect two  additional  members to
     serve on the Company's Board of Directors until events of default have been
     cured.  At March 31, 2007,  there were no dividends in arrears and the Debt
     Ratio was 9.6%.

                                       25
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

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

            On January 9, 2007, we issued 20,000  depositary  shares,  with each
     depositary share  representing  1/1,000 of a share of our 6.625% Cumulative
     Preferred Stock,  Series M. The offering  resulted in $500,000,000 of gross
     proceeds.

            During 2006,  we issued four series of Cumulative  Preferred  Stock:
     Series H - issued  January 19, 2006,  net proceeds  totaling  $101,492,000,
     Series I - issued May 3, 2006, net proceeds totaling $501,601,000, Series K
     - issued August 8, 2006, net proceeds totaling  $445,852,000 and Series L -
     issued October 20, 2006, net proceeds totaling $223,623,000.

            During  2006,  we  redeemed  our  Series R and  Series S  Cumulative
     Preferred Stock at par value plus accrued  dividends.  In December 2006, we
     called for redemption our Series T and Series U Cumulative Preferred Stock,
     at par. The aggregated redemption value of $302,150,000 of these two series
     was  classified as a liability at December 31, 2006 and repaid in the three
     months ended March 31, 2007.

     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 March 31, 2007 and December 31, 2006, we had 8,744,193 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 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.

     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 the  Consolidated  Development
     Joint Venture.  On November 17, 2005,  upon the  acquisition of Mr. Hughes'
     interest  in  PSAC,  we  owned  100%  of the  partnership  interest  in the
     Consolidated  Development  Joint Venture.  For all periods  presented,  the
     Equity  Stock,   Series  AAA  and  related   dividends  are  eliminated  in
     consolidation.

                                       26
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

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

            During the three  months  ended March 31,  2007,  we issued  166,134
     shares  of  our  Common  Stock  in  connection  with  employee  stock-based
     compensation. On August 22, 2006, we issued 38,913,187 shares of our Common
     Stock in connection with our merger with Shurgard (see Note 3).  Subsequent
     to the acquisition,  we also issued 1,808,962 shares of our Common Stock to
     former  employees  of  Shurgard in  connection  with  employee  stock-based
     compensation arrangements that existed at the time of the acquisition.

            At March  31,  2007 and  December  31,  2006,  certain  entities  we
     consolidate  owned  1,146,207  shares of our  Common  Stock.  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.


     Dividends
     ---------

            The following table  summarizes  dividends  declared and paid during
     the three months ended March 31, 2007:


                                          Distributions Per
                                         Share or Depositary
                                               Share         Total Distributions
Preferred Stock:                        -------------------- -------------------
---------------
Series T..............................         $0.090      $      548,000
Series U..............................         $0.259           1,557,000
Series V..............................         $0.469           3,234,000
Series W..............................         $0.406           2,153,000
Series X..............................         $0.403           1,935,000
Series Y..............................         $0.428             685,000
Series Z..............................         $0.391           1,758,000
Series A..............................         $0.383           1,761,000
Series B..............................         $0.445           1,937,000
Series C..............................         $0.413           1,898,000
Series D..............................         $0.386           2,086,000
Series E..............................         $0.422           2,384,000
Series F..............................         $0.403           4,031,000
Series G..............................         $0.438           1,750,000
Series H..............................         $0.434           1,824,000
Series I..............................         $0.453           9,380,000
Series K..............................         $0.453           8,337,000
Series L..............................         $0.422           3,881,000
Series M..............................         $0.382           7,637,000
                                                           ----------------
                                                               58,776,000
Common Stock:
------------
Equity Stock, Series A................         $0.613           5,356,000
Common ...............................         $0.500          84,993,000
                                                           ----------------
   Total dividends....................                     $  149,125,000
                                                           ================

            The dividend rate on the common stock was $0.50 per common share for
     the three  months ended March 31,  2007.  The  dividend  rate on the Equity
     Stock A was $0.6125 per  depositary  share for the three months ended March
     31, 2007.

                                       27
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

12.      Segment Information
         -------------------

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

            Our reportable  segments reflect  significant  operating  activities
     that are  evaluated  separately by  management,  comprised of the following
     segments which are organized based upon their operating characteristics.

            Our domestic  self-storage  segment  comprises the direct ownership,
     development,  and operation of traditional  storage facilities in the U.S.,
     and the  ownership  of  equity  interests  in  entities  that  own  storage
     properties  in the U.S. Our European  self-storage  segment  comprises  our
     self-storage and associated  activities owned by affiliated  entities based
     in Europe.

            Our domestic ancillary operating segment represents all of our other
     segments,  which  are  reported  as a group,  including  (i)  containerized
     storage,  (ii) commercial property operations,  which reflects our interest
     in the ownership,  operation,  and management of commercial properties both
     directly and through our interest in PSB (iii) the  reinsurance of policies
     against losses to goods stored by tenants in our  self-storage  facilities,
     (iv) sale of merchandise at our self-storage facilities,  (v) truck rentals
     at our  self-storage  facilities and (vi) management of facilities owned by
     third-party owners and facilities owned by the Unconsolidated Entities.

     Measurement  of  Segment  Income  (Loss)  and  Segment  Assets  -  Domestic
     ---------------------------------------------------------------------------
     Self-Storage and Domestic Ancillary
     -----------------------------------

            The  domestic  self-storage  and  domestic  ancillary  segments  are
     evaluated by management  based upon the net segment income of each segment.
     Net segment income  represents  net income in conformity  with GAAP and our
     significant  accounting  policies as denoted in Note 2, before interest and
     other income,  interest expense,  and corporate general and  administrative
     expense. Interest and other income, interest expense, corporate general and
     administrative expense, minority interest in income and gains and losses on
     sales of real estate  assets are not  allocated to these  segments  because
     management  does not utilize them to evaluate the results of  operations of
     each segment.  In addition,  there is no presentation of segment assets for
     these  other  segments  because  total  assets  are not  considered  in the
     evaluation of these segments.

     Measurement  of  Segment  Income  (Loss)  and  Segment  Assets  -  European
     ---------------------------------------------------------------------------
     Operations
     ----------

            The European  segment  operations  are primarily  independent of the
     other segments, with separate management,  debt, financing activities,  and
     capital  allocation  decisions.  Accordingly,  this segment is evaluated by
     management  as  a  stand-alone  business  unit  and  the  European  segment
     presentation includes all of the revenues, expenses, and operations of this
     business  unit,  including  interest  expense  paid to outside  parties and
     general and administrative  expense.  Assets of our European  operations at
     March 31, 2007, include real estate with a book value of approximately $1.3
     billion ($1.4 billion at December 31, 2006),  intangibles with a book value
     of  approximately  $134 million ($161  million at December 31,  2006),  and
     other assets with a book value of approximately $62 million ($65 million at
     December  31,  2006).  At  March  31,  2007,  liabilities  of our  European
     operations include;  intercompany payables of $531 million ($542 million at
     December  31,  2006),  debt of $312 million  ($724  million at December 31,
     2006) and accrued and other  liabilities  of $90 million  ($108  million at
     December 31, 2006). At December 31, 2006, assets of our European operations
     included  approximately  $480 million in cash (of which  approximately $429
     million  was  utilized  on  January  2,  2007  to  prepay  the   (euro)325M
     collateralized notes).

                                       28
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

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

            The following table  reconciles the performance of each segment,  in
     terms of  segment  income,  to our  consolidated  net  income  (amounts  in
     thousands):


For three months ended March 31, 2007

<TABLE>
<CAPTION>

                                                                                       Domestic    Other Items Not
                                                       Domestic       European        Ancillary      Allocated to         Total
                                                     Self-Storage     Operations      Operations      Segments        Consolidated
                                                    --------------- --------------- --------------- -------------- ----------------
                                                                            (Amounts in thousands)
REVENUES:
<S>                                                   <C>            <C>             <C>            <C>               <C>
   Self-storage rental income....................     $    354,919   $     43,862    $          -   $          -      $    398,781
   Ancillary operating revenue...................                -          3,779          29,682              -            33,461
   Interest and other income.....................                -              -               -          2,125             2,125
                                                    --------------- --------------- --------------- -------------- ----------------
                                                           354,919         47,641          29,682          2,125           434,367
                                                    --------------- --------------- --------------- -------------- ----------------

EXPENSES:
  Cost of operations (excluding depreciation and
      amortization below):
      Self-storage facilities....................          125,866         23,054               -              -           148,920
      Ancillary operations.......................                -          1,342          19,659              -            21,001
  Depreciation and amortization..................          136,551         39,000             930              -           176,481
  General and administrative.....................                -          2,708               -         13,808            16,516
  Interest expense...............................                -          5,089               -         11,719            16,808
                                                    --------------- --------------- --------------- -------------- ----------------
                                                           262,417         71,193          20,589         25,527           379,726
                                                    --------------- --------------- --------------- -------------- ----------------

Income (loss) from continuing operations before
   equity in earnings of real
   estate entities, casualty gain, foreign currency
   exchange gain, expense from derivatives and
   minority interest in income...................           92,502        (23,552)          9,093        (23,402)           54,641
Equity in earnings of real estate entities.......              487              -           3,490              -             3,977
Casualty gain....................................            2,665              -               -              -             2,665
Foreign currency exchange gain...................                -          5,040               -              -             5,040
Expense from derivatives, net....................                -           (762)              -              -              (762)
 Minority interest in (income) loss..............           (4,164)         3,754               -         (5,373)           (5,783)
                                                    --------------- --------------- --------------- -------------- ----------------
Income (loss) from continuing operations.........           91,490        (15,520)         12,583        (28,775)           59,778
Discontinued operations..........................                -              -               -              -                 -
                                                    --------------- --------------- --------------- -------------- ----------------
Net income (loss)................................     $     91,490   $    (15,520)   $     12,583   $    (28,775)     $     59,778
                                                    =============== =============== =============== ============== ================
</TABLE>


                                       29
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)


For the three months ended March 31, 2006

<TABLE>
<CAPTION>

                                                                                       Domestic    Other Items Not
                                                       Domestic       European        Ancillary      Allocated to         Total
                                                     Self-Storage     Operations      Operations      Segments        Consolidated
                                                    --------------- --------------- --------------- -------------- ----------------
                                                                            (Amounts in thousands)
Revenues:
<S>                                                   <C>           <C>               <C>             <C>             <C>
   Self-storage rental income....................     $    251,347  $          -      $          -    $          -    $    251,347
   Ancillary operating revenue...................                -             -            22,096               -          22,096
   Interest and other income.....................                -             -                 -           5,075           5,075
                                                    --------------- --------------- --------------- -------------- ----------------
                                                           251,347             -            22,096           5,075         278,518
                                                    --------------- --------------- --------------- -------------- ----------------

Expenses:
  Cost of operations (excluding depreciation and
      amortization below):
      Self-storage facilities....................           87,703             -                 -               -          87,703
      Ancillary operations.......................                -             -            15,274               -          15,274
  Depreciation and amortization..................           49,183             -               845               -          50,028
  General and administrative.....................                -             -                 -           6,779           6,779
  Interest expense...............................                -             -                 -           1,557           1,557
                                                    --------------- --------------- --------------- -------------- ----------------
                                                           136,886             -            16,119           8,336         161,341
                                                    --------------- --------------- --------------- -------------- ----------------

Income (loss) from continuing operations before
   equity in earnings of real estate entities,
   minority interest in income...................         114,461              -             5,977          (3,261)        117,177

Equity in earnings of real estate entities.......              490             -             2,976               -           3,466
 Minority interest in income.....................          (15,630)            -                 -           8,471          (7,159)
                                                    --------------- --------------- --------------- -------------- ----------------
Income from continuing operations................           99,321             -             8,953           5,210         113,484
Cumulative effect of a change in accounting
   principle.....................................                -             -                 -             578             578
Discontinued operations..........................                -                               -             154             154
                                                    --------------- --------------- --------------- -------------- ----------------
Net income.......................................     $     99,321   $         -      $      8,953    $      5,942    $    114,216
                                                    =============== =============== =============== ============== ================
</TABLE>


13. Stock-Based Compensation
    ------------------------

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

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

            We recognize  compensation expense for stock-based awards based upon
     their fair value on the date of grant amortized over the applicable vesting
     period (the "Fair Value  Method"),  less an allowance for estimated  future
     forfeited awards.

                                       30
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

            For the three months ended March 31, 2007 we recorded  $303,000,  in
     stock option compensation  expense related to options granted after January
     1, 2002, as compared to $267,000, for the same period in 2006.

            A total of  200,000  stock  options  were  granted  during the three
     months ended March 31, 2007,  131,201 shares were exercised,  and no shares
     were  forfeited.  A total of 1,671,733  stock options were  outstanding  at
     March 31, 2007 (1,602,934 at December 31, 2006).

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

            Outstanding  restricted  stock units vest over a five or  eight-year
     period from the date of grant at the rate of  one-fifth or  one-eighth  per
     year, respectively.  The employee receives additional compensation equal to
     the per-share  dividends  received by common  shareholders  with respect to
     restricted stock units  outstanding.  Such compensation is accounted for as
     dividends  paid.  Any  dividends  paid  on  units  which  are  subsequently
     forfeited are expensed.  Upon vesting,  the employee receives 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 our common stock at the date of grant,  is amortized  over
     the vesting period as compensation expense. The related employer portion of
     payroll taxes is expensed as incurred. Until December 31, 2005 (see below),
     forfeitures were recognized as experienced, reducing compensation expense.

            Effective January 1, 2006, in accordance with Statement of Financial
     Accounting  Standards No. 123 - revised ("FAS  123R"),  we began  recording
     compensation   expense  net  of  estimates  for  future   forfeitures  (the
     "Estimated  Forfeiture Method").  In addition,  we estimated the cumulative
     compensation  expense that would have been  recorded  through  December 31,
     2005, had we used the Estimated Forfeiture Method, would have been $578,000
     lower. Accordingly,  as prescribed by FAS 123R, we recorded this adjustment
     as  a  cumulative   effect  of  change  in  accounting   principal  on  our
     accompanying  condensed  consolidated  statement  of  income  for the three
     months ended March 31, 2006.

            Outstanding  restricted  stock units are  included on a  one-for-one
     basis in our 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.  For purposes of the
     disclosures  that follow,  "fair value" on any particular date reflects the
     closing market price of our common stock on that date.

            During the three  months ended March 31,  2007,  155,925  restricted
     stock units were granted, 39,507 restricted stock units were forfeited, and
     52,541 restricted stock units vested. This vesting resulted in the issuance
     of  34,933  shares  of  the  Company's  Common  Stock.  In  addition,  cash
     compensation was paid to employees in lieu of 17,608 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 March 31, 2007, approximately 680,347 restricted stock units were
     outstanding  (616,470 at  December  31,  2006).  A total of  $2,319,000  in
     restricted  stock expense was recorded for the three months ended March 31,
     2007, as compared to $1,269,000, for the same period in 2006.

                                       31
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

14.  Related Party Transactions
     --------------------------

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

            Mr. Hughes and his family  (collectively  the "Hughes  Family") have
     ownership   interests  in,  and  operate   approximately   44  self-storage
     facilities in Canada under the name "Public Storage" ("PS Canada") 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  27% of our Common Stock  outstanding  at
     March 31,  2007.  We have a right of first  refusal to acquire the stock or
     assets of the corporation  that manages the 44  self-storage  facilities in
     Canada,  if the  Hughes  Family or the  corporation  agrees  to sell  them.
     However, we have no interest in the operations of this corporation, we have
     no right to acquire this stock or assets unless the Hughes  Family  decides
     to sell,  the right of first  refusal  does not  apply to the  self-storage
     facilities,  and we receive no benefit  from the profits and  increases  in
     value of the Canadian self-storage facilities.

            In October 2005, the Company's  Board of Directors  (with Mr. Hughes
     and B. Wayne  Hughes Jr.  abstaining)  approved  the  reimbursement  of CAD
     $653,424,   plus  CAD  $52,274  in  interest   accrued  at  4%  per  annum,
     representing  the amount  previously  charged to the Canadian  entities for
     system  development costs that Company no longer permits them to use. These
     amounts were reimbursed in November 2005.

            Through  consolidated   entities,  we  continue  to  reinsure  risks
     relating to loss of goods stored by tenants in the self-storage  facilities
     in  Canada.  During  the  three  months  ended  March  31,  2007 and  2006,
     respectively,   we  received  $188,000,  and  $259,000,   respectively,  in
     reinsurance  premiums  attributable to the Canadian  facilities.  Since our
     right to provide  tenant  reinsurance  to the  Canadian  facilities  may be
     qualified, there is no assurance that these premiums will continue.

            The  Company  and Mr.  Hughes  are  co-general  partners  in certain
     consolidated  entities and affiliated  entities of the Company that are not
     unconsolidated.  The Hughes Family also owns limited partnership  interests
     in certain of these  entities.  The Company and the Hughes  Family  receive
     distributions  from these  partnerships in accordance with the terms of the
     partnership agreements.

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

            Ronald L.  Havner,  Jr.  is our  Vice-Chairman  and Chief  Executive
     Officer, and he is Chairman of the Board of PSB.

            Dann V. Angeloff,  a director of the Company, is the general partner
     of a limited  partnership  formed in June of 1973 that owns a  self-storage
     facility that is managed by us. We recorded management fees with respect to
     this facility amounting to $18,000,  and $13,000 for the three months ended
     March 31, 2007 and 2006, respectively.

            PSB  manages  certain  of  the  commercial  facilities  that  we own
     pursuant  to  management  agreements  for a  management  fee equal to 5% of
     revenues.  We paid a total of  $183,000,  and $149,000 for the three months
     ended  March  31,  2007 and 2006,  respectively,  in  management  fees with
     respect to PSB's property management services.  At March 31, 2007, included
     in other  assets  are  normal  recurring  amounts  owed to PSB of  $210,000
     ($871,000 at December 31,  2006),  for unpaid  management  fees and certain
     other  operating  expenses  related  to the  managed  facilities  which are
     initially paid by PSB on our behalf and then reimbursed by us.

            PSB  recently   acquired   commercial   facilities   which  included
     self-storage  space. We are managing this self-storage space for them for a
     management fee of 6% of revenues.  We recorded management fees with respect
     to these  facilities  amounting to $12,000 for the three months ended March
     31, 2007 (none for the same period in 2006).

            Pursuant to a cost-sharing and  administrative  services  agreement,
     PSB  reimburses us for certain  administrative  services that we provide to
     them. PSB's share of these costs totaled  approximately $80,000 for each of
     the three month periods ended March 31, 2007 and 2006, respectively.

                                       32
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

            We manage our  wholly-owned  self-storage  facilities as well as the
     facilities owned by the Consolidated  Entities and affiliated entities that
     are not  consolidated on a joint basis, in order to take advantage of scale
     and other efficiencies. As a result, significant components of self-storage
     operating  costs,  such as payroll costs,  advertising and promotion,  data
     processing,  and  insurance  expenses  are shared and  allocated  among the
     various  entities using  methodologies  meant to fairly allocate such costs
     based upon the related activities. The amount of such expenses allocated to
     Unconsolidated  Entities  was  approximately  $614,000 and $591,000 for the
     three months ended March 31, 2007 and 2006, respectively.

            Stor-RE,  a consolidated  entity, and third party insurance carriers
     provided PS Canada,  the Company,  PSB, and other affiliates of the Company
     with  liability and casualty  insurance  coverage  until March 31, 2004. PS
     Canada owns a 2.2%  interest  and PSB owns a 4.0%  interest in Stor-RE.  PS
     Canada and PSB obtained their own liability and casualty insurance covering
     occurrences  after April 1, 2004.  For  occurrences  before  April 1, 2004,
     STOR-Re  continues to provide  liability  and casualty  insurance  coverage
     consistent with the relevant agreements.

15.  Commitments and Contingencies
     -----------------------------

         LEGAL MATTERS

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

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

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

            Based upon the uncertainty inherent in any putative class action, we
     cannot presently  determine the potential damages,  if any, or the ultimate
     outcome of this  litigation.  On  November 3, 2003,  the court  granted our
     motion to strike the plaintiff's  nationwide class allegations and to limit
     any putative class to California residents only. In August 2005, we filed a
     motion to remove the case to federal court,  but the case has been remanded
     to the Superior Court.  We are vigorously  contesting the claims upon which
     this lawsuit is based, including class certification efforts.

            Drake v. Shurgard Storage Centers, Inc. (filed September 2002)
            --------------------------------------------------------------
           (Superior Court of California - Orange County)
            ---------------------------------------------

            This is a companion case to the Serrao matter  discussed  above. The
     plaintiff alleges the same set of operative facts and seeks the same relief
     as in Serrao against  Shurgard Storage Centers,  Inc.  ("Shurgard"),  whose
     liability Public Storage assumed following the merger of Public Storage and
     Shurgard on August 22, 2006. There is currently  pending a motion for class
     certification,  which has yet to be ruled on. We cannot presently determine
     the  potential  total  damages,  if any,  or the  ultimate  outcome  of the
     litigation.  We vigorously contested the motion for class certification and
     will vigorously defend this action.

                                       33
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

            Potter, et al v. Hughes, et al (filed December 2004) (United
            ------------------------------------------------------------
            States District Court - Central District of California)
            -------------------------------------------------------

            In November  2002, a shareholder of the Company made a demand on the
     Board of Directors challenging the fairness of the Company's acquisition of
     PS  Insurance  Company,   Ltd.  ("PSIC")  and  related  matters.  PSIC  was
     previously owned by the Hughes Family.  In June 2003,  following the filing
     by the Hughes Family of a complaint for declaratory relief asking the court
     to find that the  acquisition of PSIC and related  matters were fair to the
     Company,  it was ruled that the PSIC transaction was just and reasonable as
     to the Company and holding that the Hughes  Family was not required to make
     any payment to the Company.

            At the end of December 2004, the same shareholder  referred to above
     and a second  shareholder  filed this  shareholder's  derivative  complaint
     naming as defendants the Company's directors (and two former directors) and
     certain  officers of the  Company.  The matters  alleged in this  complaint
     relate to PSIC, the Hughes Family's  Canadian  self-storage  operations and
     the  Company's  1995  reorganization.  In July 2006,  the Court granted the
     defendants' motion to dismiss the amended Complaint without leave to amend.
     In  August  2006,  Plaintiffs  filed a  notice  of  appeal  of the  Court's
     decision.  The appeal is currently pending.  We believe the litigation will
     not have any  financially  adverse  effect on the  Company  (other than the
     costs and other expenses relating to the lawsuit).

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

            The  plaintiff  sued the Company on behalf of a  purported  class of
     California  non-exempt  employees based on various California wage and hour
     laws and seeking  monetary  damages and injunctive  relief.  In May 2006, a
     motion  for  class   certification   was  filed  seeking  to  certify  five
     subclasses.   Plaintiff  sought   certification  for  alleged  meal  period
     violations, rest period violations, failure to pay for travel time, failure
     to pay for mileage  reimbursement,  and for wage statement  violations.  In
     October  2006,  the  Court  declined  to  certify  three  out of  the  five
     subclasses.  The Court did,  however,  certify  subclasses based on alleged
     meal period and wage statement violations.  The maximum potential liability
     cannot  presently  be  estimated.  We  intend  to  vigorously  contest  the
     substantive merits of the two remaining subclasses that were certified.

            Simas v. Public Storage, Inc. (filed January 2006) (Superior Court
            -------------------------------------------------------------------
            of California - Orange County)
            ------------------------------

            The plaintiff  brings this action against the Company on behalf of a
     purported  class who bought  insurance  coverage  at  Company's  facilities
     alleging  that the  Company  does not have a license to offer,  sell and/or
     transact  storage  insurance.  The  action  was  originally  brought  under
     California Business and Professions Code Section 17200 and seeks retention,
     monetary damages and injunctive relief. The Company filed a demurrer to the
     complaint.  While the demurrer was pending, Plaintiff amended the complaint
     to allege a national class and claims for unfair business practices, unjust
     enrichment,   money  had  and  received,   and  negligent  and  intentional
     misrepresentation.  Ultimately all claims except for unjust enrichment were
     dismissed.  A subsequent  demurrer was filed and sustained without leave to
     amend.  Accordingly,  the case was dismissed with prejudice and we will not
     report further on this matter.

