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, 2006

                                       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 each of the  registrant's  common
stock, as of May 8, 2006:

Common Stock, $.10 par value per share - 129,309,950 shares


<PAGE>



                              PUBLIC STORAGE, INC.

                                      INDEX


<TABLE>
<CAPTION>
                                                                                       Pages

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

<S>        <C>                                                                            <C>
Item 1.    Financial Statements

           Condensed Consolidated Balance Sheets at
              March 31, 2006 and December 31, 2005                                         1

           Condensed Consolidated Statements of Income for the
              Three Months Ended March 31, 2006 and 2005                                   2

           Condensed Consolidated Statement of Shareholders' Equity
              for the Three Months Ended March 31, 2006                                    3

           Condensed Consolidated Statements of Cash Flows
              for the Three Months Ended March 31, 2006 and 2005                       4 - 5

           Notes to Condensed Consolidated Financial Statements                       6 - 33

Item 2.    Management's Discussion and Analysis of
              Financial Condition and Results of Operations                          34 - 62

Item 3.    Quantitative and Qualitative Disclosures about Market Risk                     62

Item 4.    Controls and Procedures                                                        62

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

Item 1.    Legal Proceedings                                                              63

Item 1A.   Risk Factors                                                              63 - 69

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds                    69

Item 6.    Exhibits                                                                  69 - 76

</TABLE>

<PAGE>

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

<TABLE>
<CAPTION>

                                                                                        March 31,          December 31,
                                                                                         2006                 2005
                                                                                 ------------------   -------------------

                                       ASSETS

<S>                                                                                <C>                  <C>
Cash and cash equivalents....................................................      $     382,329        $     493,501
Real estate facilities, at cost:
   Land......................................................................          1,564,937            1,540,357
   Buildings.................................................................          4,466,239            4,390,127
                                                                                 ------------------   -------------------
                                                                                       6,031,176            5,930,484
   Accumulated depreciation..................................................         (1,547,708)          (1,500,128)
                                                                                 ------------------   -------------------
                                                                                       4,483,468            4,430,356
   Construction in process...................................................             54,915               54,472
                                                                                 ------------------   -------------------
                                                                                       4,538,383            4,484,828

Investment in real estate entities...........................................            305,558              328,555
Goodwill.....................................................................             78,204               78,204
Intangible assets, net.......................................................             96,430               98,081
Other assets.................................................................             69,700               69,317
                                                                                 ------------------   -------------------
              Total assets...................................................      $   5,470,604        $   5,552,486
                                                                                 ==================   ===================

                       LIABILITIES AND SHAREHOLDERS' EQUITY

Notes payable................................................................      $     106,200        $     113,950
Debt to joint venture partner................................................             35,740               35,697
Preferred stock called for redemption........................................                  -              172,500
Accrued and other liabilities................................................            153,159              159,360
                                                                                 ------------------   -------------------
         Total liabilities...................................................            295,099              481,507

Minority interest:
   Preferred partnership interests...........................................            225,000              225,000
   Other partnership interests...............................................             32,789               28,970
Commitments and contingencies (Note 14)......................................                  -                    -
Shareholders' equity:
   Cumulative Preferred Stock, $0.01 par value, 50,000,000 shares authorized,
     1,702,536 shares issued (in series) and outstanding, (1,698,336 at
     December 31, 2005) at liquidation preference............................          2,603,400            2,498,400

   Common Stock, $0.10 par value, 200,000,000 shares authorized, 128,162,629
     shares issued and outstanding (128,089,563 at December 31, 2005)........             12,816               12,809
   Equity Stock, Series A, $0.01 par value, 200,000,000 shares authorized,
     8,744.193 shares issued and outstanding.................................                  -                    -
   Paid-in capital...........................................................          2,428,424            2,430,671
   Cumulative net income.....................................................          3,303,482            3,189,266
   Cumulative distributions paid.............................................         (3,430,406)          (3,314,137)
                                                                                 ------------------   -------------------
         Total shareholders' equity..........................................          4,917,716            4,817,009
                                                                                 ------------------   -------------------
              Total liabilities and shareholders' equity.....................      $   5,470,604        $   5,552,486
                                                                                 ==================   ===================
</TABLE>