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

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

                                       34
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

            INSURANCE AND LOSS EXPOSURE

            We have  historically  carried  comprehensive  insurance,  including
     property, earthquake,  general liability and workers compensation,  through
     nationally  recognized insurance carriers and through our captive insurance
     programs. Our insurance programs also insure affiliates of the Company. Our
     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 million
     for property  coverage (a maximum of $80,000,000 with respect to earthquake
     coverage)  and $102 million 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  reinsures  policies against claims for
     losses to goods stored by tenants at our self-storage  facilities.  We have
     third-party   insurance  coverage  for  claims  paid  exceeding  $1,500,000
     resulting from any individual event, to a limit of $9,000,000. At March 31,
     2007,  we  had  approximately   418,000  reinsured   policies   outstanding
     representing aggregate coverage of approximately $1.1 billion.

            DEVELOPMENT AND ACQUISITION OF REAL ESTATE FACILITIES

            We  currently  have  48  projects  in  our   development   pipeline,
     iconsisting  of newly  developed  self-storage  facilities,  expansions and
     enhancements to existing self-storage facilities.  The total estimated cost
     of these facilities is approximately  $265,877,000 of which $76,592,000 has
     been spent at March 31, 2007. These projects are subject to  contingencies.
     We expect to incur these expenditures over the next 12 - 24 months.

            OPERATING LEASE OBLIGATIONS

            We lease trucks,  land,  equipment  and office  space.  At March 31,
     2007,  the future  minimum  rental  payments  required  under our operating
     leases for the years ending December 31, principally  representing  amounts
     payable  under land leases for our  European  subsidiaries,  are as follows
     (amounts in thousands):

  2007 (remainder of).......................       $16,153
  2008......................................        17,949
  2009......................................        14,914
  2010......................................        11,252
  2011......................................         9,976
  Thereafter................................       192,745
                                                  --------
                                                  $262,989
                                                  --------

            We lease  trucks,  land,  equipment  and office space under  various
     operating leases. Certain leases are cancelable with substantial penalties.
     Certain leases are cancelable with  substantial  penalties.  Certain of our
     European land operating leases have indefinite  terms or extension  options
     exercisable at the  discretion of the lessee.  For such land leases we have
     disclosed operating lease obligations over the estimated useful life of the
     related property.

            Expenses under operating leases were approximately  $7,452,000,  and
     $2,181,000   for  the  three   months   ended  March  31,  2007  and  2006,
     respectively. Certain of our land leases include escalation clauses, and we
     recognize related lease expenses on a straight-line basis.

                                       35
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

16.  Income Taxes
     ------------

            For all taxable years subsequent to 1980, the Company  qualified and
     we intend to  continue  to qualify  the  Company  as a REIT,  as defined in
     Section  856 of the  Internal  Revenue  Code.  As a REIT,  the  Company  is
     generally  not taxed on the  portion  of its REIT  taxable  income  that is
     distributed   to  its   shareholders,   provided   that  it  meets  certain
     organizational  and operational  requirements.  We believe that the Company
     has met these REIT requirements during 2007.

            Domestic  operations  other than rental  real  estate are  primarily
     conducted  through  taxable REIT  subsidiaries.  Income of our taxable REIT
     subsidiaries is subject to federal, state and local income taxes.

            As of August 22, 2006, the date of the Shurgard merger,  the Company
     started to  consolidate  the income tax  provision  of the former  Shurgard
     domestic and European activities, the latter of which are subject to income
     taxes in the jurisdictions of the countries where they operate.

            The  provision for income tax for the three months ended March 31 is
     as follows:

                                            2007             2006
                                        -------------- ---------------
                                           (Amounts in thousands)
Current:
   Federal.......................        $    1,000       $        -
   State.........................               700                -
   Foreign.......................                 -                -
                                        -------------- ---------------
Total Current....................        $    1,700       $        -

Deferred
   Federal.......................        $        -       $        -
   State.........................                 -                -
   Foreign.......................                 -                -
                                        -------------- ---------------
Total Deferred...................        $        -       $        -
                                        -------------- ---------------
                                         $    1,700       $        -
                                        ============== ===============

            Under SFAS No. 109,  "Accounting  for Income  Taxes",  deferred  tax
     assets  and  liabilities  are  determined  based  on  differences   between
     financial  reporting  and tax  bases of  assets  and  liabilities,  and are
     measured  using the  enacted tax rates and laws that will be in effect when
     the  differences  are  expected to reverse.  SFAS No. 109  provides for the
     recognition  of deferred tax assets if  realization  of such assets is more
     likely than not.  Based on the weight of  available  evidence,  a valuation
     allowance may be provided against certain deferred tax assets.

            The foreign and domestic  components  of the  Company's net deferred
     tax asset are as follows:


                                       36
<PAGE>


                              PUBLIC STORAGE, INC.
              NOTES TO CONDENDSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

<TABLE>
<CAPTION>


                                                                           March 31,       December 31,
                                                                             2007              2006
                                                                      ----------------- -----------------
                                                                           (Amounts in thousands)

<S>                                                                    <C>                  <C>
          Federal                                                      $     9,964          $    9,953
          State                                                              3,626               3,611
          Foreign                                                          107,470             104,369
                                                                      ----------------- -----------------
          Net deferred tax asset before valuation allowance                121,060             117,933

          Valuation Allowance                                             (121,060)           (117,933)
                                                                      ----------------- -----------------
          Net deferred tax asset                                       $         -         $         -
                                                                      ================= =================

Significant components of our deferred tax assets and liabilities were as
follows:

                                                                       March 31,          December 31,
                                                                         2007                 2006

Deferred Tax Assets:                                                       (Amounts in thousands)
       Current:
          UNICAP                                                       $        50         $        66
          Discounted Unearned Premium Reserves                                 217                 210
          Discounted Unpaid Losses                                           1,009                 928
          Other Current Deferred Assets                                        353               1,094
       Noncurrent:
          Partnership and Other Investments                                  2,684               2,610
          Asset Impairment                                                     730                 730
          Accrued Closing Costs                                                161                 161
          Net Operating Loss Carryforward                                  141,656             133,944
                                                                      ----------------- -----------------
Total Deferred Tax Assets                                                  146,860             139,743

Deferred Tax Liabilities:
       Current:
          Deferred Revenue                                                     349                 350
          State Deferred Taxes                                                 214                 211
          Exchange Losses                                                    6,746               6,419

       Noncurrent:
          Depreciation & Amortization                                       18,491              14,830
                                                                      ----------------- -----------------
Total Deferred Tax Liabilities                                              25,800              21,810

          Net Deferred Tax Asset Before Valuation Allowance                121,060             117,933
          Valuation Allowance                                             (121,060)           (117,933)
                                                                      ----------------- -----------------
          Net Deferred Tax Asset                                       $         -         $         -
                                                                      ================= =================

</TABLE>

                                       37
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2007
                                   (Unaudited)

            We adopted the provisions of Financial  Accounting  Standards  Board
     ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes
     - an  interpretation  of FASB  Statement No. 109" ("FIN 48"), on January 1,
     2007.  FIN 48 clarifies  the  accounting  for  uncertainty  in income taxes
     recognized in an enterprise's  financial  statement in accordance with FASB
     Statement 109,  "Accounting for Income Taxes", and prescribes a recognition
     threshold and measurement process for financial  statement  recognition and
     measurement  of a tax  position  taken  or  expected  to be  taken in a tax
     return.  FIN 48 also provides  guidance on  derecognition,  classification,
     interest and  penalties,  accounting in interim  periods,  disclosures  and
     transition.

            Based  on our  evaluation,  we  have  concluded  that  there  are no
     significant  uncertain tax positions requiring recognition in our financial
     statements.  Our  evaluation was performed for the tax years ended December
     31,  2003,  2004,  2005 and 2006,  the tax years  which  remain  subject to
     examination by major tax jurisdictions as of March 31, 2007.

            We may  from  time to time be  assessed  interest  or  penalties  by
     certain tax jurisdictions,  although any such assessments have historically
     been minimal and immaterial to our financial results.  In the event we have
     received  an  assessment  for  interest  and/or  penalties,   it  has  been
     classified  in the  financial  statements  as  general  and  administrative
     expense.

            At March 31, 2007, the Company had net operating loss  carryforwards
     of $474.8 million related to U.S. federal, state and foreign jurisdictions.
     Of this total,  $423.0 million  originated from the merger with Shurgard on
     August 22, 2006 ($14.4 million of U.S. federal,  $11.1 million of state and
     $397.5 million of foreign loss carryforwards). Utilization of net operating
     losses  to  offset  future   taxable  income  may  be  subject  to  certain
     limitations  under Sections 382 and 1502 of the Internal  Revenue Code, and
     other  limitations under state and foreign tax laws. If these net operating
     losses are not utilized, they expire at various times beginning in 2007. As
     of March 31, 2007 and December 31, 2006,  we had provided a full  valuation
     allowance  against  the  value  of the  net  deferred  tax  asset,  because
     sufficient uncertainty exists at this time regarding the future realization
     of these tax benefits within individual tax jurisdictions. The net increase
     in the  valuation  allowance was $3.1 million for the first quarter of 2007
     and $111.0 million for the year ended 2006.


17.  Subsequent Events
     -----------------

            On May 3, 2007,  at our 2007  Annual  Meeting of  Shareholders,  our
     shareholders  approved our proposal to reorganize as a Maryland real estate
     investment trust. We expect to complete the Maryland  reorganization during
     the second  quarter of 2007.  Other than general and  administrative  costs
     incurred to implement this reorganization,  there will be no impact of this
     change on our consolidated financial statements.



                                       38
<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 condensed consolidated financial statements and notes thereto.

         FORWARD LOOKING STATEMENTS: All statements in this document, other than
statements of  historical  fact,  are  forward-looking  statements  which may be
identified  by the  use  of  the  words  "expects,"  "believes,"  "anticipates,"
"should," "estimates" and similar expressions.  These forward-looking statements
involve  known and  unknown  risks  and  uncertainties,  which may cause  Public
Storage's  actual results and performance to be materially  different from those
expressed or implied in the forward-looking  statements.  Factors and risks that
may impact  future  results and  performance  are  described  in Item 1A,  "Risk
Factors" in Part II of this Quarterly  Report on Form 10-Q. These risks include,
but are not limited to, the following: risks related to the merger with Shurgard
including difficulties that may be encountered in integrating Public Storage and
Shurgard,  loss of  personnel  as a result of the merger,  and the impact of the
merger on  occupancy  and rental  rates,  the  inability to realize or delays in
realizing  expected  results  from the  merger,  unanticipated  operating  costs
resulting from the merger, and risks associated with  international  operations;
changes in  general  economic  conditions  and in the  markets  in which  Public
Storage  operates;  the impact of competition  from new and existing storage and
commercial facilities and other storage  alternatives,  which could impact rents
and occupancy levels at our facilities; difficulties in Public Storage's ability
to evaluate,  finance and integrate  acquired and developed  properties into its
existing  operations  and to fill up those  properties,  which  could  adversely
affect our  profitability;  the impact of the regulatory  environment as well as
national,  state, and local laws and regulations including,  without limitation,
those governing Real Estate Investment Trusts, which could increase our expenses
and reduce cash  available for  distribution;  consumers'  failure to accept the
containerized  storage  concept;  difficulties  in raising capital at reasonable
rates,  which  would  impede  our  ability  to grow;  delays in the  development
process;  and economic  uncertainty  due to the impact of war or  terrorism.  We
disclaim  any   obligation   to  update   publicly  or   otherwise   revise  any
forward-looking  statements,  whether  as  a  result  of  new  information,  new
estimates,  or other  factors,  events or  circumstances  after the date of this
document, except where expressly required by law.

         CRITICAL ACCOUNTING POLICIES

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

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

         QUALIFICATION  AS A REIT - INCOME TAX EXPENSE:  We believe that we have
been  organized  and  operated,  and we  intend to  continue  to  operate,  as a
qualifying Real Estate Investment Trust ("REIT") under the Internal Revenue Code
and applicable state laws. We also believe that Shurgard  qualified as a REIT. 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 income tax on the share of our taxable income that is distributed to our
shareholders.

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

                                       39
<PAGE>

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

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

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

         ESTIMATED  LEVEL OF RETAINED RISK AND UNPAID TENANT CLAIM  LIABILITIES:
As  described  in  Notes  2  and  15 to  our  condensed  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 the  estimated  level of losses  incurred  using  certain  actuarial
assumptions followed in the insurance industry and based on recommendations from
an  independent  actuary that is a member of the American  Academy of Actuaries.
While we believe  that the  amounts of the  accrued  losses  are  adequate,  the
ultimate  liability  may be in excess of or less than the amounts  recorded.  At
March 31, 2007, we had approximately  418,000  reinsured  policies in the United
States  outstanding   representing  aggregate  coverage  of  approximately  $1.1
billion.

         ACCRUALS  FOR  CONTINGENCIES:  We are  exposed  to  business  and legal
liability  risks with respect to events that have  occurred,  but in  accordance
with GAAP, 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 15 to our
condensed consolidated financial statements.

         ACCRUALS FOR OPERATING EXPENSES: We accrue for property tax expense and
certain 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.

         VALUATION OF DERIVATIVES:  As described in our  Significant  Accounting
Policies  in Note 2 to our  condensed  consolidated  financial  statements,  our
derivative  instruments are not considered  effective hedges.  Accordingly,  any
changes in value of these  derivatives  are reflected as an increase or decrease
in net  income.  The  determination  of the value of  derivatives  is based upon
significant judgment and assumptions  including interest rates,  currency rates,
and expected  rates of return.  The actual value of  derivative  instruments  is
dependent upon many factors that our judgments and assumptions may not consider,
or may not consider effectively.

                                       40

<PAGE>

         VALUATION  OF  ASSETS  AND  LIABILITIES  ACQUIRED  IN THE  MERGER  WITH
SHURGARD:  In recording the merger with Shurgard, we have estimated the value of
real estate, intangible assets, debt, and the other assets and other liabilities
of Shurgard  that we acquired.  In addition,  we have  estimated the fair market
value of the 38.9 million  shares that we issued to the  Shurgard  shareholders.
These value estimates are based upon many assumptions, including interest rates,
market values of land and  buildings in the United States and Europe,  estimated
future  cash flows  from the tenant  base in place,  and the  recoverability  of
certain  assets.  While we believe that the  assumptions we used are reasonable,
these  assumptions are subject to a significant  degree of judgment,  and others
could come to materially different conclusions as to value. If these assumptions
were computed differently,  our depreciation and amortization expense,  interest
expense, real estate, debt, and intangible assets could be materially different.

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

FOR THE THREE MONTHS ENDED MARCH 31, 2007:

         Net income for the three  months  ended March 31, 2007 was  $59,778,000
compared to $114,216,000 for the same period in 2006, representing a decrease of
$54,438,000.  This decrease is primarily due to the temporary  impact of certain
items related to our merger with Shurgard  Storage Centers,  Inc.  ("Shurgard").
During the three months ended March 31, 2007, we incurred  amortization  expense
totaling  $86  million  due to the  amortization  of certain  intangible  assets
acquired  in the  merger,  and we  incurred  approximately  $4 million in merger
integration  expenses.  The decrease also  includes $37 million in  depreciation
expense on the buildings acquired from Shurgard.

         The negative  impacts to our net income from the above  mentioned items
were  partially  offset by  improved  operations  from our Same  Store  group of
facilities, continued growth in operations from our newly developed and recently
expanded  facilities,  as well as  continued  growth  in our  recently  acquired
self-storage  facilities  including the  facilities  acquired in the merger with
Shurgard.

         Our Same  Store net  operating  income,  before  depreciation  expense,
increased by approximately $4,354,000 to $147,849,000, or 3.0%, as a result of a
2.9%  improvement  in revenues  partially  offset by a 2.7%  increase in cost of
operations.  We continued  with our  expanded  media  activities  along with our
aggressive  pricing and promotional  discount  programs in order to increase the
overall  occupancy  of our  domestic  portfolio,  which  includes  the  domestic
properties acquired from Shurgard.  Aggregate net operating income for our newly
developed and recently expanded and acquired facilities (other than the Shurgard
facilities) increased by approximately $4,414,000 to $22,044,000 compared to the
same period in 2006.  This  increase was largely due to the impact of facilities
acquired  in 2005  and  2006,  combined  with  continued  fill-up  of our  newly
developed and expansion  facilities.  For those facilities that were acquired in
the  Shurgard  merger in August 2006,  net  operating  income was  approximately
$77,109,000 for the quarter ended March 31, 2007.

         For the three months ended March 31, 2007, we had a net loss  allocable
to our common  shareholders  (after  allocating  net income to our preferred and
equity  shareholders) of $4,354,000 or $0.03 per common share on a diluted basis
compared to income of  $62,245,000  or $0.48 per common share on a diluted basis
for the same period in 2006, representing a decrease of $66,599,000 or $0.51 per
diluted  common  share.   The  decreases  in  net  income  allocable  to  common
shareholders on an aggregate and per-share basis are due primarily to the impact
of the factors described above, combined with an increase in income allocated to
preferred shareholders, as described below.

         For the three  months  ended  March 31,  2007 and  2006,  we  allocated
$58,776,000  and $46,615,000 of our net income,  respectively,  to our preferred
shareholders based on distributions paid. The year-over-year  increase is due to
the  issuance  of  additional  preferred  securities,  partially  offset  by the
redemption of preferred securities that had higher dividend rates than the newly
issued preferred securities.

         Weighted average diluted shares increased to 169,229,000 for the three
months ended March 31, 2007 from 129,009,000 for the three months ended March
31, 2006. The increase in weighted average diluted shares is due primarily to
the issuance of approximately 38.9 million shares in the merger with Shurgard,
which are included in our weighted average shares since the completion of the
merger on August 22, 2006, as well as the exercise of employee stock options
assumed in the merger with Shurgard.

                                       41

<PAGE>

REAL ESTATE OPERATIONS

         DOMESTIC SELF-STORAGE OPERATIONS:  Our domestic self-storage operations
are by far the  largest  component  of our  operating  activities,  representing
approximately  82% of our total  revenues  generated  for the three months ended
March  31,  2007.  Rental  income  with  respect  to our  domestic  self-storage
operations has grown from $251 million for the three months ended March 31, 2006
to $355  million for the three  months  ended March 31,  2007,  representing  an
increase of $104 million, or approximately 41%. The year-over-year  improvements
in rental income are due to improvements in the performance of those  facilities
that we owned prior to January 1, 2005 (our "Same  Store"  facilities),  and the
addition of new facilities to our portfolio,  either through our  acquisition or
development activities.

         To enhance year-over-year comparisons,  the following table summarizes,
and the  ensuing  discussion  describes  the  operating  results of these  three
groups, our Same Store group, acquisition facilities and development facilities.

omestic self - storage operations summary:
<TABLE>
<CAPTION>

                                                                         Three Months Ended March 31,
                                                              -------------------------------------------------
                                                                                                   Percentage
                                                                    2007              2006           Change
                                                              ---------------   --------------  ---------------
                                                                         (Dollar amounts in thousands)
Rental income:
<S>                                                           <C>               <C>                     <C>
   Same Store Facilities.......................               $   225,677       $   219,297             2.9%
   Acquired Facilities.........................                   102,623             9,333           999.6%
   Development Facilities......................                    26,619            22,717            17.2%
                                                              ---------------   --------------  ---------------
     Total rental income.......................                   354,919           251,347            41.2%
                                                              ---------------   --------------  ---------------
Cost of operations before depreciation and amortization (a):
   Same Store Facilities.......................                    77,828            75,802             2.7%
   Acquired Facilities.........................                    38,215             3,473         1,000.3%
   Development Facilities......................                     9,823             8,428            16.6%
                                                              ---------------   --------------  ---------------
      Total cost of operations.................                   125,866            87,703            43.5%
                                                              ---------------   --------------  ---------------
Net operating income before depreciation and amortization(a):
   Same Store Facilities.......................                   147,849           143,495             3.0%
   Acquired Facilities.........................                    64,408             5,860           999.1%
   Development Facilities......................                    16,796            14,289            17.5%
                                                              ---------------   --------------  ---------------
   Total net operating income before depreciation and
       amortization (a)........................                   229,053           163,644            40.0%
                                                              ---------------   --------------  ---------------
Depreciation and amortization expense:
   Same Store Facilities.......................                   (40,406)          (41,051)           (1.6)%
   Acquired Facilities.........................                   (89,732)           (2,586)        3,369.9%
   Development Facilities......................                    (6,413)           (5,546)           15.6%
                                                              ---------------   --------------  ---------------
   Total depreciation and amortization expense.                  (136,551)          (49,183)          177.6%
                                                              ---------------   --------------  ---------------
Net operating income (loss):
   Same Store Facilities.......................                   107,443           102,444             4.9%
   Acquired Facilities.........................                   (25,324)            3,274          (873.5)%
   Development Facilities......................                    10,383             8,743            18.8%
                                                              ---------------   --------------  ---------------
   Total net operating income..................               $    92,502       $   114,461           (19.2)%
                                                              ===============   ==============  ===============
Weighted average square foot occupancy during the period
                                                                    87.5%             88.4%            (1.0)%

Number of self-storage facilities (at end of period)                1,983             1,484            33.6%
Net rentable square feet (in thousands, at end of period):        124,252            90,793            36.9%
</TABLE>


(a)  Total net operating income before depreciation and amortization or "NOI" is
     a non-GAAP  (generally accepted  accounting  principles)  financial measure
     that excludes the impact of depreciation and amortization  expense, for our
     self-storage  segment  is  presented  in  Note  12 to our  March  31,  2007
     condensed consolidated  financial statements,  "Segment Information," which

                                       42
<PAGE>

     includes a reconciliation  of net operating income before  depreciation and
     amortization  for this  segment to our  consolidated  net income.  Although
     depreciation and amortization are operating  expenses,  we believe that NOI
     is a meaningful measure of operating performance, because we utilize NOI in
     making  decisions  with  respect to  capital  allocations,  in  determining
     current   property    values,    segment    performance,    and   comparing
     period-to-period  and  market-to-market  property operating results. NOI is
     not  a  substitute  for  net  operating   income  after   depreciation  and
     amortization  in evaluating  our operating  results.

         In the above table,  the  significant  increase in revenues and cost of
operations,  in the quarter  ended March 31, 2007 as compared to the same period
in 2006,  is primarily  due to the  acquisition  of  self-storage  facilities in
connection  with the merger with Shurgard which was completed on August 22, 2006
(see Note 3 to the condensed consolidated financial statements).  As a result of
the merger, we acquired  interests in 487 self-storage  facilities (32.3 million
net  rentable  square  feet)  located  in  the  United  States,   including  459
wholly-owned  facilities  and 28 facilities  owned by joint ventures in which we
have an interest. The operating results of all of the facilities acquired in the
merger and located in the United States are included in our financial statements
and in the above table for the period we owned the facilities.

         Immediately  preceding  the close of the  merger,  all of the  acquired
facilities in the United  States were  integrated  into our property  management
systems,  centralized  pricing  systems,  national  call  center,  and  website.
Temporary  signage,  re-branding  the  facilities  from  "Shurgard"  to  "Public
Storage",  was also put into place  immediately  after the close of the  merger.
Over the past several months,  we have been replacing the temporary signage with
permanent signage. This process was substantially completed by March 31, 2007.

         In the field our property  management  personnel  worked  diligently to
absorb this large  acquisition of  facilities.  Training and hiring new property
managers were key elements for the successful integration process. New employees
needed to be trained on how to use our  property  management  systems and follow
our operating  policies and procedures.  As expected in a merger of this nature,
immediately  following the close of the merger turnover at the property  manager
level was higher than we normally experience.  In anticipation of such turnover,
we hired  additional  "bench"  property  managers to fill openings when turnover
occurred.  Although this strategy was effective at keeping properties opened for
business,  it did result in  incurring  additional  payroll  costs in the fourth
quarter of 2006 due to the additional head count.

         As a result  of the  merger,  the  amount  of  vacant  space  increased
significantly in our system.  The acquired Shurgard  portfolio of 487 facilities
in the United States had an aggregate  average square foot occupancy of 84.4% at
August 31,  2006,  which was 530 basis  points  below the 89.7% for the existing
Public Storage  portfolio.  Average rental rates were approximately the same for
each of the  portfolios.  Our goal has been to increase  our  overall  portfolio
occupancy in order to be in a position to drive rental rates.

         The  primary  focus in meeting our goal has been to work to improve the
Shurgard  portfolio's overall occupancy level to the occupancy level experienced
by our existing  portfolio.  In order to increase move-in volumes and ultimately
increase occupancy levels as quickly as possible, and because there is typically
low  seasonal  demand  in the  fourth  and  first  quarters,  we were  much more
aggressive with our pricing, promotional discounts and marketing programs during
the fourth quarter of 2006 and the first quarter of 2007.

         We believe that we are making  significant  progress in increasing  the
Shurgard  portfolio's  occupancy.  At March 31, 2007,  the Shurgard  portfolio's
occupancy was 86.1%, which was 270 basis points below the rest of our portfolio,
an  improvement  from the  aforementioned  530 basis point gap in occupancies on
August 31, 2006.  However,  this improvement has come somewhat at the expense of
reduced  rates,  with average rent per occupied per square foot for the Shurgard
portfolio  averaging  $12.67 in the first quarter of 2007, as compared to $12.77
in the first  quarter  of 2006,  a  reduction  of 0.8%,  as  compared  to a 3.2%
increase for the Public Storage Same-Store portfolio.

         We believe  that the more  aggressive  pricing and  discounting  at the
Shurgard  properties,  combined with the fact that the Shurgard  properties have

                                       43

<PAGE>

relatively  more vacant  spaces to rent,  has resulted in shifting of new tenant
flow from our  existing  portfolio  to the  Shurgard  properties,  putting  some
pressure on occupancies and rental rate growth for the Public Storage Same Store
facilities (as discussed below).

         We expect that, once occupancies for the Shurgard  facilities reach the
Public Storage historical levels, this pressure on our Public Storage same-store
portfolio  should subside.  However,  our operating  results have been, and will
continue  to  be,   impacted  by  the  general   economic   trends  that  affect
self-storage.  While it is difficult  to quantify  the impact of these  economic
trends,  and even more  difficult  to  predict  what the  impact  will be in the
future,  we do believe that several such factors,  including the slowdown in the
national  housing  market as well as  reduced  year-over-year  demand in markets
which had enhanced  self-storage  demand in 2005 and 2006 due to the  hurricanes
(such as in Florida), have impacted our operating results.

         It is  often  difficult  to see the  benefits  of the  strategy  we are
employing  to  increase  occupancies  in  the  short-term,  because  promotional
discounts  and  marketing  expense  adversely  affect  earnings in the month the
customer  moves in,  while the revenue from these  tenants are  reflected in our
operating  results  throughout  their tenancy.  However,  our overall  occupancy
levels at all of our 1,983 facilities improved to 87.5% for the first quarter of
2007,  an  improvement  from  87.1% in the  fourth  quarter  of 2006.  This 0.5%
occupancy improvement compares favorably to a decline in occupancy rates of 0.4%
for our  Same-Store  portfolio  from the  fourth  quarter  of 2005 to the  first
quarter of 2006.

         We expect to continue with aggressive  pricing,  promotional  discounts
and  marketing  in the second  quarter to continue to drive  improvement  in our
overall  occupancy  levels.  We are expanding  our media  programs in the second
quarter of 2007 and will be on television in  approximately 25 markets versus 14
markets in the second  quarter of 2006,  along with national  cable and selected
radio. As a result,  aggregate media spending is expected to be more than double
in the second  quarter of 2007 as compared  to the same  period in 2006.  Future
media  advertising  expenditures  after  the  second  quarter  of  2007  are not
determinable  at this  time,  and  will be  driven  in  part by  demand  for our
self-storage  spaces, our current occupancy levels, as well as our evaluation of
the most effective mix of yellow page, media, and internet advertising.

         We continue to believe that the  acquisition of the Shurgard  portfolio
provides  operational  efficiencies,  specifically  in the  areas of  marketing,
national call center, and indirect overhead costs that support the operations of
the facilities. We do not believe that these efficiencies are fully realized due
to the recent  integration,  increased property manager head count and increased
marketing costs, as noted above.

         In the discussion  that follows,  we present  realized  annual rent per
occupied square foot,  which is computed by dividing rental income,  before late
charges and administrative fees, by the weighted average occupied square footage
for the period.  We also present  annualized  rental income per available square
foot ("REVPAF"),  which represents annualized rental income, before late charges
and  administrative  fees,  divided by total available net rentable square feet.
Late charges and  administrative  fees are excluded to more effectively  measure
our ongoing level of revenue associated with the leasing of the units.

         Domestic - Same Store Facilities

         We  increased  the  number of  facilities  included  in the Same  Store
Facilities  from 1,266  facilities  at December 31, 2006 to 1,316  facilities at
March 31, 2007.  The increase in the Same Store pool of facilities is due to the
inclusion of 79  facilities  previously  classified  as  Acquired,  Developed or
Expansion facilities and the removal of 29 facilities that are now classified as
Expansion facilities. These facilities are included in the Same Store Facilities
because  they are all  stabilized  and  owned  since  January  1,  2005 and will
therefore  provide  meaningful  comparative data for 2005, 2006 and 2007. The 29
facilities that have been classified as Expansion facilities are facilities that
are either  currently  undergoing  repackaging  activities  or are  expected  to
commence such  activities  during 2007 and  accordingly  will no longer  provide
meaningful comparative data for 2005, 2006 and 2007.

         As a result of the  increase  in the number of Same  Store  Facilities,
comparisons should not be made between information presented in our 2006 reports
for the 1,266 Same Store  Facilities and the current 1,316 Same Store Facilities
to identify  trends in  occupancies,  realized  rents per square foot,  or other
operating trends.

                                       44

<PAGE>

         The Same  Store  Facilities  contain  approximately  77.8  million  net
rentable  square  feet,  representing  approximately  63% of the  aggregate  net
rentable  square  feet  of our  consolidated  domestic  self-storage  portfolio.
Revenues and operating expenses with respect to this group of properties are set
forth in the above Self-Storage  Operations table under the caption, "Same Store
Facilities."  These facilities are included in the Same Store Facilities because
they are all  stabilized  and owned since January 1, 2005 and therefore  provide
meaningful  comparative  data for 2005,  2006 and 2007. The following table sets
forth additional operating data with respect to the Same Store Facilities:

SAME STORE FACILITIES
<TABLE>
<CAPTION>

                                                                         Three Months Ended March 31,
                                                              -------------------------------------------------
                                                                                                  Percentage
                                                                    2007              2006            Change
                                                              --------------    -------------    --------------
                                                                (Dollar amounts in thousands, except weighted
                                                                               average amounts)
<S>                                                           <C>               <C>                    <C>
Rental income......................................           $   215,727       $   209,805            2.8%
Late charges and administrative fees collected.....                 9,950             9,492            4.8%
                                                              --------------    -------------    --------------
   Total rental income.............................               225,677           219,297            2.9%
                                                              --------------    -------------    --------------
Cost of operations before depreciation and amortization:
     Direct property payroll.......................                16,141            15,519            4.0%
     Property taxes................................                22,871            21,988            4.0%
     Repairs and maintenance.......................                 7,041             7,104           (0.9)%
     Advertising and promotion.....................                 6,728             6,963           (3.4)%
     Utilities.....................................                 5,428             5,195            4.5%
     Property insurance............................                 2,454             1,962           25.1%
     Telephone reservation center..................                 2,069             2,043            1.3%
     Other cost of management......................                15,096            15,028            0.5%
                                                              --------------    -------------    --------------
   Total cost of operations........................                77,828            75,802            2.7%
                                                              --------------    -------------    --------------
Net operating income before depreciation and amortization (e)
                                                                  147,849           143,495            3.0%
Depreciation and amortization......................               (40,406)          (41,051)          (1.6)%
                                                              --------------    -------------    --------------
 Net operating income..............................           $   107,443       $   102,444            4.9%
                                                              ==============    =============    ==============
Gross margin (before depreciation and amortization)                 65.5%             65.4%            0.2%

Weighted average for the fiscal year:
   Square foot occupancy (a).......................                 89.8%             90.1%           (0.3)%
   Realized annual rent per occupied square foot (b)          $     12.35       $     11.97            3.2%
   REVPAF (c)......................................           $     11.09       $     10.79            2.8%

 Weighted average at March 31:
   Square foot occupancy...........................                 90.2%             90.3%           (0.1)%
   In place annual rent per occupied square foot (d)          $     13.28       $     13.02            2.0%
Total net rentable square feet (in thousands)......                77,782            77,782              -

</TABLE>

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

(b)  Realized  annual  rent per  occupied  square  foot is  computed by dividing
     rental  income,  prior to late  charges  and  administrative  fees,  by the
     weighted  average  occupied square footage for the period.  Realized annual
     rent  per  occupied  square  foot  takes  into  consideration   promotional
     discounts,  credit card fees and other costs that reduce rental income from
     the  contractual  amounts due.

(c)  Annualized  rental income per available  square foot ("REVPAF")  represents
     annualized rental income,  prior to late charges and  administrative  fees,
     divided by total available net rentable square feet.

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

(e)  Total net operating income before depreciation and amortization or "NOI" is
     a non-GAAP  (generally accepted  accounting  principles)  financial measure
     that excludes the impact of depreciation and amortization  expense, for our
     Same  Store  facilities  represents  a portion  of our  total  self-storage
     segment's net operating income before depreciation and amortization, and is
     reconciled  to the  segment  total  in  the  table  "domestic  self-storage
     operations  summary"  above.  A  reconciliation  of our total  self-storage

                                       45

<PAGE>

     segment's net operating  income before  depreciation  and  amortization  to
     consolidated  net  income is  included  in Note 12 to our  March  31,  2007
     condensed   consolidated   financial  statements,   "Segment  Information."
     Although  depreciation and amortization are operating expenses,  we believe
     that NOI is a  meaningful  measure  of  operating  performance,  because we
     utilize NOI in making  decisions  with respect to capital  allocations,  in
     determining  current property values,  segment  performance,  and comparing
     period-to-period  and  market-to-market  property operating results. NOI is
     not  a  substitute  for  net  operating   income  after   depreciation  and
     amortization  in evaluating  our operating  results.

         Rental income increased approximately 2.9% in the first quarter of 2007
as compared to the same period in 2006. This increase was primarily attributable
to higher average  realized annual rental rates per occupied square foot,  which
were 3.2%  higher in the first  quarter  2007 as  compared to the same period in
2006, offset partially by slightly lower occupancy levels.

         In the beginning of 2006, the quarterly year-over-year growth in rental
income was consistent for each quarter, as rental income growth was 5.5% for the
quarter ended March 31, 2006, and started  accelerating  to 5.9% for the quarter
ended June 30, 2006 and 6.3% for the quarter ended  September 30, 2006.  For the
quarter  ended  December 31, 2006,  the  year-over-year  growth in rental income
slowed to 3.5%. This trend continued into 2007, as the increase in rental income
for the quarter ended March 31, 2007 was 2.9%.  This reduction in growth was the
result of lower  occupancy  levels  combined with a reduction in  year-over-year
growth in realized rents.

         It is difficult  for us to pinpoint the exact causes for this slow down
and the degree to which  such  causes  have  negatively  affected  the growth in
rental income.  We believe,  however,  that the reduction was due to a number of
factors  including;  (i) the  increased  number  of vacant  spaces  added to our
overall system as a result of the Shurgard merger and our  aforementioned  focus
on improving the occupancies of the Shurgard portfolio,  (ii) hurricane activity
that created unusual demand for storage space in our Florida markets in 2005 and
2004,  making  year-over-year  trends  in 2007  less  favorable,  (iii)  general
economic  conditions,  specifically  the slow down in  housing  sales and moving
activity, and (iv) increased  competition.  Many of these factors are beyond our
control.

         As indicated  above,  it is our  objective to close the  occupancy  gap
between the acquired  Shurgard  properties  versus the Public  Storage  existing
portfolio.  We believe,  at least in the short term, this strategy will continue
to put pressure on occupancies and rental rate growth on our existing Same Store
facilities as demand appears to have shifted  somewhat to the acquired  Shurgard
facilities as we adjust the level of discounts and monthly rents at the acquired
Shurgard  facilities  to accelerate  occupancy  growth.  Notwithstanding,  it is
important for us to maintain our occupancy  levels in our Same Store  portfolio;
accordingly,  we have  adjusted  rental  rates  and  the  level  of  promotional
discounts offered to new tenants as a means to expand move-in volumes throughout
the entire portfolio.  It has been, and will continue to be,  challenging in the
near term to maintain  occupancy  levels at our Same Store group of  facilities,
while at the same time  trying to rapidly  improve the  occupancy  levels of the
acquired  Shurgard  facilities.  As a result of these factors and our aggressive
pricing  and  discounting  to  drive  customer   volumes,   compared  to  modest
discounting  in the  second  quarter of 2006,  and  despite  expanded  marketing
expenditures  described  below,  we expect modest  revenue  growth in the Public
Storage Same Store pool of properties in the second quarter of 2007.

         Cost of operations (excluding  depreciation and amortization) increased
by 2.7% in the first quarter of 2007 as compared to the same period in 2006.

         Payroll  expense  has  increased  4.0% in the first  quarter of 2007 as
compared to 2006,  due  principally  to higher wage rates and  enhanced  medical
benefits.

         Property  tax expense  increased  4.0% in the first  quarter of 2007 as
compared to 2006, due to higher assessmemts.

         Repairs  and  maintenance  expenditures  decreased  0.9%  in the  first
quarter of 2007 as compared to 2006.  However, we expect repairs and maintenance
expenditures  to be  higher in the  remainder  of 2007 as  compared  to the same
period in 2006.

                                       46

<PAGE>

         Advertising and promotion is comprised principally of media (television
and radio),  yellow  page,  and internet  advertising.  Our Same Stores pro rata
share of advertising  and promotion costs decreased 3.4% in the first quarter of
2007 as compared to the same period in 2006.  The decrease was due to a decrease
in media  advertising,  partially offset by an increase in internet  advertising
expenditures.

         Media   advertising  for  the  Same  Store  properties   declined  from
$4,130,000  in the first  quarter of 2006 to  $3,365,000 in the first quarter of
2007, notwithstanding that aggregate media advertising expenditures increased as
discussed  above, due to the impact of allocation of these  expenditures  over a
larger pool of  properties  in the first  quarter of 2007.  We are expanding our
media  programs  in the  second  quarter  of 2007 and will be on  television  in
approximately  25 markets  versus 14 last year,  along with  national  cable and
selected radio.  Our aggregate media spending is expected to be more than double
in the second  quarter of 2007 as compared to the same period in 2006;  however,
because such amounts are  allocated  over the entire  portfolio,  including  the
Shurgard  portfolio,  the increase that will be  experienced  by the  Same-Store
properties will be less than that. Future media advertising  expenditures  after
the second quarter of 2007 are not determinable at this time, and will be driven
in part by demand for our self-storage  spaces, our current occupancy levels, as
well as our  evaluation  of the most  effective mix of yellow page,  media,  and
internet advertising.

         Our  internet  advertising  expense  has  continued  to  increase  as a
percentage of our overall  expenditures,  increasing  from $454,000 in the first
quarter  of 2006 to  $823,000  in the first  quarter  of 2007.  We  expect  that
internet  advertising will continue to grow as that marketing  channel becomes a
more important source of new tenants.

         Same-store   yellow  page   advertising   expenditures   have  remained
relatively  stable in the first  quarter of 2007 versus the same period in 2006.
Certain  efficiencies related to the merger with Shurgard should be reflected in
the second,  third, and fourth quarters of 2007,  specifically the allocation of
costs over a larger pool of properties.

         Utility  expenses   increased  4.5%  in  the  first  quarter  2007  due
principally to higher energy costs as compared to the same period in 2006. These
levels of increases are expected to persist during 2007.

         Insurance  expense  increased  25.1% in the  first  quarter  of 2007 as
compared to the same period in 2006 reflecting significant increases in property
insurance  resulting  primarily from the hurricanes  experienced in 2005.  These
rate increases  became effective with our policy year starting April 1, 2006. We
expect to realize  certain  economies  of scale due to the merger with  Shurgard
and, accordingly, expect the increases to moderate in the remainder of 2007.

         Telephone reservation center costs were $2,043,000 in the first quarter
of 2006 and  $2,069,000  in the first  quarter of 2007.  During the last half of
2006, we began to realize  certain  benefits  from  increased  staffing  through
better conversion ratios and lower temporary staffing costs. We believe that the
expenses  for the  first  quarter  of 2007  represent  the  stabilized  level of
expenditures  for our telephone  reservation  center given the current number of
self-storage facilities in our portfolio and the related call volume.

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

                                       47

<PAGE>
<TABLE>
<CAPTION>

                                                                  For the Quarter Ended
                            ----------------------------------------------------------------------
                             March 31            June 30         September 30        December 31        Entire Year
                            ------------      -------------     --------------     ---------------    --------------
                                                (Amounts in thousands, except for per square foot amount)
Total rental income:
     <S>                    <C>                 <C>              <C>                <C>                 <C>
     2007                   $   225,677
     2006                   $   219,297         $ 226,352        $   233,420        $   227,007         $  906,076

Total cost of operations
  (excluding depreciation and amortization):
     2007                   $    77,828
     2006                   $    75,802         $  76,649        $    74,947        $    72,149         $  299,547

Property tax expense:
     2007                   $    22,871
     2006                   $    21,988         $  20,730        $    21,700        $    18,844         $   83,262

Media advertising expense:
     2007                   $     3,365
     2006                   $     4,130         $   2,802        $     1,049        $     3,823         $   11,804

REVPAF:
     2007                   $    11.09
     2006                   $    10.79          $  11.13         $    11.46         $     11.16         $   11.13

Weighted average realized annual
  rent per occupied square foot:
     2007                   $    12.35
     2006                   $    11.97         $   12.08         $    12.55         $     12.42         $   12.26

Weighted average occupancy levels
  for the period:
     2007                       89.8%
     2006                       90.1%             92.1%               91.3%              89.8%             90.8%

</TABLE>

                                       48

<PAGE>

ANALYSIS OF REGIONAL TRENDS
---------------------------

The following table sets forth regional trends in our Same Store Facilities:

<TABLE>
<CAPTION>

                                                                 Three Months Ended March 31,
                                                      -----------------------------------------------
                                                           2007              2006            Change
                                                      --------------  ----------------  -------------
                                                          (Amounts in thousands, except for weighted
                                                                        average data)
Same Store Facilities Operating Trends by Region
Rental income:
<S>                     <C>                           <C>              <C>                 <C>
   Southern California  (133 facilities)              $    36,819      $    35,638         3.3%
   Northern California  (133 facilities)                   27,327           26,293         3.9%
   Texas  (156 facilities)..........                       20,117           19,356         3.9%
   Florida  (141 facilities)........                       26,155           25,979         0.7%
   Illinois  (92 facilities)........                       16,172           15,485         4.4%
   Georgia  (60 facilities).........                        7,991            7,715         3.6%
   All other states  (601 facilities)                      91,096           88,831         2.5%
                                                      --------------  ----------------  -------------
Total rental income.................                      225,677          219,297         2.9%

Cost of operations before depreciation and amortization:
   Southern California..............                        8,450            8,674        (2.6)%
   Northern California..............                        7,214            7,069         2.1%
   Texas............................                        8,805            8,716         1.0%
   Florida..........................                        8,740            8,274         5.6%
   Illinois.........................                        7,589            7,544         0.6%
   Georgia..........................                        2,744            2,725         0.7%
   All other states.................                       34,286           32,800         4.5%
                                                      --------------  ----------------  -------------
Total cost of operations............                       77,828           75,802         2.7%

Net operating income before depreciation and amortization:
   Southern California..............                       28,369           26,964         5.2%
   Northern California..............                       20,113           19,224         4.6%
   Texas............................                       11,312           10,640         6.3%
   Florida..........................                       17,415           17,705        (1.6)%
   Illinois.........................                        8,583            7,941         8.1%
   Georgia..........................                        5,247            4,990         5.2%
   All other states.................                       56,810           56,031         1.4%
                                                      --------------  ----------------  -------------
Total net operating income before depreciation and
   amortization.....................                  $   147,849      $   143,495         3.0%

Weighted average occupancy:
   Southern California..............                       90.6%            91.3%         (0.8)%
   Northern California..............                       90.0%            89.8%          0.2%
   Texas............................                       89.8%            89.9%         (0.1)%
   Florida..........................                       90.9%            93.2%         (2.5)%
   Illinois.........................                       88.6%            87.6%          1.1%
   Georgia..........................                       89.9%            92.5%         (2.8)%
   All other states.................                       89.4%            89.4%            -
                                                      --------------  ----------------  -------------
Total weighted average occupancy....                       89.8%            90.1%         (0.3)%

REVPAF:
   Southern California..............                  $     16.93      $    16.40         3.2%
   Northern California..............                        14.39           13.86         3.8%
   Texas............................                         7.75            7.47         3.7%
   Florida..........................                        11.90           11.85         0.4%
   Illinois.........................                        10.99           10.53         4.4%
   Georgia..........................                         8.30            8.05         3.1%
   All other states.................                        10.05            9.80         2.6%
                                                      --------------  ----------------  -------------
Total REVPAF........................                  $     11.09      $    10.79         2.8%
</TABLE>

                                       49

<PAGE>

<TABLE>
<CAPTION>


   Same Store Facilities Operating Trends by Region
   (Continued)                                                   Three Months Ended March 31,
                                                            2007             2006             Change
                                                      --------------  ----------------  -------------
Realized annual rent per occupied square foot:
<S>                                                   <C>              <C>                <C>
   Southern California..............                  $     18.68      $    17.96         4.0%
   Northern California..............                        15.99           15.44         3.6%
   Texas............................                         8.63            8.31         3.9%
   Florida..........................                        13.09           12.72         2.9%
   Illinois.........................                        12.41           12.03         3.2%
   Georgia..........................                         9.23            8.70         6.1%
   All other states.................                        11.25           10.96         2.6%
                                                      --------------  ----------------  -------------
Total realized rent per square foot.                  $     12.35      $    11.97         3.2%
                                                      ==============  ================  =============
In place annual rent per occupied square foot at March 31:
Southern California.................                  $     20.00      $    19.28         3.8%
Northern California.................                        17.28           16.69         3.5%
Texas...............................                         9.34            9.03         3.5%
Florida.............................                        14.22           13.58         4.7%
Illinois............................                        13.34           12.88         3.4%
Georgia.............................                        10.11            9.60         5.2%
All other states....................                        12.17           11.86         2.6%
                                                      --------------  ----------------  -------------
Total in place rent per occupied square foot:         $     13.28      $    13.02         2.0%
                                                      ==============  ================  =============
</TABLE>

         The Southern California Market consists  principally of the greater Los
Angeles area and San Diego, and has historically  been a source of strong growth
due to its  diverse  economy  and  continued  population  growth.  In  addition,
barriers  to entry  in the form of  difficult  permitting  requirements  tend to
reduce the potential for increased  competition in the infill locations where we
focus our operations.


         The Northern  California  market consists  principally of San Francisco
and  related  peripheral  areas.  While  this  area has a  vibrant  economy  and
relatively  strong  population  growth,  it has been subject to general economic
conditions,  principally  issues  associated  with  the  technology  sector.  In
addition, there has been increased competition in the areas that we do business,
principally in the peripheral areas near San Francisco,  due to new supply. As a
result,  revenue  growth in this  area has been  average  relative  to our other
markets.

         The Texas market principally includes Dallas,  Houston and San Antonio.
This  market  has  historically  been  subject  to  volatility  due  to  minimal
regulatory restraint upon building,  which results in cycles of overbuilding and
absorption. For the last few years, we have been in a period of increased supply
and competition in the areas we operate, and as a result revenue growth has been
average relative to other markets.