                            See accompanying notes.
                                        1
<PAGE>


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

                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                              For the Three Months Ended March 31,
                                                                            ----------------------------------------
                                                                                    2006                  2005
                                                                            -----------------     ------------------
Revenues:
   Rental income:
<S>                                                                           <C>                    <C>
      Self-storage facilities.........................................        $      251,512         $     227,346
      Commercial properties...........................................                 2,992                 2,848
      Containerized storage facilities................................                 3,930                 3,837
   Ancillary operations...............................................                15,174                14,018
   Interest and other income..........................................                 5,075                 2,893
                                                                            -----------------     ------------------
                                                                                     278,683               250,942
                                                                            -----------------     ------------------
Expenses:
  Cost of operations (excluding depreciation and amortization below):
      Self-storage facilities.........................................                87,735                81,644
      Commercial properties...........................................                 1,348                 1,127
      Containerized storage facilities................................                 3,310                 2,742
      Ancillary operations............................................                10,616                10,417
  Depreciation and amortization.......................................                50,049                47,938
  General and administrative..........................................                 6,779                 5,141
  Interest expense....................................................                 1,557                 1,663
                                                                            -----------------     ------------------
                                                                                     161,394               150,672
                                                                            -----------------     ------------------
Income from continuing operations before equity in earnings of real
   estate entities and minority interest in income....................               117,289               100,270


Equity in earnings of real estate entities (Note 5)...................                 3,466                 5,678
Minority interest in income:
  Preferred partnership interests:
     Based on ongoing distributions paid..............................                (3,591)               (5,375)
     Allocation of redemption costs (Note 9)..........................                     -                  (874)
  Other partnership interests.........................................                (3,568)               (4,395)
                                                                            -----------------     ------------------
Income from continuing operations.....................................               113,596                95,304
Cumulative effect of change in accounting principle (Note 12)........                    578                     -
Discontinued operations (Note 3)......................................                    42                 1,107
                                                                            -----------------     ------------------
Net income............................................................        $      114,216         $      96,411
                                                                            =================     ==================
Net income allocation:
----------------------
   Allocable to preferred shareholders:
     Based on distributions paid......................................        $       46,615         $      40,413
     Based on redemptions of preferred stock (Note 2).................                     -                 1,904
   Allocable to Equity Stock, Series A................................                 5,356                 5,375
   Allocable to common shareholders...................................                62,245                48,719
                                                                            -----------------     ------------------
                                                                              $      114,216         $      96,411
                                                                            =================     ==================
Net income per common share - basic
   Continuing operations..............................................        $         0.49        $         0.37
   Discontinued operations............................................                     -                  0.01
                                                                            -----------------     ------------------
                                                                              $         0.49        $         0.38
                                                                            =================     ==================
Net income per common share - diluted
   Continuing operations..............................................        $         0.48        $         0.37
   Discontinued operations............................................                     -                  0.01
                                                                            -----------------     ------------------
                                                                              $         0.48        $         0.38
                                                                            =================     ==================
Net income per depositary share of Equity Stock, Series A (basic and
   diluted)...........................................................        $         0.61        $         0.61
                                                                            =================     ==================
Basic weighted average common shares outstanding......................               128,122               128,586
                                                                            =================     ==================
Diluted weighted average common shares outstanding....................               129,009               129,175
                                                                            =================     ==================
Weighted average shares of Equity Stock, Series A (basic and diluted).                 8,744                 8,776
                                                                            =================     ==================

</TABLE>

                             See accompanying notes.
                                        2
<PAGE>


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

                                   (Unaudited)

<TABLE>
<CAPTION>


                                                                 Cumulative                                        Cumulative Net
                                                              Preferred Stock    Common Stock    Paid-in Capital       Income
                                                            ------------------- --------------  ----------------   ---------------
<S>                                                             <C>               <C>              <C>               <C>
Balances at December 31, 2005.............................      $  2,498,400      $     12,809     $  2,430,671      $  3,189,266

Issuance of cumulative preferred stock:
   Series H (4,200 shares)..............................             105,000                 -           (3,508)                -

Issuance of common stock in connection with:
   Exercise of employee stock options (54,857 shares).....                 -                 5            1,536                 -
   Vesting of restricted stock (18,209 shares) ...........                 -                 2               (2)                -

Stock based compensation expense (Note 12) ...............                 -                 -             (273)                -

Net income................................................                 -                 -                -           114,216

Cash distributions:
   Cumulative preferred stock (Note 10)...................                 -                 -                -                 -
   Equity Stock, Series A ($0.61 per depositary share)....                 -                 -                -                 -
   Common Stock ($0.50 per share).........................                 -                 -                -                 -
                                                            ------------------- --------------  ----------------   ---------------
Balances at March 31, 2006................................      $  2,603,400      $     12,816     $  2,428,424      $  3,303,482
                                                             =================  ==============  ================   ===============

</TABLE>


<TABLE>
<CAPTION>

                                                                                    Total
                                                                Cumulative      Shareholders'
                                                              Distributions         Equity
                                                             ---------------    --------------
<S>                                                            <C>               <C>
Balances at December 31, 2005.............................     $ (3,314,137)     $  4,817,009