         The Florida market principally includes Miami, Orlando, Tampa, and West
Palm Beach.  These markets were our strongest in terms of revenue growth in 2005
and 2006, due in part to increased  moving and storage demand resulting from the
impact of  hurricane  activity  in 2005 and 2004.  However,  growth in  revenues
during the first  quarter of 2007 has  moderated  due  primarily  to the lack of
hurricane activity during the 2006 season resulting in difficult  year-over-year
comparisons,  and we expect this trend to  continue  throughout  2007.  Over the
longer  term  we  believe  that  this  market  benefits  from  continued  strong
population growth and barriers to entry.

         Domestic - Acquired Self-Storage Facilities

         During  2005,  2006  and  2007,  in  addition  to the 487  self-storage
facilities  we  acquired  in the  Shurgard  merger,  we  acquired  a total of 45
self-storage  facilities  containing  3,346,000 net rentable square feet.  Also,
commencing January 1, 2006, we began consolidating the accounts of 16 facilities
previously  accounted for on the equity method.  The following table  summarizes
operating data with respect to these facilities.

                                       50

<PAGE>

DOMESTIC - ACQUIRED SELF-STORAGE FACILITIES
<TABLE>
<CAPTION>

                                                                       Three Months Ended March 31,
                                                             ---------------------------------------------
                                                                  2007            2006           Change
                                                             -------------   -------------  --------------
                                                            (Dollar amounts in thousands, except square foot
                                                                                    amounts)
Rental income:
<S>                                                           <C>             <C>            <C>
   Facility acquired in 2007.....................             $        12     $       -      $       12
   Facilities acquired in 2006:
      Facilities acquired in merger with Shurgard                  89,958             -          89,958
      Newly consolidated.........................                   3,736         3,298             438
      Other acquisitions.........................                   2,285           397           1,888
   Facilities acquired in 2005...................                   6,632         5,638             994
                                                             -------------   -------------  --------------
   Total rental income...........................                 102,623         9,333          93,290
                                                             -------------   -------------  --------------
Cost of operations before depreciation and amortization :
   Facility acquired in 2007.....................                       3             -               3
   Facilities acquired in 2006:
      Facilities acquired in merger with Shurgard                  33,657             -          33,657
      Newly consolidated.........................                     877           779              98
      Other acquisitions.........................                   1,109           225             884
   Facilities acquired in 2005...................                   2,569         2,469             100
                                                             -------------   -------------  --------------
   Total cost of operations......................                  38,215         3,473          34,742
                                                             -------------   -------------  --------------
Net operating income before depreciation and amortization:
   Facility acquired in 2007.....................                       9             -               9
   Facilities acquired in 2006:
      Facilities acquired in merger with Shurgard                  56,301             -          56,301
      Newly consolidated.........................                   2,859         2,519             340
      Other acquisitions.........................                   1,176           172           1,004
   Facilities acquired in 2005...................                   4,063         3,169             894
                                                             -------------   -------------  --------------
   Total net operating income before depreciation and
   amortization (a)..............................                  64,408         5,860          58,548
Depreciation and amortization....................                 (89,732)       (2,586)        (87,146)
                                                             -------------   -------------  --------------
   Net operating income (loss)...................             $   (25,324)    $   3,274      $  (28,598)
                                                             =============   =============  ==============

Weighted average square foot occupancy during the period:
   Facility acquired in 2007.....................                  38.5%            -                -
   Facilities acquired in 2006:
      Facilities acquired in merger with Shurgard                  84.3%            -                -
      Newly consolidated.........................                  85.7%           88.5%          (3.2)%
      Other acquisitions.........................                  77.1%           55.7%          38.4%
   Facilities acquired in 2005...................                  85.7%           81.9%           4.6%
                                                             -------------   -------------  --------------
                                                                   84.2%           81.8%           2.9%
                                                             =============   =============  ==============
</TABLE>

                                       51

<PAGE>

DOMESTIC - ACQUIRED SELF-STORAGE FACILITIES (continued)
<TABLE>
<CAPTION>

                                                                       Three Months Ended March 31,
                                                             ---------------------------------------------
                                                                  2007            2006           Change
                                                             -------------   -------------  --------------
Weighted average realized annual rent per occupied square foot for the
period:
<S>                                                           <C>             <C>                     <C>
   Facility acquired in 2007 (b).................             $         -     $       -               -
   Facilities acquired in 2006:
      Facilities acquired in merger..............                   12.67             -               -
      Newly consolidated.........................                   16.31         14.28            14.2%
      Other acquisitions.........................                   12.98         16.63           (21.9)%
   Facilities acquired in 2005...................                   12.26         11.02            11.3%
                                                             -------------   -------------  --------------
                                                              $     12.74     $   12.58             1.3%
                                                             =============   =============  ==============
In place annual rent per occupied square foot at
March 31:
   Facility acquired in 2007.....................             $     33.10     $       -               -
   Facilities acquired in 2006:
      Facilities acquired in merger..............                   13.61             -               -
      Newly consolidated.........................                   18.21         15.66            16.3%
      Other acquisitions.........................                   14.16         17.08           (17.1)%
   Facilities acquired in 2005...................                   13.18         12.24             7.7%
                                                             -------------   -------------  --------------
                                                              $     13.72     $   14.14            (3.0)%
                                                             =============   =============  ==============
At March 31:
    Number of Facilities ........................                     548            54             494
    Net rentable square feet.....................                  36,489         3,649          32,840
    Cumulative acquisition cost..................             $ 5,290,628     $ 328,087      $4,962,541
</TABLE>


(a)  Total net operating income before depreciation and amortization or "NOI" is
     a non-GAAP  (generally accepted  accounting  principles)  financial measure
     that excludes the impact of depreciation and amortization  expense, for our
     self-storage  facilities  represents  a portion  of our total  self-storage
     segment's net operating income before  depreciation,  and is denoted in the
     table  "self-storage  operations  summary" above. A  reconciliation  of our
     total  self-storage  segment's net operating income before  depreciation to
     consolidated  net  income is  included  in Note 12 to our  March  31,  2007
     condensed   consolidated   financial  statements,   "Segment  Information."
     Although  depreciation and amortization are operating expenses,  we believe
     that NOI is a  meaningful  measure  of  operating  performance,  because we
     utilize NOI in making  decisions  with respect to capital  allocations,  in
     determining  current property values,  segment  performance,  and comparing
     period-to-period  and  market-to-market  property operating results. NOI is
     not  a  substitute  for  net  operating   income  after   depreciation  and
     amortization  in evaluating  our operating  results.

(b)  Realized  annual  rent is not a  meaningful  measure as this  facility  was
     acquired at the end of the first quarter of 2007.

         The acquisitions were acquired at various dates throughout each period.
Accordingly,  rental  income,  cost of operations,  depreciation,  net operating
income,  weighted  average square foot occupancies and realized rents per square
foot  represent the operating  results for the partial  period that we owned the
facilities  during the year acquired.  In addition,  in place rents per occupied
square foot at March 31, 2007 and 2006, reflect the amounts for those facilities
we owned at each of those respective dates.

         During  2005,  we  acquired  a  total  of 32  self-storage  facilities,
principally  in   single-property   transactions,   for  an  aggregate  cost  of
$254,549,000.  These facilities contain in the aggregate approximately 2,390,000
net rentable  square feet and are located  principally in the Atlanta,  Chicago,
Miami, and New York metropolitan areas.

                                       52

<PAGE>

         For  the  year  ended  December  31,  2006,  in  addition  to  the  487
self-storage  facilities we acquired in the merger with Shurgard,  we acquired a
total of 12  self-storage  facilities,  each in a  single-property  transaction.
These 12  facilities  contain in  aggregate  approximately  877,000 net rentable
square feet and were  acquired for an  aggregate  cost of  $103,544,000.  The 12
facilities are located in California, Florida, Illinois, New York, Virginia, New
Jersey,  Delaware,  Georgia and  Colorado.  In 2007, we acquired one facility in
Hawaii (79,000 net rentable square feet) for an aggregate cost of $22,588,000.

         Effective  January 1, 2006,  as described in Note 2 to our December 31,
2006 consolidated  financial statements,  we are including the accounts of three
limited  partnerships  that we had  previously  accounted  for under the  equity
method  of  accounting.  The  three  limited  partnerships  collectively  own 16
facilities  and have an  aggregate of 879,000 net  rentable  square feet.  These
facilities are  substantially all mature facilities that we have managed and had
an  interest  in  for  several  years.   Accordingly,   their  future  operating
characteristics  and past  operating  history  are  similar to those of our Same
Store facilities.

         We believe our presence in and  knowledge of  substantially  all of the
major markets in the United States  enhances our ability to identify  attractive
acquisition  opportunities  and capitalize on the overall  fragmentation  in the
storage  industry.  Our  acquisitions  consist  of  facilities  that  have  been
operating  for a number of years as well as newly  constructed  facilities  that
were in the  process of filling up to  stabilized  occupancy  levels.  In either
case, we have been able to leverage off of our operating  strategies and improve
the occupancy  levels of the facilities,  or with respect to the newly developed
facilities we have been able to accelerate the fill-up pace.

         We expect  that our  acquisitions  will  continue  to provide  earnings
growth  during  2007 as these  facilities  continue to improve  their  occupancy
levels as well as realized rental rates.

         The 487  self-storage  facilities in the U.S.  acquired in the Shurgard
merger are  located  in 23 states and  contain in  aggregate  32.3  million  net
rentable  square feet.  The operating data presented in the table above reflects
the historical  data from January 1 through March 31, 2007, the period owned and
operated by Public Storage. Many of these new acquired facilities, however, have
been  operating  at a  stabilized  occupancy  level for several  years under the
Shurgard  system and then under the Public Storage system  following the merger.
To provide additional comparative operating data, the table below sets forth the
operations of the 355 facilities that have been operating at a stabilized  basis
(the "Shurgard  Domestic Same Stores") since January 1, 2005. The data presented
does not reflect the actual  results  included in our  operations  for the three
months  ended March 31,  2006,  as we did not own these  facilities  and did not
begin to reflect them in our operating  results until August 22, 2006,  the date
of the merger with Shurgard.  These amounts do not purport to project results of
operations for any future date or period.

                                       53

<PAGE>

SELECTED OPERATING DATA FOR THE 355 FACILITIES
----------------------------------------------
OPERATED BY SHURGARD ON A STABILIZED  BASIS SINCE
-------------------------------------------------
JANUARY 1, 2005 ("SHURGARD DOMESTIC SAME STORE
----------------------------------------------
FACILITIES"): (a)
-----------------
<TABLE>
<CAPTION>

                                                         Three Months Ended March 31,
                                                      -----------------------------------------
                                                                                   Percentage
                                                         2007            2006        Change
                                                      ------------   ------------- ------------
                                                  (Dollar amounts in thousands, except weighted average
                                                                             data)
Revenues:
<S>                                                    <C>            <C>               <C>
    Rental income.................................     $   64,389     $   62,279        3.4%
    Late charges and administrative fees collected          2,118          2,117          -
                                                      ------------   ------------- ------------
    Total revenues (b)............................         66,507         64,396        3.3%

Cost of operations (excluding depreciation):
    Property taxes ...............................          6,893          6,339        8.7%
    Direct property payroll.......................          4,813          7,922      (39.2)%
    Advertising and promotion.....................          1,873          1,599       17.1%
    Utilities.....................................          2,078          1,959        6.1%
    Repairs and maintenance.......................          2,070          1,610       28.6%
    Telephone reservation center..................            559              -           -
    Property insurance............................            737            358      105.9%
    Other costs of management.....................          4,772          5,876      (18.8)%
                                                      ------------   ------------- ------------
  Total cost of operations (b)....................         23,795         25,663       (7.3)%
                                                      ------------   ------------- ------------
   Net operating income (excluding depreciation) (c)   $   42,712      $  38,733       10.3%
                                                      ============   ============= ============
Gross margin (before depreciation)................          64.2%          60.1%        6.8%
Weighted average for the period:
  Square foot occupancy (d).......................          86.8%          83.4%        4.1%
  Realized annual rent per occupied square foot (e)    $    13.08      $   13.17       (0.7)%
  REVPAF (f) (g)..................................     $    11.36      $   10.98        3.5%

Weighted average at March 31:
  Square foot occupancy...........................          87.6%          83.4%        5.0%

Total net rentable square feet (in thousands).....         22,680         22,680          -
</TABLE>


(a)  Operating data reflects the operations of these  facilities  without regard
     to the time period in which Public Storage owned the facilities.

(b)  Revenues  and cost of  operations  do not include  ancillary  revenues  and
     expenses  generated at the facilities  with respect to tenant  reinsurance,
     and retail sales and truck rentals. "Other costs of management" included in
     cost of operations  principally  represents all the indirect costs incurred
     in the operations of the  facilities.  Indirect costs  principally  include
     supervisory  costs and  corporate  overhead  cost  incurred  to support the
     operating activities of the facilities. These amounts presented herein will
     not necessarily compare to amounts previously  presented by Shurgard in its
     public  reporting  due to  differences  in  classification  of revenues and
     expenses,  including  tenant  reinsurance,  retail  sales and truck  rental
     activities  which are  included on our income  statement  under  "ancillary
     operations"  but were  previously  presented  by Shurgard  as  self-storage
     revenue and operating expenses.

(c)  Net  operating  income  (before   depreciation)  or  "NOI"  is  a  non-GAAP
     (generally accepted accounting  principles) financial measure that excludes
     the impact of depreciation  expense.  Although depreciation is an operating
     expense,  we  believe  that  NOI  is  a  meaningful  measure  of  operating
     performance,  because we utilize NOI in making  decisions  with  respect to
     capital  allocations,  in  determining  current  property  values,  segment
     performance,  and comparing  period-to-period and market-to-market property
     operating  results.  NOI is not a substitute for net operating income after
     depreciation  in evaluating  our operating  results.  We have not presented
     depreciation  expense for these facilities because the depreciation expense
     is based upon historical cost, which is substantially  different before the
     merger and after.

                                       54

<PAGE>

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

(e)  Realized  annual rent per occupied  square foot is computed by  annualizing
     the result of  dividing  rental  income by the  weighted  average  occupied
     square  footage for the period.  Realized  annual rent per occupied  square
     foot takes into  consideration  promotional  discounts and other costs that
     reduce rental income from the contractual amounts due.

(f)  Annualized  rental income per available  square foot ("REVPAF")  represents
     annualized  rental income  divided by total  available net rentable  square
     feet.

(g)  Late charges and  administrative  fees are excluded from the computation of
     realized annual rent per occupied square foot and REVPAF because  exclusion
     of these amounts provides a better measure of our ongoing level of revenue,
     by  excluding  the   volatility  of  late  charges,   which  are  dependent
     principally upon the level of tenant delinquency,  and administrative fees,
     which are dependent  principally  upon the absolute level of move-ins for a
     period.

         As noted above,  our 1,316  Same-Store  facilities  had  occupancies of
approximately  90.2% at March 31,  2007,  as compared to 87.6% for the  acquired
Shurgard Domestic Same Store portfolio. It is our objective to continue to close
this occupancy gap in order to increase REVPAF. In attempting to accomplish this
objective, we have significantly expanded our domestic pricing, promotional, and
media programs, and aggregate media costs increased in the first quarter of 2007
versus the aggregate level of spending incurred in the first quarter of 2006.

         We have improved the occupancy of the Shurgard  Same-Store  facilities,
with average  occupancy up 5.0% at March 31, 2007 as compared to March 31, 2006;
however,  this  improvement  has  come at the cost of  lower  realized  rent per
occupied  square foot,  which has dropped 0.7% in the quarter  compared to prior
year.  There can be no assurance  that we will meet our  objectives  or that any
increase in occupancies will not be offset by further realized rent per occupied
square foot reductions either due to promotional discounts or lower monthly rent
in the acquired Shurgard facilities or the Same Store facilities.

         On the date of the merger,  we  successfully  installed  our  real-time
property  operation system at all U.S. Shurgard  locations.  As a result,  these
facilities are integrated into our national call center, website, and management
structure.  The integration of these facilities into our operations  should have
additional benefits and cost savings.

         Property tax expense increased 8.7% due to higher assessments following
the merger, including properties in California.

         Beginning January 2007, former Shurgard  employees became  participants
in the Public Storage compensations and benefit plan, which in general has lower
wage rates and  benefit  plan  costs than the  historical  Shurgard  plan.  This
decline is reflected in direct payroll  costs,  which have declined 39.2% in the
quarter ended March 31, 2007 as compared to the same period in 2006.

         Overall  advertising  and  promotion  increased in the first quarter of
2007 as  compared  to the first  quarter  of 2006,  due  primarily  to our media
advertising  expenditures,  offset  partially by lower  yellow page  advertising
expense.

         Utility expense increased 6.1%, due primarily to higher utility rates.

Domestic - Development Self-Storage Facilities

         We have a total of 119 facilities which have  unstabilized  occupancies
due to development activities.

         We have 32 of these facilities that have been developed from the ground
up between 2003 and 2007. At March 31, 2007,  these newly  developed  facilities
have an aggregate of 2,444,000 net rentable square feet of  self-storage  space,
and were developed at an aggregate cost of  $278,832,000.  These  facilities are
presented in the table below based upon the year of opening.

                                       55

<PAGE>

         We also have 87 facilities  that were  originally  opened prior to 2003
that  have been  expanded  or are in the  process  of being  expanded  (these 87
facilities  are  referred  to as the  "Expansion  Facilities"  below).  We  have
incurred  an  aggregate  of  $141,690,000  since  January  1,  2004,  to expand,
repurpose,  or  otherwise  enhance the revenue  generating  capacity of these 87
Expansion Facilities.

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

DOMESTIC - DEVELOPMENT SELF-STORAGE FACILITIES
<TABLE>
<CAPTION>

                                                                               Three Months Ended March 31,
                                                                   ---------------------------------------------------
                                                                         2007               2006             Change
                                                                   ---------------   ---------------   ---------------
                                                                       (Amounts in thousands, except per square foot
                                                                                amounts and facility count)
Rental income:
<S>                                                                <C>                <C>                <C>
  Facility opened in 2007......................                    $         8        $         -        $       8
  Facilities opened in 2006....................                            857                  -              857
  Facilities opened in 2005....................                            911                369              542
  Facilities opened in 2004 and 2003...........                          5,480              4,948              532
  Expansion facilities.........................                         19,363             17,400            1,963
                                                                   ---------------   ---------------   ---------------
     Total rental income.......................                         26,619             22,717            3,902
                                                                   ---------------   ---------------   ---------------
Cost of operations before depreciation:
  Facility opened in 2007......................                             41                  -               41
  Facilities opened in 2006....................                            536                  -              536
  Facilities opened in 2005....................                            560                414              146
  Facilities opened in 2004 and 2003...........                          1,621              1,581               40
  Expansion facilities.........................                          7,065              6,433              632
                                                                   ---------------   ---------------   ---------------
     Total cost of operations before depreciation                        9,823              8,428            1,395
                                                                   ---------------   ---------------   ---------------
Net operating income before depreciation:
  Facility opened in 2007......................                            (33)                 -              (33)
  Facilities opened in 2006....................                            321                  -              321
  Facilities opened in 2005....................                            351                (45)             396
  Facilities opened in 2004 and 2003...........                          3,859              3,367              492
  Expansion facilities.........................                         12,298             10,967            1,331
                                                                   ---------------   ---------------   ---------------
   Net operating income before depreciation (a)                         16,796             14,289            2,507
 Depreciation..................................                         (6,413)            (5,546)            (867)
                                                                   ---------------   ---------------   ---------------
   Net operating income........................                    $    10,383        $     8,743        $   1,640
                                                                   ===============   ===============   ===============
Weighted average square foot occupancy during the period:
  Self-storage facility opened in 2007.........                          28.6%               -                   -
  Self-storage facilities opened in 2006.......                          43.1%               -                   -
  Self-storage facilities opened in 2005.......                          58.4%              31.0%            88.4%
  Self-storage facilities opened in 2004 and 2003                        90.8%              89.1%             1.9%
  Expansion facilities.........................                          79.2%              77.2%             2.6%
                                                                   ---------------   ---------------   ---------------
                                                                         75.8%              73.2%             3.6%
                                                                   ===============   ===============   ===============
</TABLE>
                                       56

<PAGE>

<TABLE>
<CAPTION>


DOMESTIC - DEVELOPMENT SELF-STORAGE FACILITIES (Continued)
                                                                               Three Months Ended March 31,
                                                                         2007               2006             Change
                                                                   ---------------   ---------------   ---------------
Weighted average realized rent per occupied square foot during
the period (b):
<S>                                                                <C>                <C>                       <C>
  Self-storage facility opened in 2007 (e).....                    $      -           $        -                -
  Self-storage facilities opened in 2006.......                          17.97                 -                -
  Self-storage facilities opened in 2005.......                          12.93               9.65              34.0%
  Self-storage facilities opened in 2004 and 2003                        16.28              14.89               9.3%
  Expansion facilities.........................                          12.75              12.35               3.2%
                                                                   ---------------   ---------------   ---------------
                                                                   $     15.88        $     14.34              10.7%
                                                                   ===============   ===============   ===============
In place annual rent per occupied square foot at March 31 (c):
  Self-storage facility opened in 2007.........                    $     11.37        $         -               -
  Self-storage facilities opened in 2006.......                          22.17                -                 -
  Self-storage facilities opened in 2005.......                          14.62              13.78               6.1%
  Self-storage facilities opened in 2004 and 2003                        17.31              16.36               5.8%
  Expansion facilities.........................                          13.49              13.36               1.0%
                                                                   ---------------   ---------------   ---------------
                                                                   $     17.37        $     16.06               8.2%
                                                                   ===============   ===============   ===============
Number of facilities at March 31:
  Facility opened in 2007......................                              1                  -                1
  Facilities opened in 2006....................                              5                  1                4
  Facilities opened in 2005....................                              6                  6                -
  Facilities opened in 2004 and 2003...........                             20                 20                -
  Expansion facilities.........................                             87                 87                -
                                                                   ---------------   ---------------   ---------------
                                                                           119                114                5
                                                                   ---------------   ---------------   ---------------
Square Footage at March 31:
  Facility opened in 2007......................                             42                  -               42
  Facilities opened in 2006....................                            440                 89              351
  Facilities opened in 2005....................                            463                463                -
  Facilities opened in 2004 and 2003...........                          1,499              1,499                -
  Expansion facilities.........................                          7,537              7,311              226
                                                                   ---------------   ---------------   ---------------
                                                                         9,981              9,362              619
                                                                   ---------------   ---------------   ---------------
Cumulative development cost at March 31:
  Facility opened in 2007......................                    $     4,112        $         -        $   4,112
  Facilities opened in 2006....................                         68,962              9,343           59,619
  Facilities opened in 2005....................                         37,857             37,857                -
  Facilities opened in 2004 and 2003...........                        167,901            167,901                -
  Expansion facilities (d).....................                        141,690             89,022           52,668
                                                                   ---------------   ---------------   ---------------
                                                                   $   420,522        $   304,123        $ 116,399
                                                                   ===============   ===============   ===============
</TABLE>

(a)  Total net operating income before depreciation and amortization or "NOI" is
     a non-GAAP  (generally accepted  accounting  principles)  financial measure
     that excludes the impact of depreciation and amortization  expense, for our
     developed  self-storage  facilities  represents  a  portion  of  our  total
     self-storage  segment's net operating  income before  depreciation,  and is
     denoted  in  the  table   "self-storage   operations   summary"   above.  A

                                       57
<PAGE>

    reconciliation  of our total  self-storage  segment's net operating  income
     before  depreciation to  consolidated  net income is included in Note 12 to
     our March 31, 2007 condensed  consolidated  financial statements,  "Segment
     Information."   Although   depreciation   and  amortization  are  operating
     expenses,  we  believe  that  NOI  is a  meaningful  measure  of  operating
     performance,  because we utilize NOI in making  decisions  with  respect to
     capital  allocations,  in  determining  current  property  values,  segment
     performance,  and comparing  period-to-period and market-to-market property
     operating  results.  NOI is not a substitute for net operating income after
     depreciation and amortization in evaluating our operating results.

(b)  Realized  annual  rent per  occupied  square  foot is  computed by dividing
     rental  income,  prior to late  charges  and  administrative  fees,  by the
     weighted  average  occupied square footage for the period.  Realized annual
     rent  per  occupied  square  foot  takes  into  consideration   promotional
     discounts,  credit card fees and other costs that reduce rental income from
     the  contractual  amounts due, and  therefore  amounts for the three months
     ended March 31, 2007 and 2006 may not be  comparable to the same periods in
     prior years for self-storage  facilities  opened in 2007, 2006 and 2005. We
     typically provide significant  promotional  discounts to new tenants when a
     facility  first opens for  operations.  As  facilities  reach a  stabilized
     occupancy   level,   the  amounts  of  discounts   given  will  be  reduced
     significantly.

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

(d)  Since  January  1,  2004,  we have  spent  an  aggregate  of  approximately
     $141,690,000 to expand the square footage or otherwise  enhance the revenue
     potential  of these  facilities,  adding  an  aggregate  of  2,501,000  net
     rentable self-storage space.

(e)  Realized  annual  rent is not a  meaningful  measure as this  facility  was
     opened at the end of the first quarter of 2007.

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

         As  these   facilities   approach  the  targeted   occupancy  level  of
approximately 90%, rates are increased,  resulting in further improvement in net
operating income as the existing  tenants,  which moved in at lower rates,  have
their rates  increased or are replaced by new tenants paying higher rates.  This
process of reaching stabilized rental rates can take approximately another 12 to
24 months  following the time when the facilities  reach a stabilized  occupancy
level of 90%. In addition,  move-in discounts have a more pronounced effect upon
realized  rental  rates  for  the  newly  developed  facilities,   because  such
facilities tend to have a higher ratio of newer tenants.

         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 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.

         The annualized yield on costs for the 32 newly developed facilities for
the three months  ended March 31, 2007,  based on net  operating  income  before
depreciation,  was  approximately  6.5%,  which is lower than our ultimate yield
expectations.  We expect  these  yields to  increase as these  facilities  reach
stabilization of both occupancy levels and realized rents.  Properties that were
developed  before 2006 have  contributed  greatly to our  earnings  growth.  The
growth in properties  developed in 2005 was principally due to occupancy growth,
and growth for  properties  developed in 2004 and 2003 were due  principally  to
rate increases.  We expect that these facilities will continue to provide growth
to our earnings.

         Development  of  self-storage  facilities  causes  short-term  earnings
dilution  because,  as  mentioned  above,  of the  extended  time to stabilize a
self-storage  facility. We have developed self-storage  facilities,  despite the
short-term  earnings dilution,  because it is advantageous for us to continue to
expand our asset base and benefit from the resulting  increased  critical  mass,
with facilities that will improve our portfolio's  overall average  construction
and location quality.

                                       58
<PAGE>

         The decision to commence  development  of any  particular  self-storage
location  is based upon  several  factors  with  respect  to that local  market,
including  our  estimate  of current  and future  general  economic  conditions,
demographic  conditions,  population  growth,  the  likelihood  of and  cost  of
obtaining  permits,  construction  costs,  as well as the level of demand at our
existing self-storage  facilities in proximity to the prospective facility.  Our
level of new development starts has declined significantly in the last few years
due to increases in construction  costs,  increases in competition  with retail,
condominium,  and apartment  operators for quality  construction  sites in urban
locations,  and more  difficult  zoning and permitting  requirements,  which has
reduced the number of attractive sites available for development and reduced our
development  of  facilities.  It is unclear when, or if, these  conditions  will
improve.

SHURGARD EUROPEAN OPERATING DATA

         In the merger with  Shurgard,  we acquired  160  facilities  located in
seven  European  countries  with an aggregate of 8,385,000  net rentable  square
feet.  During the last three  months of 2006,  six  additional  facilities  were
opened in Europe with an aggregate of 304,000 net rentable  square feet.  During
the first three months of 2007, two additional  facilities opened in Europe with
an aggregate of 96,000 net rentable  square feet. The following chart sets forth
the  operations  of the Shurgard  Facilities  from January 1, through  March 31,
2007, the period operated under Public Storage and consolidated in our financial
statements (amounts in thousands):



                                                     Three Months Ended
                                                         March 31,
                                                           2007
                                                     ------------------
   Rental income:
      Same Store - 96 facilities.................      $     29,550
      Non-Same Store - 72 facilities.............            14,312
                                                     ------------------
   Total rental income...........................            43,862

   Cost of operations (excluding depreciation):
      Same Store.................................            12,602
      Non-Same Store.............................            10,452
                                                     ------------------
   Total cost of operations......................            23,054

   Net operating income before depreciation (a):
      Same Store.................................            16,948
      Non-Same Store.............................             3,860
                                                     ------------------
   Total net operating income before depreciation            20,808

   Depreciation and amortization.................           (39,000)
                                                     ------------------
      Net operating loss.........................      $    (18,192)
                                                     ==================
   Weighted average square foot occupancy
   during the period:............................             81.7%

   Weighted average realized annual rent per
   occupied square foot for the period:..........      $      24.23

   In place annual rent per occupied square foot
   at March 31:..................................      $      24.54

(a)  Total net operating income before depreciation and amortization or "NOI" is
     a non-GAAP  (generally accepted  accounting  principles)  financial measure
     that excludes the impact of depreciation and amortization  expense, for our
     commercial  property  segment  is  presented  in Note  12 to our  condensed
     consolidated financial statements,  "Segment Information," which includes a
     reconciliation of net operating income before depreciation for this segment
     to our consolidated net income.  Although depreciation and amortization are
     operating  expenses,  we  believe  that  NOI  is a  meaningful  measure  of
     operating  performance,  because we utilize  NOI in making  decisions  with
     respect to capital  allocations,  in determining  current  property values,
     segment  performance,  and comparing  period-to-period and market-to-market

                                       59
<PAGE>

     property  operating  results.  NOI is not a  substitute  for net  operating
     income after  depreciation  and  amortization  in evaluating  our operating
     results.

         The operating  data presented in the table below reflect the historical
data from January 1 to March 31, 2006, the period for which the facilities  were
operated under Shurgard combined with the historical data from January 1 through
March 31, 2007, the period operated under Public Storage.  Accordingly, the data
presented  below does not reflect the actual results  included in our operations
for the three  months ended March 31, 2006.  We have applied our  definition  of
what qualifies as a Same Store. As a result,  the number of properties  included
in the Shurgard  European Same Store portfolio has decreased from 123 facilities
(as reported by Shurgard in the second  quarter of 2006) to 96  facilities as is
currently being reported.

                                       60


<PAGE>

SELECTED  OPERATING  DATA FOR THE 96 FACILITIES  OPERATED BY SHURGARD
---------------------------------------------------------------------
EUROPE ON A  STABILIZED  BASIS SINCE  JANUARY 1, 2005  ("EUROPE  SAME
---------------------------------------------------------------------
STORE FACILITIES"): (a)
-----------------------
<TABLE>
<CAPTION>

                                                                  Three Months Ended March 31,
                                                         -----------------------------------------------
                                                                                            Percentage
                                                             2007              2006            Change
                                                         --------------   --------------  --------------
                                                       (Dollar amounts in thousands, except weighted average
                                                           data, utilizing constant exchange rates) (b)
Revenues:
<S>                                                       <C>              <C>                <C>
    Rental income.................................        $     29,271     $    26,608        10.0%
    Late charges and administrative fees collected                 279             279            -
                                                         --------------   --------------  --------------
    Total revenues (c)............................              29,550          26,887         9.9%

Cost of operations (excluding depreciation):
    Property taxes ...............................               1,198           1,318        (9.1)%
    Direct property payroll.......................               3,580           4,055       (11.7)%
    Advertising and promotion.....................               1,223           1,860       (34.2)%
    Utilities.....................................                 850             893        (4.8)%
    Repairs and maintenance.......................                 823             851        (3.3)%
    Property insurance............................                 358             369        (3.0)%
    Other costs of management.....................               4,570           4,400          3.9%
                                                         --------------   --------------  --------------
  Total cost of operations (c)....................              12,602          13,746        (8.3)%
                                                         --------------   --------------  --------------
   Net operating income (excluding depreciation) (d)      $     16,948      $   13,141        29.0%
                                                         ==============   ==============  ==============
Gross margin (before depreciation)................               57.4%           48.9%        17.4%
Weighted average for the period:
  Square foot occupancy (e).......................               88.5%           81.8%         8.2%
  Realized annual rent per occupied square foot (f)             $25.03          $24.61         1.7%
  REVPAF (g) (h)..................................              $22.15          $20.13        10.0%

Weighted average at March 31:
  Square foot occupancy...........................               89.0%           81.9%         8.7%
  In place annual rent per occupied square foot (i)       $      26.52      $    26.02         1.9%
Total net rentable square feet (in thousands).....               5,286           5,286           -

</TABLE>


(a)  Operating data reflects the operations of these  facilities  without regard
     to the time period in which Public Storage owned the  facilities;  only the
     amounts for the period  January 1,  through  March 31, 2007 are included in
     our consolidated operating results.

(b)  Amounts for all periods have been translated from local  currencies to U.S.
     dollars at a constant exchange rate of 1.31 US Dollars to Euros.

(c)  Revenues  and cost of  operations  do not include  ancillary  revenues  and
     expenses generated at the facilities with respect to tenant reinsurance and
     retail sales.  "Other costs of  management"  included in cost of operations
     principally represents all the indirect costs incurred in the operations of
     the facilities.  Indirect costs principally  include  supervisory costs and
     corporate overhead cost incurred to support the operating activities of the
     facilities.  These amounts presented herein will not necessarily compare to
     amounts  previously  presented by Shurgard in its public  reporting  due to
     differences in  classification  of revenues and expenses,  including tenant
     reinsurance,  retail sales, and truck rental  activities which are included
     on our income  statement under  "ancillary  operations" but were previously
     presented by Shurgard as self-storage revenue and operating expenses.

(d)  Net  operating  income  (before   depreciation)  or  "NOI"  is  a  non-GAAP
     (generally accepted accounting  principles) financial measure that excludes
     the impact of depreciation  expense.  Although depreciation is an operating
     expense,  we  believe  that  NOI  is  a  meaningful  measure  of  operating
     performance,  because we utilize NOI in making  decisions  with  respect to
     capital  allocations,  in  determining  current  property  values,  segment
     performance,  and comparing  period-to-period and market-to-market property
     operating  results.  NOI is not a substitute for net operating income after
     depreciation  in evaluating  our operating  results.  We have not presented
     depreciation  and  amortization  expense for these  facilities  because the
     depreciation and amortization  expense is based upon historical cost, which
     is substantially different before the merger and after.

                                       61
<PAGE>

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

(f)  Realized  annual rent per occupied  square foot is computed by  annualizing
     the result of  dividing  rental  income by the  weighted  average  occupied
     square  footage for the period.  Realized  annual rent per occupied  square
     foot takes into  consideration  promotional  discounts and other costs that
     reduce rental income from the contractual amounts due.

(g)  Annualized  rental income per available  square foot ("REVPAF")  represents
     annualized  rental income  divided by total  available net rentable  square
     feet.

(h)  Late charges and  administrative  fees are excluded from the computation of
     realized annual rent per occupied square foot and REVPAF because  exclusion
     of these amounts provides a better measure of our ongoing level of revenue,
     by  excluding  the   volatility  of  late  charges,   which  are  dependent
     principally upon the level of tenant delinquency,  and administrative fees,
     which are dependent  principally  upon the absolute level of move-ins for a
     period.

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

           The European team is selectively adapting various operating
strategies we use in the United States and incorporating them into their
operating model.

The following table sets forth certain regional trends in the Europe Same Store
facilities:
<TABLE>
<CAPTION>

                                                                     Three Months Ended March 31,
                                                                ----------------------------------------
                                                                                             Percentage
                                                                   2007          2006          Change
                                                                ------------  ------------   -----------
                                                                (Dollar amounts in thousands, except per
                                                                          square foot amounts)
Rental income:
<S>                                                             <C>           <C>                <C>
   Belgium.....................................                 $    3,660    $    3,476         5.3%
   Denmark.....................................                      1,355         1,181        14.7%
   France......................................                      7,573         6,937         9.2%
   Netherlands.................................                      5,897         5,247        12.4%
   Sweden......................................                      6,215         5,703         9.0%
   United Kingdom..............................                      4,850         4,343        11.7%
                                                                ------------  ------------   -----------
     Total rental income.......................                 $   29,550    $   26,887         9.9%
                                                                ============  ============   ===========
Cost of operations before depreciation and amortization (a):
   Belgium.....................................                 $    1,695    $    1,990       (14.8)%
   Denmark.....................................                        509           673       (24.4)%
   France......................................                      3,514         3,414         2.9%
   Netherlands.................................                      2,467         2,796       (11.8)%
   Sweden......................................                      2,501         2,770        (9.7)%
   United Kingdom..............................                      1,916         2,103        (8.9)%
                                                                ------------  ------------   -----------
     Total cost of operations before depreciation and
     amortization..............................                 $   12,602    $   13,746        (8.3)%
                                                                ============  ============   ===========
Weighted average occupancy levels for the period:
   Belgium.....................................                      85.3%         78.2%         9.1%
   Denmark.....................................                      93.9%         88.3%         5.3%
   France......................................                      89.8%         83.7%         7.3%
   Netherlands.................................                      87.0%         78.4%        11.0%
   Sweden......................................                      90.9%         86.8%         4.7%
   United Kingdom..............................                      88.4%         78.9%        12.0%
                                                                ------------  ------------   -----------
                                                                     88.5%         81.8%         8.2%
                                                                ============  ============   ===========
</TABLE>
                                       62

<PAGE>

<TABLE>
<CAPTION>

Weighted average realized annual rent per occupied square foot:
    (continued)


                                                                     Three Months Ended March 31,
                                                                ----------------------------------------
                                                                                             Percentage
                                                                   2007          2006          Change
                                                                ------------  ------------   -----------
                                                                (Dollar amounts in thousands, except per
                                                                          square foot amounts)

<S>                                                             <C>           <C>               <C>
   Belgium.....................................                 $    16.97    $    17.64        (3.8)%
   Denmark.....................................                      27.24         25.28         8.8%
   France......................................                      26.98         26.39         2.2%
   Netherlands.................................                      22.89         22.62         1.2%
   Sweden......................................                      24.13         23.07         4.2%
   United Kingdom..............................                      40.56         40.63        (0.2)%
                                                                ------------  ------------   -----------
                                                                $    25.03    $    24.61        1.7%
                                                                ============  ============   ===========


Net rentable square feet (in thousands):
   Belgium.....................................                        999           999           -
   Denmark.....................................                        210           210           -
   France......................................                      1,236         1,236           -
   Netherlands.................................                      1,172         1,172           -
   Sweden......................................                      1,130         1,130           -
   United Kingdom..............................                        539           539           -
                                                                ------------  ------------   -----------
                                                                     5,286         5,286           -
                                                                ============  ============   ===========
Number of facilities:
   Belgium.....................................                         17            17           -
   Denmark.....................................                          4             4           -
   France......................................                         23            23           -
   Netherlands.................................                         22            22           -
   Sweden......................................                         20            20           -
   United Kingdom..............................                         10            10           -
                                                                ------------  ------------   -----------
                                                                        96            96          -
                                                                ============  ============   ===========
</TABLE>

         ANCILLARY OPERATIONS:  Ancillary operations include (i) the reinsurance
of  policies  against  losses to goods  stored by  tenants  in our  self-storage
facilities,  (ii) sale of  merchandise  at our  self-storage  facilities,  (iii)
containerized  storage  operations,  (iv)  truck  rentals  at  our  self-storage
facilities  and (v)  commercial  property  operations,  and (vi)  management  of
facilities  owned by third-party  owners and facilities owned by affiliates that
are not included in our consolidated financial statements.

         The following table sets forth our ancillary operations:

                                       63

<PAGE>

                                            Three Months Ended March 31,
                                       -----------------------------------------
                                           2007           2006        Change
                                       ------------  ------------- -------------
                                                (Amounts in thousands)
Revenues:
    Tenant reinsurance premiums.....   $    13,819    $    6,786    $   7,033
    Merchandise sales...............         8,700         5,013        3,687
    Containerized storage...........         3,767         3,930         (163)
    Truck rentals...................         2,676         2,770          (94)
    Commercial property operations..         3,822         2,992          830
    Property management.............           677           605           72
                                       ------------  ------------- -------------
       Total revenues...............   $    33,461    $   22,096    $  11,365
                                       ------------  ------------- -------------
Cost of operations:
    Tenant reinsurance..............         4,563         3,092        1,471
    Merchandise sales...............         7,249         4,573        2,676
    Containerized storage...........         4,292         3,310          982
    Truck rentals...................         3,405         2,890          515
    Commercial property operations..         1,434         1,348           86
    Property management.............            58            61           (3)
                                       ------------  ------------- -------------
       Total cost of operations.....        21,001        15,274        5,727
                                       ------------  ------------- -------------
Depreciation:
    Tenant reinsurance..............             -             -            -
    Merchandise sales...............             -             -            -
    Containerized storage..........           (266)         (260)          (6)
    Truck rentals...................             -             -            -
    Commercial property operations..          (664)         (585)         (79)
    Property management.............             -             -            -
                                       ------------  ------------- -------------
       Total depreciation...........          (930)         (845)         (85)
                                       ------------  ------------- -------------
Net Income:
    Tenant reinsurance..............         9,256         3,694        5,562
    Merchandise sales...............         1,451           440        1,011
    Containerized storage...........          (791)          360       (1,151)
    Truck rentals...................          (729)         (120)        (609)
    Commercial property operations..         1,724         1,059          665
    Property management.............           619           544           75
                                       ------------  ------------- -------------
    Total net income................    $   11,530    $    5,977    $   5,553
                                       ============  ============= =============

         Our ancillary  operations have increased  significantly  in the quarter
ended March 31, 2007 as  compared to the same period in 2006.  This  increase is
attributable  primarily  to  the  self-storage  facilities  we  acquired  in the
Shurgard  merger,  which has given us more  locations  in which to  conduct  our
tenant  reinsurance  and  merchandise  activities,  as well as due to additional
commercial space acquired in the merger with Shurgard.

         TENANT REINSURANCE  OPERATIONS:  We reinsure policies offered through a
non-affiliated insurance broker against losses to goods stored by tenants in our
self-storage  facilities.  Revenues  are  comprised  of fees  charged to tenants
electing such policies.  Cost of operations  primarily includes claims paid that
are not covered by our outside third-party insurers, as well as claims adjusting
expenses.

         The  significant   increase  in  tenant  reinsurance  revenues  is  due
primarily to the  increase in  properties  associated  with the  acquisition  of
Shurgard.  In the first quarter of 2007,  tenant  reinsurance  revenues  totaled
$2,284,000 with respect to the United States  Shurgard  portfolio and $2,031,000

                                       64

<PAGE>

with respect to the European  Shurgard  portfolio.  Further  contributing to our
increase in tenant reinsurance revenues was higher rates, and an increase in the
percentage of our existing tenants retaining such policies. For the three months
ended March 31, 2007 and 2006,  approximately 42% and 32%, respectively,  of our
self-storage tenant base had such policies.

         The future level of tenant  reinsurance  revenues is largely  dependent
upon the number of new  tenants  electing  to  purchase  policies,  the level of
premiums  charged for such  insurance,  and the number of tenants that  continue
participating in the insurance program.

         The future cost of  operations  will be  dependent  primarily  upon the
level of losses incurred,  including the level of catastrophic  events,  such as
hurricanes, that occur and affect our properties.

         MERCHANDISE AND TRUCK RENTAL  OPERATIONS:  Our subsidiaries sell locks,
boxes,  and  packing  supplies  to our  tenants as well as the  general  public.
Revenues and cost of operations  for these  activities are included in the table
above  as  "Merchandise  Sales."  In  addition,   at  selected  locations,   our
subsidiaries maintain trucks on site for rent to our self-storage  customers and
the general public on a short-term basis for local use. In addition, we also act
as an agent for a national  truck rental  company to provide their rental trucks
to customers  for  long-distance  use. The revenues and cost of  operations  for
these activities are included in the table above as "Truck rentals."

         These  activities  generally  serve as an adjunct  to our  self-storage
operations  providing  our  tenants  with goods and  services  that they need in
connection with moving and storing their goods.

         The  significant  increase in merchandise  revenues is due primarily to
the increase in properties associated with the acquisition of Shurgard.  For the
three months ended March 31, 2007, merchandise revenues included $2,030,000 with
respect  to the  Shurgard  facilities  we  acquired  in the United  States,  and
$1,748,000 for the Shurgard facilities in Europe.

         The  primary  factors  impacting  the  level  of  operations  of  these
activities  is the level of  customer  and tenant  traffic  at our  self-storage
facilities, including the level of move-ins.

         For the three months ended March 31, 2007,  truck  revenues and cost of
operations,  respectively,  included  $356,000 and $444,000  with respect to the
Shurgard facilities we acquired in the U.S.

         CONTAINERIZED  STORAGE  OPERATIONS:  We have 13  containerized  storage
facilities  located in eight densely populated markets with  above-average  rent
and income.

         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 certain  non-core  services
which were eliminated,  such as handling and packing  customers' goods from city
to city.

         Direct operating costs principally  includes  payroll,  equipment lease
expense,  utilities and vehicle expenses (fuel and insurance).  Direct operating
costs for three months ended March 31, 2007 and 2006 also includes approximately
$1,152,000 and $182,000,  respectively,  in research and  development  costs. No
such costs were incurred during the three months ended March 31, 2006.

         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,  we have closed
certain  of  these  facilities  in  recent  years,  and we may  decide  to close
additional facilities in the future.

         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 PSB. Our investment
in PSB is accounted for using the equity method of accounting,  and  accordingly
our share of PSB's  earnings is  reflected as "Equity in earnings of real estate
entities," see below.

                                       65

<PAGE>

         The  significant  increase  in  commercial  property  revenues  is  due
principally  to commercial  space in the facilities we acquired from Shurgard in
the  United  States.  For the three  months  ended  March 31,  2007,  commercial
revenues included  $692,000 with respect to the Shurgard  facilities we acquired
in the United States.  Our commercial  operations are comprised of 1,561,000 net
rentable  square feet of  commercial  space,  which is  principally  operated at
certain of the self-storage facilities.

         Our commercial property operations consist primarily of facilities that
are at a stabilized level of operations, and generally reflect the conditions in
the  markets in which they  operate.  Other than the  continuing  year-over-year
growth due to the increase in commercial space in the Shurgard properties, we do
not expect any significant  growth in net operating  income from this segment of
our business for 2007.

         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 five limited  partnerships  at March 31, 2007. (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 months ended
March 31, 2007 and 2006  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:

                                             Three Months Ended March 31,
                                           -------------------------------------
                                             2007           2006       Change
                                           -----------   -----------  ----------
                                                 (Amounts in thousands)
Property operations:
  PSB                                      $  19,689    $   17,930   $  1,759
  Acquisition Joint Venture..............         98            86         12
  Other investments (1)..................        668           701        (33)
                                           -----------   -----------  ----------
                                              20,455        18,717      1,738
                                           -----------   -----------  ----------
Depreciation:
  PSB....................................     (9,496)       (9,039)      (457)
  Acquisition Joint Venture..............        (69)          (69)         -
  Other investments (1)..................       (190)         (146)       (44)
                                           -----------   -----------  ----------
                                              (9,755)       (9,254)      (501)
                                           -----------   -----------  ----------
Other: (2)
  PSB (3)................................     (6,703)       (5,915)      (788)
  Other investments (1)..................        (20)          (82)        62
                                           -----------   -----------  ----------
                                              (6,723)       (5,997)      (726)
                                           -----------   -----------  ----------
Total equity in earnings of real estate
entities................................   $   3,977     $   3,466    $   511
                                           ===========   ===========  ==========

(1)  Amounts  primarily reflect equity in earnings recorded for investments that
     have been held consistently throughout each of the three months ended March
     31, 2007 and 2006.

(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 $486,000  and  $224,000  for the three  months ended
     March 31, 2007 and 2006, respectively.

(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.