Issuance of cumulative preferred stock:
   Series H (4,200 shares)..............................                  -           101,492

Issuance of common stock in connection with:
   Exercise of employee stock options (54,857 shares).....                -             1,541
   Vesting of restricted stock (18,209 shares) ...........                -                 -

Stock based compensation expense (Note 12) ...............                -              (273)

Net income................................................                -           114,216

Cash distributions:
   Cumulative preferred stock (Note 10)...................          (46,615)          (46,615)
   Equity Stock, Series A ($0.61 per depositary share)....           (5,356)           (5,356)
   Common Stock ($0.50 per share).........................          (64,298)          (64,298)
                                                             ---------------    --------------
Balances at March 31, 2006................................     $ (3,430,406)     $  4,917,716
                                                             ===============    ==============

</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,
                                                                                   ------------------------------
                                                                                         2006            2005
                                                                                   --------------   -------------
Cash flows from operating activities:
<S>                                                                                  <C>             <C>
   Net income..................................................................      $  114,216      $   96,411
   Adjustments to reconcile net income to net cash provided by operating
     activities:
    Amortization of note premium (Note 7)......................................            (236)           (327)
    Excess of effective interest over cash interest paid on debt to joint
       venture partner (Note 8) ..............................................               43              43
    Depreciation and amortization...........................................             50,049          47,938
    Equity in earnings of Real Estate Entities..............................             (3,466)         (5,678)
    Distributions received from the Real Estate Entities (Note 5)...........              5,776           4,537
    Minority interest in income.............................................              7,159          10,644
    Depreciation and gain on sale of non-real estate assets associated with
       discontinued operations (Note 3).....................................                 21          (1,076)
    Other operating activities..............................................            (10,729)         (3,517)
                                                                                   --------------   -------------

       Total adjustments....................................................             48,617          52,564
                                                                                   --------------   -------------
       Net cash provided by operating activities............................            162,833         148,975
                                                                                   --------------   -------------
Cash flows from investing activities:
    Capital improvements to real estate facilities .........................             (8,379)         (6,806)
    Construction in process.................................................            (21,188)         (9,254)
    Acquisition of minority interests (Note 9)..............................                  -          (4,366)
    Acquisition of real estate facilities...................................            (46,489)        (23,751)
    Cash of entities consolidated pursuant to EITF Topic 04-5 (Note 2)......              2,865               -
    Proceeds from the sale of real estate and real estate investments.......              1,970               -
    Maturity of held to maturity debt securities  (Note 2) .................              2,359           1,177
    Acquisition of held to maturity debt securities (Note 2)................                  -          (3,345)
    Other investing activities..............................................                  -            (184)
                                                                                   --------------   -------------
       Net cash used in investing activities................................            (68,862)        (46,529)
                                                                                   --------------   -------------
Cash flows from financing activities:
    Principal payments on notes payable.....................................            (12,104)        (12,024)
    Net proceeds from the issuance of common stock..........................              1,541           3,894
    Net proceeds from the issuance of cumulative preferred stock............            101,492         130,547
    Repurchase of common stock..............................................                  -          (2,971)
    Redemption of cumulative preferred stock................................           (172,500)        (54,892)
    Redemption of preferred partnership interest............................                  -         (85,000)
    Distributions paid to shareholders......................................           (116,269)       (103,860)
    Distributions paid to holders of preferred partnership interests (Note
       9)...................................................................             (3,591)         (5,375)
    Distributions paid to minority interests................................             (3,712)         (4,016)
    Net proceeds from financing through acquisition joint venture (Note 8)..                  -          19,429
                                                                                   --------------   -------------
       Net cash used in financing activities................................           (205,143)       (114,268)
                                                                                   --------------   -------------
Net decrease in cash and cash equivalents...................................           (111,172)        (11,822)
Cash and cash equivalents at the beginning of the year......................            493,501         366,255
                                                                                   --------------   -------------
Cash and cash equivalents at the end of the year............................         $  382,329      $  354,433
                                                                                   ==============   =============

</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
     (Note 2):
       Minority interest.......................................................           3,963               -
       Real estate facilities..................................................         (22,459)              -
       Investments.............................................................          20,687               -
       Other Assets............................................................           (167)               -

       Accrued and Other Liabilities...........................................            841                -

    Retirement of common stock and Equity Stock, Series A, received as a
    distribution from affiliated entities (Note 5):
       Common stock.........................................................                  -            (64)
       Additional paid-in capital...........................................                  -        (14,456)
       Investment in real estate entities...................................                  -          14,520