         Equity in earnings of real estate entities  includes our pro rata share
of the net  impact of  gains/losses  on sales of assets and  impairment  charges
relating to the  impending  sale of real  estate  assets as well as our pro rata

                                       66

<PAGE>

share of the impact of the  application  of EITF Topic  D-42 on  redemptions  of
preferred  securities  recorded by PSB.  Our net pro rata share from these items
resulted in a net  increase  of equity in  earnings  of  $312,000  for the three
months ended March 31, 2006 (none for the same period in 2007).

         Our future equity income from PSB will be dependent entirely upon PSB's
operating results.  Our investment in PSB provides us with some  diversification
into another asset type. We have no plans of disposing of our investment in PSB.
PSB's filings and selected  financial  information  can be accessed  through the
Securities and Exchange Commission, and on its website, www.psbusinessparks.com.

         In January 2004, we entered into a joint  venture  partnership  with an
institutional  investor  for the purpose of  acquiring  up to $125.0  million of
existing  self-storage  properties  in the United States from third parties (the
"Acquisition  Joint  Venture").  The  venture  is funded  entirely  with  equity
consisting of 30% from us and 70% from the institutional  investor. As described
more fully in Note 2 to our condensed  consolidated financial statements for the
three months ended March 31, 2007,  our pro-rata  share of earnings with respect
to two of the facilities acquired directly from third parties by the Acquisition
Joint  Venture in 2004,  at an aggregate  cost of  $9,086,000,  are reflected in
Equity in Earnings in the table above. Our initial investment in the Acquisition
Joint Venture with respect to these two facilities was approximately $2,930,000.
Our future equity in earnings with respect to the Acquisition Joint Venture will
be dependent upon the level of earnings generated by these two properties.

         The  "Other  Investments"  are  comprised  primarily  of our  equity in
earnings  from  four  limited  partnerships,  for  which we held an  approximate
consistent  level of equity interest  throughout 2006 and the first three months
of 2007. The Company formed these limited partnerships during the 1980's. We are
the  general  partner in each  limited  partnership,  and  manage  each of these
facilities for a management fee that is included in "Ancillary  Operations." 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.

         Our future  earnings  with respect to the "Other  Investments"  will be
dependent  upon the operating  results of the 22  self-storage  facilities  that
these  entities  own. The  operating  characteristics  of these  facilities  are
similar to those of the Company's  self-storage  facilities,  and are subject to
the same operational issues as the Same Store Facilities as discussed above. See
Note 5 to our  condensed  consolidated  financial  statements  for the operating
results of these entities for the three months ended March 31, 2007 and 2006.

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

         INTEREST AND OTHER INCOME: Interest and other income was $2,125,000 and
$5,075,000  for the three  months  ended March 31, 2007 and 2006,  respectively.
This decrease is due to lower average cash balances,  partially offset by higher
interest rates on invested cash balances as compared to the same period in 2006.

         DEPRECIATION AND  AMORTIZATION:  Depreciation and amortization  expense
was  $176,481,000  and $50,028,000 for the three months ended March 31, 2007 and
2006, respectively.  The increase in depreciation and amortization for the three
months  ended  March 31,  2007,  as  compared  to the same period in 2006 is due
primarily to  $85,784,000  in  amortization  expense  recorded  during the three
months ended March 31, 2007 on the intangible  assets,  which we acquired in the
Shurgard merger.  These intangible assets were valued in our purchase accounting
analysis at $565,341,000 and are being amortized relative to the expected future
benefit of the tenants in place to each period,  with the land lease intangibles
being amortized relative to the benefit of the below-market lease.  Amortization
is  expected  to be  approximately  $69,200,000  in the second  quarter of 2007,
$51,600,000  in the third quarter of 2007 and  $36,700,000 in the fourth quarter
of 2007.

         The remainder of the increase in depreciation  and amortization for the
three  months ended March 31, 2007 as compared to the same period in 2006 is due
primarily  to  buildings  acquired  in the  Shurgard  merger  and  to our  newly
developed  and  acquired  facilities.  See  Notes  2  and  3  to  our  condensed
consolidated  financial statements for further discussion of the Shurgard merger
and the acquisition of tangible and intangible assets.

                                       67

<PAGE>

         GENERAL  AND  ADMINISTRATIVE:  General and  administrative  expense was
$16,516,000  and  $6,779,000 for the three months ended March 31, 2007 and 2006,
respectively.  General and administrative  expense principally consists of state
income taxes,  investor relations expenses and corporate and executive salaries.
In addition,  general and  administrative  expenses  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  and  stock-based  compensation,  and product  research  and
development expenditures.

         A portion of our increase in general and administrative  expense is due
to certain significant  nonrecurring  factors,  including a) additional expenses
incurred in connection with the merger with Shurgard totaling approximately $4.0
million  and $1.2  million for the three  months  ended March 31, 2007 and 2006,
respectively and b) certain additional  nonrecurring  expenses,  including legal
fees  associated with the debt retirement in Europe,  our  redomestication  as a
Maryland REIT, and European joint venture arbitration costs.

         We expect that for the  remainder of 2007,  general and  administrative
expense  will  be  approximately  $30  million  to $35  million.  This  includes
additional  merger related expenses of approximately $2 million and a variety of
integration and repositioning expenses.

         INTEREST EXPENSE: Interest expense was $16,808,000 for the three months
ended March 31, 2007,  as compared to  $1,557,000,  for the same period in 2006.
Interest capitalized during the three months ended March 31, 2007, was $741,000,
compared  to  $716,000  for the same  period in 2006.  The  increase in interest
expense is primarily  due to  $14,805,000  in interest  incurred on the debt and
other  obligations  we assumed in the  Shurgard  merger,  as well as $727,000 of
interest on borrowings  against our line of credit.  These amounts are partially
offset by a decrease of $256,000  in interest  expense due to lower  balances on
our outstanding  notes. See also Notes 6, 7 and 8 to our condensed  consolidated
financial  statements for a schedule of our debt balances,  principal  repayment
requirements, and average interest rates.

         During the three months ended March 31, 2007,  we paid $96,000  related
to interest rate and currency  swaps  acquired in the Shurgard  merger.  We have
included  this  $96,000  as a  reduction  of income on  derivatives,  net on our
unaudited  condensed  consolidated  statement of operations for the three months
ended March 31, 2007. See discussion below under Income from Derivatives, Net.

         FOREIGN EXCHANGE GAIN: Our foreign  exchange gain is primarily  related
to intercompany balances between our European subsidiaries and our United States
operations.  When  such  intercompany  balances  are  expected  to settle in the
foreseeable  future,  changes in  exchange  rates are  recorded in income in the
period in which the change occurs. For the three months ended March 31, 2007, we
recorded  foreign  currency  exchange  gains  of  $5,040,000  on  our  condensed
consolidated  statement of income,  driven  primarily by the weakening of the US
dollar  relative to the Euro at March 31, 2007 as compared to December 31, 2006.
Future foreign  exchange gains will be dependent  primarily upon the movement of
the Euro relative to the US Dollar,  and the level of our intercompany  debt. At
March 31, 2007 our European  subsidiaries had  intercompany  balances payable to
our United States operations totaling approximately $531 million.

         HURRICANE  CASUALTY  GAIN: Our policy is to record  casualty  losses or
gains in the period the casualty  occurs equal to the  differential  between (a)
the book value of assets destroyed and (b) insurance  proceeds,  if any, that we
expect  to  receive  in  accordance  with  our  insurance  contracts.  Potential
insurance proceeds that are subject to uncertainties,  such as interpretation of
deductible  provisions of the governing agreements or the estimation of costs of
restoration,  are treated as a contingent  proceeds in accordance with Statement
of Financial  Accounting  Standards No. 5 ("SFAS 5"), and not recorded until the
uncertainties  are  satisfied.  During the first  quarter of 2007, we recorded a
casualty  gain  totaling  $2,665,000,   representing  the  realization  of  such
contingent proceeds relating to hurricanes which occurred in 2005.

         EXPENSE FROM DERIVATIVES, NET: This represents a net loss as recognized
for the  changes  in the  fair  market  values  of  those  derivative  financial
instruments  that do not qualify for hedge  accounting  treatment under SFAS No.
133 combined with net payments from derivative instruments. The loss of $762,000
for the three months ended March 31, 2007 is primarily due to losses of $666,000
in changes in value of our interest rate swaps and currency forward

                                       68

<PAGE>

contracts  on the euro that do not qualify for hedge  accounting  combined  with
payments of $96,000 relative to certain interest rate swaps and foreign currency
exchange  derivatives  acquired in the Shurgard merger as described under Note 3
to our condensed consolidated financial statements.

         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 months ended March 31, 2007 and 2006:

                                                 Three Months Ended
                                                    March 31,
                                              ----------------------
                                                 2007        2006       Change
                                              ------------ --------- -----------
                                                   (Amounts in thousands)
Preferred partnership interests (a).......... $   5,403   $  3,591   $   1,812
Convertible Partnership Units (b)............        (8)       116         (71)
Shurgard U.S. minority interests (c).........       165          -         165
Shurgard European minority interests (d).....    (3,754)         -      (3,754)
Other minority interests (e).................     3,977      3,452         472
                                              ----------- ---------- -----------
    Total minority interests in income....... $   5,783   $  7,159   $  (1,376)
                                              =========== ========== ===========

(a)  On May 9, 2006, one of our Consolidated Entities issued $100,000,000 of its
     7.25%  Series  J  Preferred   Partnership   Units.   Accordingly,   ongoing
     distributions   with  respect  to  preferred   partnershjp   interest  have
     increased.

(b)  These amounts reflect the minority interests represented by the Convertible
     Partnership  Units  (see Note 10 to our  condensed  consolidated  financial
     statements).

(c)  These amounts reflect income allocated to minority interests in entities we
     acquired in the merger with Shurgard,  and include $208,000 in depreciation
     in the three months ended March 31, 2007.

(d)  These  amounts  reflect  income  allocated  to our minority  partner's  80%
     interest  in  the  European  joint  ventures,  First  Shurgard  and  Second
     Shurgard.  These amounts are negative  because the related  joint  ventures
     operations  are at a loss  position.  Included in these  minority  interest
     amounts  is  $2,833,000  for the  three  months  ended  March  31,  2007 in
     depreciation,  $3,446,000  in interest  expense,  and  $606,000 in minority
     interest in income from derivatives and foreign exchange.

(e)  These amounts  reflect  income  allocated to minority  interests  that were
     outstanding  consistently  throughout the three months ended March 31, 2007
     and  2006.   Included  in  minority  interest  in  income  is  $167,000  in
     depreciation   expense  for  the  three   months   ended  March  31,  2007,
     respectively, as compared to $162,000 for the same periods in 2006.

         Other minority interests reflect income allocated to minority interests
that have  maintained a  consistent  level of interest  throughout  2006 and the
three months ended March 31, 2007,  comprised of investments in the Consolidated
Entities  described  in  Note  10  to  our  condensed   consolidated   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.

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 used to
make  distributions 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 scheduled and optional
principal payments on debt and for reinvestment.

                                       69
<PAGE>

<TABLE>
<CAPTION>

                                                                       Three Months Ended March 31,
                                                                   --------------------------------
                                                                        2007              2006
                                                                   ---------------- ---------------
                                                                          (Amounts in thousands)
<S>                                                                 <C>              <C>
Net cash provided by operating activities(a)....................    $    200,944     $   162,833

Distributions to minority interest (Preferred Units)............          (5,403)         (3,591)
Distributions to minority interest (common equity)..............          (5,501)         (3,712)
                                                                   ---------------- ---------------
Cash from operations allocable to our shareholders..............         190,040         155,530
Capital improvements to maintain our facilities.................          (8,307)         (8,379)
                                                                   ---------------- ---------------
 Remaining operating cash flow available for distributions to
 our shareholders...............................................         181,733         147,151

Distributions paid:
  Preferred stock dividends.....................................         (58,776)        (46,615)
  Equity Stock, Series A dividends..............................          (5,356)         (5,356)
  Distributions to Common shareholders..........................         (84,993)        (64,298)
                                                                   ---------------- ---------------
Cash available for principal payments on debt and reinvestment (b)  $     32,608     $    30,882
                                                                   ================ ===============
</TABLE>

(a)  Represents net cash provided from operating  activities as presented on our
     March 31, 2007 Condensed Consolidated Statements of Cash Flows.

(b)  Cash available for principal  payments on debt and and  reinvestment is net
     of approximately $35,930,000 and $10,644,000,  respectively,  in reductions
     to cash flow provided from operations, for the three months ended March 31,
     2007 and 2006. These amounts are presented as "other operating  activities"
     on our  statement of cash flows,  primarily  representing  changes in other
     assets and other liabilities. The amount for the quarter is not necessarily
     indicative  of the amounts to be expected  for the full year.  For example,
     while in the first  quarter of 2006,  these cash flows were a reduction  of
     $10,644,000,  for the  full  year  2006,  the  related  cash  flows  were a
     reduction of $633,000.

         Cash  available  for  principal   payments  on  debt  and  reinvestment
increased  from $30.9  million in the three months ended March 31, 2006 to $32.6
million in the three  months  ended March 31, 2007  principally  due to improved
operations  from our  Same  Store  group  of  facilities,  continued  growth  in
operations from our newly developed and recently expanded facilities, as well as
continued growth in our recently acquired  self-storage  facilities included the
facilities  acquired  in the merger  with  Shurgard,  offset by changes in other
assets and  liabilities  that  represented a reduction in operating cash flow of
$35,930,000 and $10,644,000, respectively, for the quarter ending March 31, 2007
and 2006.

         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 and debt obligations with
(i) cash on hand at March 31, 2007,  (ii)  internally  generated  retained  cash
flows and (iii) 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.

         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 enable us to refinance  higher coupon  preferred stock
with new preferred  stock at lower rates if  appropriate,  (iv) preferred  stock
does not contain covenants,  thus allowing us to maintain significant  financial
flexibility,  and (v) dividends on the preferred stock can be applied to satisfy
our REIT distribution requirements.

         Our credit ratings on each of our series of Cumulative  Preferred Stock
are "Baa1" by Moody's and "BBB+" by Standard & Poor's.

                                       70
<PAGE>

         On March  27,  2007,  we  entered  into a  five-year  revolving  credit
agreement  (the  "Credit  Agreement")  with an  aggregate  limit with respect to
borrowings,  letters  of credit  and  foreign  currency  borrowings  in Euros or
British pounds of $300 million. Amounts drawn under the Credit Agreement bear an
annual  interest rate ranging from the London  Interbank  Offered Rate ("LIBOR")
plus 0.35% to LIBOR plus 1.00% depending on our credit ratings (LIBOR plus 0.35%
at March 31, 2007). In addition, we are required to pay a quarterly facility fee
ranging from 0.10% per annum to 0.25% per annum  depending on our credit ratings
(0.10% per annum at March 31,  2007).  Outstanding  borrowings  on our revolving
line of credit  totaled  $132 million and $100 million at March 31, 2007 and May
8, 2007,  respectively.  Our previous revolving line of credit with an aggregate
limit of $200 million matured on April 1, 2007. We had no outstanding borrowings
on the previous credit facility at March 31, 2007.

         The Credit Agreement includes various  covenants,  the more significant
of which  require us to (i)  maintain a leverage  ratio (as defined  therein) of
less than 0.55 to 1.00, (ii) maintain certain fixed charge and interest coverage
ratios  (as  defined  therein)  of not  less  than  1.5 to 1.0 and  1.75 to 1.0,
respectively,  and (iii)  maintain  a minimum  total  shareholders'  equity  (as
defined  therein).  We were in  compliance  with  all  covenants  of the  Credit
Agreement at March 31, 2007.

         RECENT  ISSUANCE AND  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.

         On January 9, 2007, we issued our 6.625%  Series M Preferred  Stock for
gross  proceeds of $500  million.  On January 18,  2007,  we redeemed our 7.625%
Series T Cumulative  Preferred Stock totaling $152.2 million and on February 19,
2007, we redeemed our 7.625% Series U Cumulative Preferred Stock totaling $150.0
million.  These  redemptions  were  funded  with cash on hand and  funds  raised
through  the  issuance  of our  Series M  preferred  stock.  We  currently  have
approximately  $172.5  million of additional  preferred  securities  that become
redeemable  at our option during the remainder of 2007. We believe that our size
and financial flexibility enables us to access capital when appropriate

         From  time-to-time,  we may raise additional  capital primarily through
the issuance of lower rate  preferred  securities,  in advance of the redemption
dates to ensure that we have  available  funds to redeem these  securities.  The
timing and our ability to issue additional preferred securities are dependent on
many factors.  There is no assurance that we will be able to raise the necessary
capital and at appropriate rates to redeem these securities.

         REQUIREMENT  TO PAY  DISTRIBUTIONS:  We 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.

         We estimate the distribution requirement with respect to our Preferred
Stock outstanding at March 31, 2007 to be approximately $229.3 million per year.
We estimate that the annual distribution requirement with respect to the
preferred partnership units outstanding at March 31, 2007, to be approximately
$21.6 million per year.

         During  the three  months  ended  March  31,  2007,  we paid  dividends
totaling  $84,993,000  ($0.50  per  common  share) to the  holders of our common
stock. Based upon shares outstanding at May 7, 2007 and a quarterly distribution
of $0.50 per share,  which was declared by the Board of Directors on May 3, 2007
and payable on June 28, 2007, to  shareholders of record as of June 15, 2007, we
estimate a dividend  payment with  respect to our common stock of  approximately
$85.0 million for the second quarter of 2007.

         During each of the three months ended March 31, 2007 and 2006,  we paid
cash dividends totaling $5,356,000 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

                                       71

<PAGE>

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 March 31, 2007,  we estimate the total
regular  distribution  for the second quarter of 2007 to be  approximately  $5.4
million.

         CAPITAL  IMPROVEMENT  REQUIREMENTS:   During  2007,  we  have  budgeted
approximately $65 million for capital  improvements for our facilities.  Capital
improvements include major repairs or replacements to the facilities, which keep
the  facilities in good  operating  condition and maintain  their visual appeal.
Capital  improvements  do not  include  costs  relating  to the  development  or
expansion  of  facilities.  During the three  months  ended March 31,  2007,  we
incurred capital improvements of approximately $8,307,000.  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: At March 31, 2007, we have total outstanding
debt of  approximately  $1.2 billion.  We do not believe we have any significant
refinancing risks with respect to our debt.

         In connection with the Shurgard merger, we assumed  approximately  $2.0
billion of debt from Shurgard and its affiliates. On January 2, 2007, we retired
approximately  $429 million of debt assumed  from  Shurgard  that was secured by
substantially all of our wholly-owned facilities in Europe.

         On April 25, 2007,  the 7.625%  stated rate  domestic  unsecured  notes
payable that we assumed in connection with the merger with Shurgard  matured and
we repaid  approximately  $51,900,000 in  outstanding  principal and interest on
these notes.

         Our  portfolio  of  real  estate   facilities   remains   substantially
unencumbered.  At March 31, 2007, we have domestic  mortgage debt outstanding of
$256.6 million, which encumbers 97 self-storage facilities with an aggregate net
book value of approximately $646 million. In Europe,  mortgage debt at March 31,
2007 totaled $305.3 million and encumbers 65 facilities,  owned by  consolidated
joint ventures,  with an aggregate net book value of approximately  $469 million
at March 31, 2007.

         We anticipate that our retained operating cash flow will continue to be
sufficient to enable us to make scheduled principal payments.  See Notes 7 and 8
to our condensed  consolidated  financial  statements for approximate  principal
maturities of such borrowings. It is our current intention to fully amortize our
outstanding  debt as opposed to refinance debt maturities with additional  debt.
Alternatively,  we may prepay debt and finance such  prepayments  with  retained
operating cash flow or proceeds from the issuance of preferred securities.

         ACQUISITION  AND  DEVELOPMENT  OF  FACILITIES:  During  2007,  we  will
continue  to seek to  acquire  additional  self-storage  facilities  from  third
parties;  however,  it is  difficult  to  estimate  the  amount  of third  party
acquisitions we will undertake.

         At March 31, 2007, we have a  development  "pipeline" of 48 projects in
the  U.S.  and  seven  projects  in  Europe,   consisting  of  newly   developed
self-storage  facilities,  conversion of space at facilities that was previously
used  for  containerized   storage  and  expansions  to  existing   self-storage
facilities.  At  March  31,  2007,  we have  acquired  the land for all of these
projects.

         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 to complete  development to be
approximately  $189.3 million and will be incurred over the next 24 months.  The
following table sets forth certain  information  with respect to our development
pipeline.

                                       72

<PAGE>

DEVELOPMENT PIPELINE SUMMARY
AS OF MARCH 31, 2007
<TABLE>
<CAPTION>

                                          Number of   Net rentable     Total estimated        Costs incurred
                                          projects       sq. ft.       development costs     through 03/31/07     Costs to complete
                                        ------------  ------------   -------------------    ------------------   -------------------
                                                                     (Amounts in thousands, except number of projects)
<S>                                          <C>           <C>        <C>                   <C>                   <C>
U.S. under construction                      9             586        $      55,135         $      29,687         $      25,448
U.S. in development, land acquired          39           1,684              136,508                 7,773               128,735
Europe under construction, land acquired     7             351               74,234                39,132                35,102
                                        ------------  ------------   -------------------    ------------------   -------------------
Total Development Pipeline                  55           2,621        $     265,877         $      76,592         $     189,285
                                        ============  ============   ===================    ==================   ===================
</TABLE>


         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 to complete  development will
be incurred over the next 24 months.  Substantially  all of the future costs for
the European projects will be funded by the Shurgard European Joint Ventures, in
which we have a 20% interest,  and which have a substantial degree of funding by
debt.

CONTRACTUAL OBLIGATIONS

         Our  significant  contractual  obligations  at March 31, 2007 and their
impact on our cash flows and liquidity are summarized below for the years ending
December 31 (amounts in thousands):
<TABLE>
<CAPTION>

                                                Total        2007         2008          2009         2010       2011      Thereafter
                                             -----------  ----------   -----------   ----------   ---------- ----------  -----------
<S>                                          <C>          <C>          <C>            <C>         <C>        <C>         <C>
Long-term debt (1) ......................    $1,245,073   $ 100,305    $  252,831     $ 182,975   $ 49,438   $  255,531  $  403,993

Line of credit and other short-term bank
financing (2)............................       133,145     133,145             -             -          -            -           -

Capital leases (3).......................        38,665         465           720           734        681        1,319      34,746

Operating leases (4).....................       262,989      16,153        17,949        14,914     11,252        9,976     192,745

Construction commitments (5).............        60,550      49,230        11,320             -          -            -           -
                                             -----------  ----------   -----------   ----------   ---------- ----------  -----------
Total....................................    $1,740,422   $ 299,298    $  282,820     $ 198,623   $ 61,371   $  266,826  $  631,484
                                             ===========  ==========   ===========   ==========   ========== ==========  ===========
</TABLE>

(1)  Amounts  include  interest  payments  on our notes  payable  based on their
     contractual  terms.  See  Note 7 to our  condensed  consolidated  financial
     statements for additional  information on our notes payable.  Debt to Joint
     Venture  Partner is not reflected since we have not exercised our option to
     acquire our partner's interest.

(2)  Amounts include borrowings under our $300 million revolving line of credit.
     See  Note  6  to  our  condensed   consolidated  financial  statements  for
     additional  information  on our line of credit  and other  short-term  bank
     financing.

(3)  This  line item  reflects  amounts  due on five  European  properties  with
     commitments  extending  to April 2052 that we  assumed  in the merger  with
     Shurgard.

(4)  We lease trucks,  land,  equipment and office space under various operating
     leases. Certain leases are cancelable with substantial penalties.

(5)  Includes  obligations for facilities  currently under construction at March
     31, 2007 as described  above under  "Acquisition  and  Development  of Real
     Estate Facilities."

         In January 2004, we entered into a joint  venture  partnership  with an
institutional  investor  for the  purpose of  acquiring  up to  $125,000,000  of
existing  self-storage  properties  in the United States from third parties (the
"Acquisition Joint Venture"). As described more fully in Note 8 to our March 31,
2007  condensed   consolidated   financial  statements,   our  partner's  equity

                                       73
<PAGE>

contributions with respect to certain  transactions are classified as debt under
the  caption  "Debt to Joint  Venture  Partner"  in our  condensed  consolidated
balance  sheets.  At March  31,  2007,  our Debt to Joint  Venture  Partner  was
$37,304,000. For a six-month period beginning 54 months after formation, we have
the right to acquire our partner's  interest  based upon the market value of the
properties.  If we do not exercise our option, our partner can elect to purchase
our  interest  in the  properties  during a  six-month  period  commencing  upon
expiration of our six-month option period.  If our partner fails to exercise its
option,  the Acquisition  Joint Venture will be liquidated and the proceeds will
be distributed to the partners according to the joint venture agreement. We have
not included our Debt to Joint Venture  Partner as a  contractual  obligation in
the  table  above,  since we only  have the  right,  rather  than a  contractual
obligation, to acquire our partner's interest.

OFF-BALANCE SHEET ARRANGEMENTS

         At March 31, 2007 we had no off-balance  sheet  arrangements as defined
under Regulation S-K 303(a)(4) and the instructions thereto.

         Stock  Repurchase  Program:  Our Board of Directors has  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.  During  2004,  we
repurchased  445,700 shares for  approximately  $20.3  million.  During 2005, we
repurchased  84,000 shares for approximately  $5.0 million.  During 2006, we did
not repurchase any shares.  From the inception of the repurchase program through
March 31, 2007, we have repurchased a total of 22,201,720 shares of common stock
at an aggregate cost of approximately $567.2 million.

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 either of common
stock or preferred  stock.  At March 31, 2007, our debt as a percentage of total
shareholders' equity (based on book values) was 13.9%.

         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 V - September  30,  2007,  Series W - October 6, 2008,
Series X - November  13, 2008,  Series Y - January 2, 2009,  Series Z - March 5,
2009,  Series A - March 31, 2009, Series B - June 30, 2009, Series C - September
13, 2009,  Series D - February 28, 2010,  Series E - April 27, 2010,  Series F -
August 23,  2010,  Series G - December  12,  2010,  Series H - January 19, 2011,
Series I - May 3, 2011,  Series K - August 8, 2011,  Series L - October 20, 2011
and Series M - January 9, 2012. On or after the  respective  dates,  each of the
series of Preferred  Stock will be redeemable  at the option of the Company,  in
whole or in  part,  at $25 per  depositary  share  (or  share in the case of the
Series Y), plus accrued and unpaid dividends through the redemption date.

         Our market risk  sensitive  instruments  include notes  payable,  which
totaled $1,032,056,000 at March 31, 2007.

         We are exposed to changes in interest rates primarily from the floating
rate debt arrangements we acquired in the merger with Shurgard.

         We have foreign  currency  exposures  related to our  investment in the
construction, acquisition, and operation of storage centers in countries outside
the U.S. to the extent such  activities are financed with financial  instruments
or equity denominated in non-functional  currencies. The aggregate book value of
our real estate and  intangibles  was  approximately  $1.5  billion at March 31,
2007.  Since all foreign debt is  denominated  in the  corresponding  functional
currency,  our currency  exposure is limited to our equity  investment  in those
countries.  Countries  in  which  Shurgard  had  exposure  to  foreign  currency
fluctuations include Belgium, France, the Netherlands,  Sweden, Denmark, Germany
and the United Kingdom.

         The table below summarizes annual debt maturities and  weighted-average
interest  rates  on our  outstanding  debt  at the end of each  year  (based  on
relevant  LIBOR of 5.26%  and a  EURIBOR  of  3.87%  at March  31,  2007 and the
applicable  forward  curve for  following  years) and fair  values  required  to
evaluate our expected  cash-flows  under debt  agreements and our sensitivity to
interest rate changes at March 31, 2007 (dollar amounts in thousands).

                                       74
<PAGE>

<TABLE>
<CAPTION>

                                      2007           2008         2009             2010          2011
                                 ------------   ------------  -------------   -------------   ----------
<S>                              <C>             <C>           <C>             <C>             <C>
Fixed rate debt................  $  58,887       $ 30,876      $   12,568      $   14,672      $228,365
Average interest rate..........      6.52%          6.37%           6.01%           6.10%         5.83%
----------------------------------------------------------------------------------------------------------

Variable rate debt (1).........  $ 132,000       $      -      $        -      $        -      $     -
Average interest rate..........      5.67%
----------------------------------------------------------------------------------------------------------
Variable rate debt.............  $     585       $      -      $        -      $        -      $     -
Average interest rate..........      8.00%
----------------------------------------------------------------------------------------------------------
Variable rate EURIBOR debt (2).  $       -       $174,667      $  130,666      $        -      $     -
Average interest rate..........      6.16%          6.16%
----------------------------------------------------------------------------------------------------------
Interest rate swaps
Swap on EURIBOR................  $       -       $    509      $    1,343      $        -      $     -

</TABLE>


<TABLE>
<CAPTION>

                                  Thereafter       Total       Fair Value
                                 -------------  ------------ --------------
<S>                               <C>            <C>            <C>
Fixed rate debt................   $ 374,072      $  719,440     $ 719,440
Average interest rate..........        5.79%
--------------------------------------------------------------------------------

Variable rate debt (1).........   $       -      $  132,000     $ 132,000
Average interest rate..........
--------------------------------------------------------------------------------
Variable rate debt.............   $       -      $      585     $     585
Average interest rate..........
--------------------------------------------------------------------------------
Variable rate EURIBOR debt (2).   $       -      $  305,333     $ 305,333
Average interest rate..........
--------------------------------------------------------------------------------
Interest rate swaps
Swap on EURIBOR................   $       -      $    1,852     $   1,852

</TABLE>


(1)  Amounts include borrowings under our line of credit, which expires in 2012.

(2)  First   Shurgard  and  Second   Shurgard  have  senior  credit   agreements
     denominated  in euros to borrow,  in  aggregate,  up to  (euro)271  million
     ($361.3  million as of March 31, 2007). As of March 31, 2007, the available
     amount under those credit  facilities  was in  aggregate  (euro)42  million
     ($56.0 million).

         At March 31, 2007, through our merger with Shurgard, we were party to
pay-fixed, receive-variable interest rate swaps. The notional amounts, the
weighted-average pay rates and the terms of these agreements are summarized as
follows:
<TABLE>
<CAPTION>

                                                2007        2008       2009       2010       2011   Thereafter
                                           ------------ ---------- -----------  ---------- -------- ----------
<S>                                        <C>          <C>        <C>          <C>        <C>       <C>
Notional amounts (in millions)...........  $    242.6   $   235.0  $   118.0    $     -    $    -    $    -
Weighted average interest rate...........       3.76%       3.76%      3.73%

</TABLE>

         Based on our outstanding  variable-rate  EURIBOR debt and interest rate
swaps at March 31, 2007, a  hypothetical  increase in the interest  rates of 100
basis points would cause the value of our  derivative  financial  instruments to
increase by $3.6 million.  Conversely,  a hypothetical  decrease in the interest
rates of 100 basis  points  would  cause the value of our  derivative  financial
instruments to decrease by $3.8 million.

         On January 2, 2007,  we prepaid the  (euro)325  million  collateralized
notes ($429 million at December 31, 2006) at our European  operations  that were
otherwise  payable in 2011. We also terminated the related European currency and
interest rate hedges.  Accordingly,  the remaining debt in Europe relates to the
joint venture properties,  in which we have a 20% equity interest, and which are
consolidated for financial reporting purposes.

                                       75
<PAGE>

ITEM 4.  CONTROLS AND PROCEDURES

         The Company  maintains  disclosure  controls  and  procedures  that are
designed to ensure that  information  required  to be  disclosed  in reports the
Company  files and  submits  under the  Exchange  Act, is  recorded,  processed,
summarized and reported within the time periods specified in accordance with SEC
guidelines  and  that  such   information  is   communicated  to  the  Company's
management,  including its Chief Executive Officer and Chief Financial  Officer,
to allow timely decisions  regarding required disclosure based on the definition
of "disclosure  controls and procedures" in Rules 13a-15(e) of the Exchange Act.


In designing and evaluating the disclosure  controls and procedures,  management
recognized  that any controls and  procedures,  no matter how well  designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives  and  management  necessarily  was  required to apply its judgment in
evaluating the cost-benefit  relationship of possible controls and procedures in
reaching that level of reasonable  assurance.  Also, the Company has investments
in certain  unconsolidated  entities.  As the Company does not control or manage
these  entities,  its disclosure  controls and  procedures  with respect to such
entities are substantially  more limited than those it maintains with respect to
its consolidated subsidiaries.

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

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

                                       76

<PAGE>

PART II.   OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

         The information set forth under the heading "Legal Matters" in Note 15
to the Condensed Consolidated Financial Statements in this Form 10-Q is
incorporated by reference in this Item 1.

 Item 1A.  Risk Factors

         In addition to the other information in our Form 10-Q and our Form 10-K
for the year ended December 31, 2006, you should consider the following  factors
in evaluating the Company:

WE ARE SUBJECT TO ADDITIONAL RISKS AS A RESULT OF THE SHURGARD MERGER.

         In addition to the general risks related to real estate described below
which may also adversely impact  Shurgard's  operations,  we are also subject to
the following  risks in connection  with the Shurgard  merger and completing the
integration of Shurgard into our operations.

         We have never undertaken to integrate a company as large as Shurgard or
one with overseas operations. To fully realize the anticipated benefits from the
merger,  we must  successfully  complete the  combination  of the  businesses of
Public  Storage and Shurgard in a manner that  permits  those cost savings to be
realized.  It is possible that the integration process could result in a decline
in occupancy  and/or rental rates,  the  disruption  of each  company's  ongoing
businesses or inconsistencies  in standards,  controls,  procedures,  practices,
policies and  compensation  arrangements  that  adversely  affect our ability to
maintain  relationships with tenants and employees or to achieve the anticipated
benefits of the merger.

         We also acquired Shurgard's international operations in Europe. We have
limited  experience  in  European  operations,  which may  adversely  impact our
ability to operate  profitably in Europe.  In addition,  these  operations  have
specific inherent risks, including without limitation the following:

      o    currency risks,  including currency fluctuations and risks related to
           foreign currency hedging activities;

      o    unexpected changes in legislative and regulatory requirements;

      o    potentially adverse tax burdens;

      o    burdens   of   complying   with   different   permitting   standards,
           environmental and labor laws and a wide variety of foreign laws;

      o    obstacles to the repatriation of earnings and cash;

      o    regional, national and local political uncertainty;

      o    economic slowdown and/or downturn in foreign markets;

      o    difficulties in staffing and managing international operations;

      o    reduced protection for intellectual property in some countries; and

      o    inability to effectively  control less than wholly-owned partnerships
           and joint ventures.

         Shurgard also held many of its  properties  through  interests in joint
ventures  that we acquired  and which have  additional  risks,  including  risks
related to the financial  strength,  common  business  goals and  strategies and
cooperation  of the  venture  partner,  as well as the  inability  to take  some
actions that may require approval by the venture partner. In addition,  Shurgard
held  substantially  all of its real  estate  investments  in Europe  indirectly
through  partnerships  and  joint  venture  arrangements.  If we are  unable  to

                                       77
<PAGE>

effectively  control  these  indirect  investments,  there  is a risk  that  our
ownership of the joint  ventures  could cause us to lose our REIT status.  These
investments  also carry the risks that we may not control the legal  entity that
has title to the real  estate,  and the risk that these  investments  may not be
easily sold or readily accepted as collateral by our lenders.

         Some of the  facilities  we  acquired  in the  Shurgard  merger will be
subject to property tax reappraisal that could increase property tax expense and
adversely  affect our  profitability.  Up to 17% of the domestic  properties  we
acquired  in the  merger are  located  in  jurisdictions  that may  provide  for
property  tax  reappraisal  upon a change  of  ownership  and so may face such a
reassessment.

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

         At March 31,  2007,  B.  Wayne  Hughes,  Chairman  of the Board and his
family  (the  "Hughes  family")  owned  approximately  26.7%  of  our  aggregate
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.  Our  Board  has
authorized the Hughes family to acquire additional shares of our common stock to
maintain their pre-merger holding percentage. 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 OR SHURGARD FAILED TO QUALIFY AS A
REIT.

         We have assumed,  based on public filings, that Shurgard qualified as a
real estate  investment  trust for United  States  federal  income tax purposes,
referred  to  hereinafter  as a REIT,  and that we will be able to  continue  to
qualify as a REIT following the Shurgard merger.  However, if Shurgard failed to
qualify as a REIT, we generally would have succeeded to or incurred  significant
tax  liabilities  (including  the  significant  tax  liability  that  would have
resulted from the deemed sale of assets by Shurgard  pursuant to the merger) and
we could possibly lose our REIT status should disqualifying  activities continue
after the Shurgard merger.

         Investors  are also  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 with respect to each year at least
90% of our REIT taxable income to our shareholders.  Other restrictions apply to
our  income and  assets.  Our REIT  status is also  dependent  upon the  ongoing
qualification of our affiliate,  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 are unable
to avail  ourselves  of certain  savings  provisions  set forth in the  Internal
Revenue Code of 1986,  we would be subject to federal  income tax 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  and would

                                       78
<PAGE>

adversely  affect our  earnings.  As a result,  our failure to qualify as a REIT
during any  taxable  year could have a material  adverse  effect upon us and our
shareholders.  Furthermore, unless certain relief provisions apply, we would not
be eligible to elect REIT status again until the fifth  taxable year that begins
after the first year for which we fail to qualify.

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

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

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

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

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

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

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

      o    changes in general economic or local conditions;

      o    natural disasters, such as earthquakes;

      o    potential terrorist attacks;

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

      o    the impact of environmental protection laws;

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

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

      o    tenant claims.

         In addition,  we self-insure  certain of our property loss,  liability,
and workers  compensation  risks for which other real estate  companies  may use
third-party  insurers.  This  results  in a higher  risk of losses  that are not
covered  by  third-party  insurance  contracts,  as  described  in Note 15 under
"Insurance and Loss Exposure" to our consolidated  financial statements at March
31, 2007.

                                       79

<PAGE>

         There is significant competition among self-storage facilities and from
other storage alternatives.  Most of our properties are self-storage facilities,
which generated most of our revenue for the quarter ended March 31, 2007.  Local
market  conditions will play a significant  part in how competition  will affect
us.  Competition in the market areas in which many of our properties are located
from other self-storage facilities and other storage alternatives is significant
and has affected the occupancy  levels,  rental rates and operating  expenses of
some of our properties.  Any increase in availability of funds for investment in
real estate may accelerate  competition.  Further  development  of  self-storage
facilities may intensify competition among operators of self-storage  facilities
in the market areas in which we operate.

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

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

         There has been an increasing  number of claims and  litigation  against
owners and  managers of rental  properties  relating  to moisture  infiltration,
which can result in mold or other property  damage.  When we receive a complaint
concerning  moisture  infiltration,  condensation or mold problems and/or become
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, 2002, through March 31, 2007, we have opened 32
newly developed self-storage facilities. In addition, our development "pipeline"
in the United  States and Europe at March 31, 2007  consist of 55 projects  with
total estimated costs of $266 million. We anticipate the development of these 55
projects  to be  completed  in the next two  years.  Construction  delays due to
weather,  unforeseen site conditions,  personnel problems, and other factors, as
well as cost overruns,  would adversely affect our profitability.  Delays in the
rent-up  of newly  developed  facilities  as a result  of  competition  or other
factors would also adversely impact our profitability.

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

         We must comply with the Americans  with  Disabilities  Act and fire and
safety  regulations,   which  can  require  significant  expenditures.  All  our
properties must comply with the Americans with Disabilities Act and with related

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

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

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

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

         The  Hughes   Family  has   ownership   interests   in,  and  operates,
approximately  44  self-storage  facilities  in Canada  under  the name  "Public
Storage." We currently do not own any  interests in these  facilities  nor do we
own any  facilities  in Canada.  We have a right of first refusal to acquire the
stock or assets of the corporation  engaged in the operation of the self-storage
facilities  in Canada if the  Hughes  family or the  corporation  agrees to sell
them.  However,  we  have  no  ownership  interest  in the  operations  of  this
corporation,  have no right to acquire  their stock or assets  unless the Hughes
family decides to sell, and receive no benefit from the profits and increases in
value of the Canadian self-storage facilities.

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

         Through our  subsidiaries,  we continue to reinsure  risks  relating to
loss of goods stored by tenants in the  self-storage  facilities  in Canada.  We
acquired  the tenant  insurance  business  on  December  31,  2001  through  our
acquisition  of PSIC.  For the three months ended March 31, 2007 and 2006,  PSIC
received   $188,000  and  $259,000   respectively,   in   reinsurance   premiums
attributable  to the Canadian  Facilities.  Since PSIC's right to provide tenant
reinsurance to the Canadian  Facilities may be qualified,  there is no assurance
that these premiums will continue.

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

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

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

         Terrorist attacks and other acts of violence or war, such as those that
took place on September 11, 2001,  could have a material  adverse  impact on our
business and operating results. There can be no assurance that there will not be
further  terrorist  attacks  against  the  United  States or its  businesses  or
interests.  Attacks or armed  conflicts that directly  impact one or more of our
properties  could  significantly  affect our ability to operate those properties
and thereby  impair our operating  results.  Further,  we may not have insurance

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<PAGE>

coverage for losses  caused by a terrorist  attack.  Such  insurance  may not be
available,  or if it is  available  and  we  decide  to  obtain  such  terrorist
coverage,  the cost for the insurance may be significant in  relationship to the
risk  overall.  In  addition,  the adverse  effects  that such  violent acts and
threats  of  future  attacks  could  have on the  United  States  economy  could
similarly  have a  material  adverse  effect  on our  business  and  results  of
operations.  Finally,  further  terrorist  acts could cause the United States to
enter into a wider armed  conflict,  which could further impact our business and
operating results.

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

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

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
Company has repurchased a total of 22,201,720  shares of Common Stock under this
authorization.  The Company did not repurchase any shares of Common Stock during
the three months ended March 31, 2007.

ITEM 6.    EXHIBITS

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

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<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:     May 9, 2007

                               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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<PAGE>


                              PUBLIC STORAGE, INC.

                              INDEX TO EXHIBITS(1)

                           (Items 15(a)(3) and 15(c))

3.1    Restated Articles of Incorporation of Storage  Equities,  Inc. Filed with
       Registrant's  Registration  Statement on Form S-4 (SEC File No. 33-54557)
       and incorporated herein by reference.

3.2    Certificate  of  Amendment  of  Articles  of   Incorporation  of  Storage
       Equities,  Inc. Filed with  Registrant's  Registration  Statement on Form
       S-3/A (SEC File No. 33-63947) and incorporated herein by reference.

3.3    Certificate of Amendment of Articles of  Incorporation of Public Storage,
       Inc. Filed with Registrant's Registration Statement on Form S-3 (SEC File
       No. 333-18395) and incorporated herein by reference.

3.4    Certificate of Determination  of Preferences of 10% Cumulative  Preferred
       Stock,  Series  A of  Storage  Equities,  Inc.  Filed  with  Registrant's
       Registration   Statement  on  Form  S-4  (SEC  File  No.   33-54557)  and
       incorporated herein by reference.

3.5    Amendment  to  Certificate  of   Determination   of  Preferences  of  10%
       Cumulative  Preferred Stock, Series A of Public Storage,  Inc. Filed with
       the  Registrant's  Quarterly Report on Form 10-Q for the quarterly period
       ended March 31, 2004 and incorporated herein by reference.

3.6    Certificate of Determination of Preferences of 9.20% Cumulative Preferred
       Stock,  Series  B of  Storage  Equities,  Inc.  Filed  with  Registrant's
       Registration   Statement  on  Form  S-4  (SEC  File  No.   33-54557)  and
       incorporated herein by reference.

3.7    Amendment  to  Certificate  of  Determination  of  Preferences  of  9.20%
       Cumulative Preferred Stock, Series B of Storage Equities, Inc. Filed with
       Registrant's  Registration  Statement on Form S-4 (SEC File No. 33-56925)
       and incorporated herein by reference.

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

3.9    Certificate  of  Determination   of  Preferences  of  8.25%   Convertible
       Preferred  Stock  of  Public  Storage,   Inc.  Filed  with   Registrant's
       Registration   Statement  on  Form  S-4  (SEC  File  No.   33-54557)  and
       incorporated herein by reference.

3.10   Certificate of Determination of Preferences of Adjustable Rate Cumulative
       Preferred  Stock,   Series  C  of  Storage  Equities,   Inc.  Filed  with
       Registrant's  Registration  Statement on Form S-4 (SEC File No. 33-54557)
       and incorporated herein by reference.

3.11   Amendment to  Certificate of  Determination  of Preferences of Adjustable
       Rate Cumulative  Preferred Stock, Series C of Public Storage,  Inc. Filed
       with Registrant's  Quarterly Report on Form 10-Q for the quarterly period
       ended September 30, 2004 and incorporated herein by reference.

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

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<PAGE>

3.13   Amendment  to  Certificate  of  Determination  of  Preferences  of  9.50%
       Cumulative  Preferred Stock, Series D of Public Storage,  Inc. Filed with
       Registrant's  Annual Report on Form 10-K for the year ended  December 31,
       2004 and incorporated herein by reference.

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

3.15   Amendment  to  Certificate  of   Determination   of  Preferences  of  10%
       Cumulative  Preferred Stock, Series E of Public Storage,  Inc. Filed with
       Registrant's  Current  Report  on Form  8-K  dated  April  25,  2005  and
       incorporated herein by reference.

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

3.17   Amendment  to  Certificate  of  Determination  of  Preferences  of 9.750%
       Cumulative  Preferred Stock, Series F of Public Storage,  Inc. Filed with
       Registrant's  Current  Report  on Form  8-K  dated  August  17,  2005 and
       incorporated herein by reference.

3.18   Certificate  of  Determination   of  Preferences  of  8-7/8%   Cumulative
       Preferred Stock, Series G of Public Storage, Inc. Filed with Registrant's
       Registration  Statement on Form 8-A/A 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.

3.19   Certificate of Determination of Preferences of 8.45% Cumulative Preferred
       Stock,  Series  H  of  Public  Storage,   Inc.  Filed  with  Registrant's
       Registration  Statement on Form 8-A/A 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.

3.20   Certificate of  Determination  of  Preferences  of Convertible  Preferred
       Stock,  Series  CC  of  Public  Storage,  Inc.  Filed  with  Registrant's
       Registration   Statement  on  Form  S-4  (SEC  File  No.  333-03749)  and
       incorporated herein by reference.

3.21   Certificate of Correction of Certificate of  Determination of Preferences
       of Convertible  Participating  Preferred  Stock of Public  Storage,  Inc.
       Filed with Registrant's  Registration Statement on Form S-4 (SEC File No.
       333-08791) and incorporated herein by reference.

3.22     Certificate of Determination of Preferences of 8 5/8% Cumulative
         Preferred Stock, Series I of Public Storage, Inc. Filed with
         Registrant's Registration Statement on Form 8-A/A 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.

3.23   Certificate of Determination of Equity Stock, Series A of Public Storage,
       Inc.  Filed  with  Registrant's  Quarterly  Report  on Form  10-Q for the
       quarterly  period  ended  June  30,  1997  and  incorporated   herein  by
       reference.

3.24   Certificate of  Determination  of Preferences of 8% Cumulative  Preferred
       Stock,  Series  J  of  Public  Storage,   Inc.  Filed  with  Registrant's
       Registration  Statement on Form 8-A/A 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.

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<PAGE>

3.25   Certificate of Correction of Certificate of  Determination of Preferences
       of 8.25% Convertible  Preferred Stock of Public Storage,  Inc. Filed with
       Registrant's  Registration Statement on Form S-4 (SEC File No. 333-61045)
       and incorporated herein by reference.

3.26   Certificate  of   Determination  of  Preferences  of  8  1/4%  Cumulative
       Preferred Stock, Series K of Public Storage, Inc. Filed with Registrant's
       Registration  Statement on Form 8-A/A 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.

3.27   Certificate  of   Determination  of  Preferences  of  8  1/4%  Cumulative
       Preferred Stock, Series L of Public Storage, Inc. Filed with Registrant's
       Registration  Statement on Form 8-A/A 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.