</TABLE>

                             See accompanying notes.
                                       5
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

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

              Public Storage, Inc. (the "Company") is a California  corporation,
     which was organized in 1980. We are a fully  integrated,  self-administered
     and  self-managed  real estate  investment  trust ("REIT") whose  principal
     business  activities  include the acquisition,  development,  ownership and
     operation of self-storage  facilities which offer storage spaces for lease,
     generally on a  month-to-month  basis,  for  personal and business  use. In
     addition,  we have  (i)  interests  in  commercial  properties,  containing
     commercial and industrial  rental space,  (ii) interests in facilities that
     lease  storage  containers,   and  (iii)  ancillary   operations  comprised
     principally of  reinsurance  of policies  against losses to goods stored by
     our   self-storage   tenants,   retail  sales  and  truck  rentals  at  our
     self-storage locations.

              At March 31, 2006, we had direct and indirect equity  interests in
     1,524 self-storage  facilities located in 37 states and operating under the
     "Public Storage" name. We also have direct and indirect equity interests in
     approximately  19 million  net  rentable  square feet of  commercial  space
     located in 10 states.

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

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

              The  accompanying   unaudited  condensed   consolidated  financial
     statements  have been prepared in accordance  with United States  generally
     accepted accounting  principles for interim financial  information and with
     instructions  to Form 10-Q and Article 10 of Regulation  S-X.  Accordingly,
     they do not include all of the information and footnotes required by United
     States  generally  accepted  accounting  principles for complete  financial
     statements.  In the opinion of management,  all adjustments  (consisting of
     normal  recurring  accruals)  necessary for a fair  presentation  have been
     included.  Operating  results for the three months ended March 31, 2006 are
     not necessarily indicative of the results that may be expected for the year
     ended December 31, 2006. For further information, refer to the consolidated
     financial statements and footnotes thereto included in the Company's annual
     report on Form 10-K for the year ended December 31, 2005.

              Certain  amounts  previously  reported have been  reclassified  to
     conform to the March 31, 2006 presentation. In previous presentations,  net
     income from our truck rental,  merchandise  sales, and property  management
     operations  were  included on a net basis in "Interest and other income" in
     our  consolidated  statements  of  income.  In  our  current  presentation,
     revenues with respect to each of these operations, along with revenues from
     our  tenant  reinsurance   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
     condensed consolidated statements of income. Certain reclassifications have
     also been  made from  previous  presentations  as a result of  discontinued
     operations (See Note 3).

     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.
     Variable  Interest  Entities  in which we are the primary  beneficiary  are
     consolidated.  Entities  that are not Variable  Interest  Entities  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.

                                        6

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

              In accordance with the guidance of EITF 04-5, effective January 1,
     2006 we commenced  consolidating the accounts of three partnerships that we
     previously  accounted  for on the equity  method.  Our  investment in these
     entities  totaling  $20,687,000  was  allocated to the cash,  other assets,
     liabilities,  and minority  interests of these entities as described in the
     table below.

                                          Total
                                     ------------
    Real estate facilities....       $   22,459
    Cash......................            2,865
    Other assets..............              167
    Accrued and other liabilities          (841)
    Minority interest ........           (3,963)
                                     ------------
                                     $   20,687
                                    =============

              We have determined that we have no Variable  Interest Entities for
     any  periods  presented.  We  control 37  entities  and,  accordingly,  the
     consolidated  financial  statements  include the accounts of these entities
     (the   "Consolidated   Entities")   as  well  as  those  of  the   Company.
     Collectively,  the Company  and the  Consolidated  Entities  own a total of
     1,493 real estate facilities,  consisting of 1,486 self-storage facilities,
     three industrial  facilities used by the containerized  storage  operations
     and four commercial properties.

              At March 31,  2006,  we had  equity  investments  in five  limited
     partnerships in which we do not have a controlling interest.  These limited
     partnerships collectively own 22 self-storage facilities, which are managed
     by the Company. In addition, at March 31, 2006, we own approximately 44% of
     the common equity of PS Business Parks, Inc.  ("PSB"),  which has interests
     in approximately  17.9 million net rentable square feet of commercial space
     at March 31, 2006.  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 United States  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 2006 and,
     accordingly,   no  provision   for  income  taxes  has  been  made  in  the
     accompanying financial statements.

     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.

                                       7
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

              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.  At March 31, 2006,  we believe that the carrying  value of our
     notes  payable is, in  aggregate,  approximately  $1.0 million  higher than
     their fair value.