3.28   Certificate of Determination of Preferences of 8.75% Cumulative Preferred
       Stock,  Series  M  of  Public  Storage,   Inc.  Filed  with  Registrant's
       Registration  Statement on Form 8-A/A 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.

3.29   Certificate  of  Determination  of  Equity  Stock,  Series  AA of  Public
       Storage,  Inc. Filed with Registrant's  Quarterly Report on Form 10-Q for
       the quarterly period ended September 30, 1999 and incorporated  herein by
       reference.

3.30   Certificate  Decreasing  Shares  Constituting  Equity Stock,  Series A of
       Public Storage,  Inc. Filed with  Registrant's  Quarterly  Report on Form
       10-Q for the quarterly  period ended September 30, 1999 and  incorporated
       herein by reference.

3.31   Certificate of Determination of Equity Stock, Series A of Public Storage,
       Inc.  Filed  with  Registrant's  Quarterly  Report  on Form  10-Q for the
       quarterly  period ended  September  30, 1999 and  incorporated  herein by
       reference.

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

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

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

3.35   Certificate  of  Determination   of  Preferences  of  9.125%   Cumulative
       Preferred Stock, Series O of Public Storage, Inc. Filed with Registrant's
       Quarterly  Report on Form 10-Q for the  quarterly  period ended March 31,
       2000 and incorporated herein by reference.

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

3.37   Certificate  of  Determination   of  Preferences  of  8.600%   Cumulative
       Preferred Stock, Series Q of Public Storage, Inc. Filed with Registrant's
       Registration  Statement  on Form 8-A/A (No.  001-08389)  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.

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<PAGE>

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

3.39   Certificate  of  Determination   of  Preferences  of  8.000%   Cumulative
       Preferred Stock, Series R of Public Storage, Inc. Filed with Registrant's
       Registration Statement on Form 8-A 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.

3.40   Certificate  of  Determination   of  Preferences  of  7.875%   Cumulative
       Preferred Stock, Series S of Public Storage, Inc. Filed with Registrant's
       Registration Statement on Form 8-A 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.

3.41   Certificate  of  Determination   of  Preferences  of  7.625%   Cumulative
       Preferred Stock, Series T of Public Storage, Inc. Filed with Registrant's
       Registration Statement on Form 8-A 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.

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

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

3.44   Amendment  to  Certificate  of  Determination  of  Preferences  of 7.625%
       Cumulative Preferred Stock, Series T and Series U of Public Storage, Inc.
       Filed with  Registrant's  Quarterly  Report on Form 8-K on March 16, 2007
       and incorporated herein by reference.

3.45   Certificate  of  Determination   of  Preferences  of  7.500%   Cumulative
       Preferred Stock, Series V of Public Storage, Inc. Filed with Registrant's
       Registration  Statement Form 8-A 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.

3.46   Certificate  of  Determination   of  Preferences  of  6.500%   Cumulative
       Preferred Stock, Series W of Public Storage, Inc. Filed with Registrant's
       Registration  Statement Form 8-A 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.

3.47   Certificate of Determination of Preferences  6.450% Cumulative  Preferred
       Stock,  Series  X  of  Public  Storage,   Inc.  Filed  with  Registrant's
       Registration Statement on Form 8-A 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.

3.48   Certificate of Determination of Preferences of 6.85% Cumulative Preferred
       Stock,  Series Y of Public  Storage,  Inc.  Filed  with the  Registrant's
       Quarterly  Report on Form 10-Q for the  quarterly  period ended March 31,
       2004 and incorporated herein by reference.

3.49   Certificate  of  Determination   of  Preferences  of  6.250%   Cumulative
       Preferred Stock, Series Z of Public Storage, Inc. Filed with Registrant's
       Registration Statement on Form 8-A 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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<PAGE>

3.50   Certificate  of  Determination   of  Preferences  of  6.125%   Cumulative
       Preferred Stock, Series A of Public Storage, Inc. Filed with Registrant's
       Registration Statement on Form 8-A 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.

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

3.52   Certificate  of  Determination   of  Preferences  of  7.125%   Cumulative
       Preferred Stock, Series B of Public Storage, Inc. Filed with Registrant's
       Registration Statement on Form 8-A 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.

3.53   Certificate of Determination of Preferences of 6.60% Cumulative Preferred
       Stock,  Series  C  of  Public  Storage,   Inc.  Filed  with  Registrant's
       Registration Statement on Form 8-A 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.

3.54   Certificate of Determination of Preferences of 6.18% Cumulative Preferred
       Stock,  Series  D  of  Public  Storage,   Inc.  Filed  with  Registrant's
       Registration Statement on Form 8-A relating to the Depositary Shares Each
       Representing  1/1,000  of a Share of 6.18%  Cumulative  Preferred  Stock,
       Series D and incorporated herein by reference.

3.55   Certificate of Determination of Preferences of 6.75% Cumulative Preferred
       Stock,  Series  E  of  Public  Storage,   Inc.  Filed  with  Registrant's
       Registration Statement on Form 8-A relating to the Depositary Shares Each
       Representing  1/1,000  of a share of 6.75%  Cumulative  Preferred  Stock,
       Series E and incorporated herein by reference.

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

3.57   Amendment to Certificate of Determination of Preferences 6.45% Cumulative
       Preferred Stock, Series F of Public Storage, Inc. Filed with Registrant's
       Registration Statement on Form 8-A relating to the Depositary Shares Each
       Representing  1/1,000  of a Share of 6.45%  Cumulative  Preferred  Stock,
       Series F and incorporated herein by reference.

3.58   Certificate of Determination of Preferences of 7.00% Cumulative Preferred
       Stock,  Series  G  of  Public  Storage,   Inc.  Filed  with  Registrant's
       Registration Statement on Form 8-A relating to the Depositary Shares Each
       Representing  1/1,000  of a Share of 7.00%  Cumulative  Preferred  Stock,
       Series G and incorporated herein by reference.

3.59   Certificate of Determination of Preferences of 6.95% Cumulative Preferred
       Stock,  Series  H  of  Public  Storage,   Inc.  Filed  with  Registrant's
       Registration Statement on Form 8-A relating to the Depositary Shares Each
       Representing  1/1,000  of a Share of 6.95%  Cumulative  Preferred  Stock,
       Series H and incorporated herein by reference.

3.60   Certificate of Determination of Preferences of 7.25% Cumulative Preferred
       Stock,  Series  I  of  Public  Storage,   Inc.  Filed  with  Registrant's
       Registration Statement on Form 8-A relating to the Depositary Shares Each
       Representing  1/1,000  of a Share of 7.25%  Cumulative  Preferred  Stock,
       Series I and incorporated herein by reference.

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3.61   Certificate of Determination of Preferences of 7.25% Cumulative Preferred
       Stock,  Series  J  of  Public  Storage,   Inc.  Filed  with  Registrant's
       Registration Statement on Form 8-A relating to the Depositary Shares Each
       Representing  1/1,000  of a Share of 7.25%  Cumulative  Preferred  Stock,
       Series J and incorporated herein by reference.

3.62   Certificate of Determination of Preferences of 7.25% Cumulative Preferred
       Stock,  Series  K  of  Public  Storage,   Inc.  Filed  with  Registrant's
       Registration Statement on Form 8-A relating to the Depositary Shares Each
       Representing  1/1,000  of a Share of 7.25%  Cumulative  Preferred  Stock,
       Series K and incorporated herein by reference.

3.63   Certificate of Determination of Preferences of 6.75% Cumulative Preferred
       Stock,  Series  L  of  Public  Storage,   Inc.  Filed  with  Registrant's
       Registration Statement on Form 8-A relating to the Depositary Shares Each
       Representing  1/1,000  of a Share of 6.75%  Cumulative  Preferred  Stock,
       Series L and incorporated herein by reference.

3.64   Certificate  of  Determination   of  Preferences  of  6.625%   Cumulative
       Preferred Stock, Series M of Public Storage, Inc. Filed with Registrant's
       Registration Statement on Form 8-A relating to the Depositary Shares Each
       Representing  1/1,000 of a Share of 6.625%  Cumulative  Preferred  Stock,
       Series M and incorporated herein by reference

3.65   Amendment to Certificate of Determination of Determination of Preferences
       of Cumulative  Preferred Stock, Series G (8.875%), H (8.45%), I (8.625%),
       J (8%),  K (8.25%),  L (8.25%),  M (8.75%),  N (9.5%),  O (9.125%)  and P
       (8.75%) of Public Storage, Inc. Filed with Registrant's Current Report on
       Form 8-K dated November 22, 2005 and incorporated herein by reference.

3.66   Amendment to Certificate of Determination of Determination of Preferences
       of Cumulative  Preferred Stock,  Series Q (8.60%) and R (8.00%) of Public
       Storage,  Inc. Filed with  Registrant's  Current Report on Form 8-K dated
       October 18, 2006 and incorporated herein by reference.

3.67   Amendment to Certificate of Determination of Determination of Preferences
       of Cumulative Preferred Stock, Series S (7.875%). Filed with Registrant's
       Current Report on Form 8-K dated January 4, 2007 and incorporated  herein
       by reference.

3.68   Revised  Bylaws  of  Storage  Equities,   Inc.  Filed  with  Registrant's
       Registration  Statement  on  Form  S-4/A  (SEC  File  No.  33-64971)  and
       incorporated herein by reference.

3.69   Amendment to Bylaws of Public Storage, Inc. adopted on May 9, 1996. Filed
       with  Registrant's  Registration  Statement  on Form  S-4  (Sec  File No.
       333-03749) and incorporated herein by reference.

3.70   Amendment  to Bylaws of Public  Storage,  Inc.  adopted on June 26, 1997.
       Filed with  Registrant's  Registration  Statement on Form S-3/A (SEC File
       No. 333-41123) and incorporated herein by reference.

3.71   Amendment to Bylaws of Public Storage,  Inc.  adopted on January 6, 1998.
       Filed with  Registrant's  Registration  Statement on Form S-3/A (SEC File
       No. 333-41123) and incorporated herein by reference.

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

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

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<PAGE>

3.74   Amendment to Bylaws of Public Storage, Inc. adopted on May 6, 1999. Filed
       with Registrant's  Quarterly Report on Form 10-Q for the quarterly period
       ended March 31, 1999 and incorporated herein by reference.

3.75   Amendment to Bylaws of Public Storage,  Inc. 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.

3.76   Amendment to Bylaws of Public Storage, Inc. 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.

3.77   Amendment to Bylaws of Public  Storage,  Inc.  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.

3.78   Amendment to Bylaws of Public  Storage,  Inc.  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.

3.79   Amendment to Bylaws of Public Storage,  Inc.  effective  August 22, 2006.
       Filed with  Registrant's  Report on Form 8-K filed on August 23, 2006 and
       incorporated herein by reference.

3.80   Amendment to Bylaws of Public Storage,  Inc.  effective  January 1, 2007.
       Filed with Registrant's Report on Form 8-K filed on December 28, 2006 and
       incorporated herein by reference.

10.1   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.

10.2   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 (SEC File No.  001-11186)  and  incorporated  herein by
       reference.

10.3   Limited Partnership  Agreement of PSAF Development  Partners,  L.P. Filed
       with Registrant's  Quarterly Report on Form 10-Q for the quarterly period
       ended March 31, 1997 and incorporated herein by reference.

10.4   Agreement of Limited Partnership of PS Business Parks, L.P. Filed with PS
       Business Parks,  Inc.'s  Quarterly  Report on Form 10-Q for the quarterly
       period  ended June 30,  1998 (SEC File No.  001-10709)  and  incorporated
       herein by reference.

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

10.6   Limited Partnership  Agreement of PSAC Development  Partners,  L.P. Filed
       with Registrant's  Current Report on Form 8-K dated November 15, 1999 and
       incorporated herein by reference.

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

10.8   Amended  and   Restated   Agreement   of  Limited   Partnership   of  PSA
       Institutional  Partners,  L.P. 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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<PAGE>

10.9   Amendment to Amended and Restated Agreement of Limited Partnership of PSA
       Institutional  Partners, L.P. Filed with Registrant's Quarterly Report on
       Form 10-Q for the quarterly  period ended June 30, 2000 and  incorporated
       herein by reference.

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

10.11  Third Amendment to Amended and Restated Agreement of Limited  Partnership
       of PSA Institutional  Partners,  L.P. Filed with  Registrant's  Quarterly
       Report on Form 10-Q for the quarterly period ended September 30, 2004 and
       incorporated herein by reference.

10.12  Limited Partnership  Agreement of PSAF Acquisition  Partners,  L.P. Filed
       with Registrant's  Annual Report on Form 10-K for the year ended December
       31, 2003 and incorporated herein by reference.

10.13  Credit  Agreement  by and among  Registrant,  Wells Fargo Bank,  National
       Association and Wachovia Bank, National Association as co-lead arrangers,
       and the other financial institutions party thereto, dated March 27, 2007.
       Filed with  Registrant's  Current Report on From 8-K on April 2, 2007 and
       incorporated herein by reference.

10.14  Note Purchase  Agreement with respect to  $100,000,000 of Senior Notes of
       Storage Trust  Properties,  L.P. dated as of January 20, 1997. Filed with
       Storage  Trust  Realty's  Annual  Report on Form 10-K for the year  ended
       December 31, 1996 (SEC File No.  001-13462)  and  incorporated  herein by
       reference.

10.15  Agreement  and  Plan  of  Merger  by  and  among  Storage  Trust  Realty,
       Registrant  and Newco Merger  Subsidiary,  Inc.  dated as of November 12,
       1998.  Filed with  Registrant's  Registration  Statement on Form S-4 (SEC
       File No. 333-68543) and incorporated herein by reference.

10.16  Amendment  No. 1 to  Agreement  and Plan of Merger  by and 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  on Form  S-4/A  (SEC  File  No.  333-68543)  and
       incorporated herein by reference.

10.17  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  Registration  Statement on Form
       8-A/A relating to the Depositary  Shares Each  Representing  1/1,000 of a
       Share of Equity Stock, Series A and incorporated herein by reference.

10.18  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
       Registration Statement on Form 8-A 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.

10.19  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  Registration  Statement  on Form 8-A  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.

10.20  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  Registration  Statement  on Form 8-A  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.

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<PAGE>

10.21  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   Registration   Statement  on  Form  8-A  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.

10.22  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   Registration   Statement  on  Form  8-A  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.

10.23  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   Registration   Statement  on  Form  8-A  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.

10.24  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  Registration  Statement  on Form 8-A  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.

10.25  Deposit  Agreement  dated  as of  February  28,  2005  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 6.18% Cumulative  Preferred Stock,  Series D. Filed
       with  Registrant's  Registration  Statement  on Form 8-A  relating to the
       Depositary  Shares  Each  Representing   1/1,000  of  a  Share  of  6.18%
       Cumulative   Preferred  Stock,   Series  D  and  incorporated  herein  by
       reference.

10.26  Deposit Agreement dated as of April 27, 2005 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  6.75%  Cumulative   Preferred  Stock,  Series  E.  Filed  with
       Registrant's   Registration   Statement  on  Form  8-A  relating  to  the
       Depositary  Shares  Each  Representing   1/1,000  of  a  Share  of  6.75%
       Cumulative   Preferred  Stock,   Series  E  and  incorporated  herein  by
       reference.

10.27  Deposit   Agreement  dated  as  of  August  23,  2005  among  Registrant,
       Computershare  Shareholder Services,  Inc., Equiserve Trust Company, N.A.
       and the holders of depositary receipts evidencing  Depositary Shares Each
       Representing  1/1,000  of a Share of 6.45%  Cumulative  Preferred  Stock,
       Series F.  Filed with  Registrant's  Registration  Statement  on Form 8-A
       relating to  Depositary  Shares Each  Representing  1/1,000 of a Share of
       6.45%  Cumulative  Preferred Stock,  Series F and incorporated  herein by
       reference.

10.28  Deposit   Agreement  dated  as  of  October  3,  2005  among  Registrant,
       Computershare  Shareholder Services,  Inc., Equiserve Trust Company, N.A.
       and the holders of depositary receipts evidencing  additional  Depositary
       Shares Each Representing 1/1,000 of a Share of 6.45% Cumulative Preferred
       Stock, Series F. Filed with Registrant's  Registration  Statement on Form
       8-A  relating to the  Depositary  Shares Each  Representing  1/1,000 of a
       Share of 6.45%  Cumulative  Preferred  Stock,  Series F and  incorporated
       herein by reference.

10.29  Deposit   Agreement   dated  December  12,  2005  among   Registrant  and
       Computershare  Shareholder Services,  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 7.00% Cumulative Preferred
       Stock, Series G. Filed with Registrant's  Registration  Statement on Form
       8-A  relating to the  Depositary  Shares Each  Representing  1/1,000 of a
       Share of 7.00%  Cumulative  Preferred  Stock,  Series G and  incorporated
       herein by reference.

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<PAGE>

10.30  Deposit   Agreement   dated  January  19,  2006  among   Registrant   and
       Computershare  Trust  Company  N.A.  and the  holders  of the  depository
       receipts evidencing the Depositary Shares Each Representing  1/1,000 of a
       share  of  6.95%  Cumulative   Preferred  Stock,  Series  H.  Filed  with
       Registrant's   Registration   Statement  on  Form  8-A  relating  to  the
       Depositary  Shares  Each  Representing   1/1,000  of  a  share  of  6.95%
       Cumulative   Preferred  Stock,   Series  H  and  incorporated  herein  by
       reference.

10.31  Amendment to Certificate of Determination of Determination of Preferences
       of Cumulative  Preferred Stock, Series G (8.875%), H (8.45%), I (8.625%),
       J (8%),  K (8.25%),  L (8.25%),  M (8.75%),  N (9.5%),  O (9.125%)  and P
       (8.75%) of Public Storage, Inc. Filed with Registrant's Current Report on
       Form 8-K dated November 22, 2005 and incorporated herein by reference.

10.32  Deposit  Agreement dated May 3, 2006 among  Registrant and  Computershare
       Trust Company N.A. and the holders of the depository  receipts evidencing
       the  Depositary  Shares  Each  Representing  1/1,000  of a share of 7.25%
       Cumulative   Preferred   Stock,   Series  I.  Filed   with   Registrant's
       Registration Statement on Form 8-A relating to the Depositary Shares Each
       Representing  1/1,000  of a share of 7.25%  Cumulative  Preferred  Stock,
       Series I and incorporated herein by reference.

10.33  Deposit Agreement dated August 8, 2006 among Registrant and Computershare
       Trust Company N.A. and the holders of the depository  receipts evidencing
       the  Depositary  Shares  Each  Representing  1/1,000  of a share of 7.25%
       Cumulative   Preferred   Stock,   Series  K.  Filed   with   Registrant's
       Registration Statement on Form 8-A relating to the Depositary Shares Each
       Representing  1/1,000  of a share of 7.25%  Cumulative  Preferred  Stock,
       Series K and incorporated herein by reference.

10.34  Deposit   Agreement   dated  October  20,  2006  among   Registrant   and
       Computershare  Trust  Company  N.A.  and the  holders  of the  depository
       receipts evidencing the Depositary Shares Each Representing  1/1,000 of a
       share  of  6.75%  Cumulative   Preferred  Stock,  Series  L.  Filed  with
       Registrant's   Registration   Statement  on  Form  8-A  relating  to  the
       Depositary  Shares  Each  Representing   1/1,000  of  a  share  of  6.75%
       Cumulative   Preferred  Stock,   Series  L  and  incorporated  herein  by
       reference.

10.35  Deposit   Agreement   dated   January  9,  2007  among   Registrant   and
       Computershare  Trust  Company  N.A.  and the  holders  of the  depository
       receipts evidencing the Depositary Shares Each Representing  1/1,000 of a
       share  of  6.625%  Cumulative  Preferred  Stock,  Series  M.  Filed  with
       Registrant's   Registration   Statement  on  Form  8-A  relating  to  the
       Depositary  Shares  Each  Representing  1/1,000  of  a  share  of  6.625%
       Cumulative   Preferred  Stock,   Series  M  and  incorporated  herein  by
       reference.

10.36  Senior  Credit  Agreement  dated May 26,  2003,  as amended by  Amendment
       Agreements  dated July 11, 2003 and December 2, 2003,  by and among First
       Shurgard Sprl, First Shurgard  Finance Sarl,  First Shurgard  Deutschland
       GmbH,  Societe Generale and others.  Incorporated by reference to Exhibit
       10.1 filed with the Current  Report on Form 8-K dated  February  21, 2005
       filed by Shurgard Storage Centers, Inc. ("Shurgard").

10.37  Amendment  and Waiver  Agreement  dated  February  21, 2005 to the Senior
       Credit  Agreement  dated May 26, 2003, as amended as of December 2, 2003,
       by and among First Shurgard  Sprl,  First  Shurgard  Finance Sarl,  First
       Shurgard  Deutschland GmbH, Societe Generale and others.  Incorporated by
       reference to Exhibit 10.2 filed with the Current Report on Form 8-K dated
       February 21, 2005 filed by Shurgard.

10.38  Credit Facility  Agreement  dated July 12, 2004,  between Second Shurgard
       SPRL,  Second  Shurgard  Finance  SARL,  the Royal  Bank of  Scotland  as
       Mandated Lead Arranger, the Royal Bank of Scotland PLC as Facility Agent.
       Incorporated  by reference to Exhibit 10.43 filed with the Report on Form
       10-Q for the quarter ended June 30, 2004 filed by Shurgard.

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<PAGE>

10.39* 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.

10.40* 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.

10.41* 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
       (SEC File No. 001-13462) and incorporated herein by reference.

10.42* Storage Trust Realty  Retention  Bonus Plan  effective as of November 12,
       1998.  Filed with  Registrant's  Registration  Statement on Form S-4 (SEC
       File No. 333-68543) and incorporated herein by reference.

10.43* Registrant's 2000  Non-Executive/Non-Director  Stock Option and Incentive
       Plan.  Filed with  Registrant's  Registration  Statement on Form S-8 (SEC
       File No. 333-52400) and incorporated herein by reference.

10.44* Registrant's 2001  Non-Executive/Non-Director  Stock Option and Incentive
       Plan.  Filed with  Registrant's  Registration  Statement on Form S-8 (SEC
       File No. 333-59218) and incorporated herein by reference.

10.45* Registrant's   2001  Stock  Option  and   Incentive   Plan.   Filed  with
       Registrant's  Registration Statement on Form S-8 (SEC File No. 333-59218)
       and incorporated herein by reference.

10.46* Form of 2001 Stock Option and Incentive Plan  Non-qualified  Stock Option
       Agreement.  Filed with Registrant's Quarterly Report on Form 10-Q for the
       quarterly  period ended  September  30, 2004 and  incorporated  herein by
       reference.

10.47* Form of  Restricted  Stock Unit  Agreement.  Filed with the  Registrant's
       Quarterly  Report on Form 10-Q for the quarterly  period ended  September
       30, 2004 and incorporated herein by reference.

10.48* Form of 2001 Stock  Option and  Incentive  Plan Stock  Option  Agreement.
       Filed with  Registrant's  Quarterly Report on Form 10-Q for the quarterly
       period ended September 30, 2004 and incorporated herein by reference.

10.49* Public Storage,  Inc.  Performance  Based  Compensation  Plan for Covered
       Employees.  Filed with Registrant's  Current Report on Form 8-K dated May
       11, 2005 and incorporated herein by reference.

10.50* Form of Indemnity Agreement. Filed with the Registrant's Annual Report on
       Form 10-K for the year ended December 31, 2004 and incorporated herein by
       reference.

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<PAGE>

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

12     Statement  Re:  Computation  of Ratio of  Earnings  to Fixed  Charges and
       Preferred Stock Dividends. Filed herewith.

14     Code of Ethics for Senior Financial Officers. Filed with the Registrant's
       Annual  Report  on Form 10-K for the year  ended  December  31,  2003 and
       incorporated herein by reference.

21     Subsidiaries of the Registrant. Filed herewith.

23     Consent of Independent Auditors. 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.

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


* Compensatory benefit plan or arrangement or management contract.

(1) SEC File No. 001-08389 unless otherwise indicated.

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