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

              Included  in cash  and  cash  equivalents  at  March  31,  2006 is
     $22,585,000 ($18,962,000 at December 31, 2005 held by our captive insurance
     entities.  Other  assets at March 31,  2006  include  investments  totaling
     $17,479,000  ($19,838,000 at December 31, 2005) in held to maturity Federal
     government agency  securities stated at amortized cost, which  approximates
     fair value. Insurance and other regulations place significant  restrictions
     on our ability to withdraw  these funds for purposes  other than  insurance
     activities.

     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
     expense  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.

     Accounting for Acquisition Joint Venture
     ----------------------------------------

              In January 2004, we entered into a joint venture  partnership with
     an institutional investor for the purpose of acquiring up to $125.0 million
     of existing self-storage properties in the United States from third parties
     (the "Acquisition Joint Venture").  The Acquisition Joint Venture is funded
     entirely  with equity  consisting  of 30% from the Company and 70% from the
     institutional  investor.  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  determined  that the  Acquisition  Joint Venture is not a
     variable interest entity, and we do not control this entity.  Therefore, we
     do not  consolidate  the accounts of the  Acquisition  Joint Venture on our
     consolidated financial statements.

              During the year ended  December 31, 2004,  the  Acquisition  Joint
     Venture acquired two facilities directly from third parties at an aggregate
     cost of  $9,086,000.  We account for our  investment  with respect to these
     facilities  using the equity method,  with our pro rata share of the income
     from  these  facilities  recorded  as "Equity in  earnings  of real  estate
     entities" on our condensed  consolidated  statements of income.  See Note 5
     for further discussion of these amounts.

                                       8

<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

              In December  2004,  we sold seven  facilities  to the  Acquisition
     Joint Venture for an aggregate of $22,993,000.  During the first quarter of
     2005, we sold an interest in three additional facilities to the Acquisition
     Joint  Venture for an aggregate of  approximately  $27,755,000.  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 ($35,740,000 and $35,697,000 at March 31, 2006
     and December 31, 2005,  respectively) in these facilities as, in substance,
     debt financing. Accordingly, our partner's investment with respect to these
     ten   facilities   is  accounted  for  as  a  liability  on  our  condensed
     consolidated  balance  sheet  under  the  caption  "Debt to  joint  venture
     partner," with our partner's  share of operations with respect to these ten
     facilities accounted for as interest expense on our condensed  consolidated
     statements of income.  Quarterly we review the fair value of this liability
     and to the extent fair value exceeds the carrying value of the liability an
     adjustment  will  be made to  increase  the  liability  to fair  value;  no
     adjustments  were necessary during 2005 or for the three months ended March
     31, 2006 (See Note 8).

     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, 2005.

              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 impairments  were identified from our
     evaluations as of March 31, 2006.

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

              We  utilize  the Fair  Value  Method  (as  defined  in Note 12) of
     accounting for our employee stock options. Restricted stock unit expense is
     recorded  over  the  relevant  vesting  period.  See  Note  12  for a  full
     discussion  of our  accounting  with respect to employee  stock options and
     restricted stock units.

                                       9
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

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

              Other assets primarily  consists of prepaid expenses,  investments
     in held to maturity debt securities (described below), accounts receivable,
     assets  associated with our  containerized  storage  business,  merchandise
     inventory and rental trucks.

              Included in depreciation  and  amortization  expense for the three
     months  ended  March  31,  2006  and  2005,  is  $839,000  and   $1,961,000
     respectively, related to depreciation of other assets.

              Other assets at March 31, 2006 also includes  investments totaling
     $17,479,000  ($19,838,000  at December 31,  2005) in held to maturity  debt
     securities stated at amortized cost, which approximates fair value.

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

              Accrued  and  other  liabilities  consist  primarily  of real  and
     personal  property tax  accruals,  prepayments  of rents,  trade  payables,
     losses  and  loss  adjustment   liabilities  from  our  insurance  programs
     (described below), and accrued interest. Prepaid rent totals $28,105,000 at
     March 31, 2006 ($26,145,000 at December 31, 2005).

              STOR-Re  Mutual  Insurance  Company,  Inc.  ("STOR-Re"),  which is
     consolidated with the Company, was formed in 1994 as an association captive
     insurance  company  owned by the Company  and  affiliates  of the  Company.
     STOR-Re provides  limited  property and liability  insurance to the Company
     and its affiliates for losses incurred during policy periods prior to April
     1, 2004, and was succeeded by PS Insurance Company Hawaii, Ltd. ("PSIC-H"),
     a wholly owned  subsidiary  of the Company with respect to these  insurance
     activities  for policy  periods  following  March 31, 2004. We also utilize
     other  insurance  carriers  to provide  property  and  liability  insurance
     coverage  in  excess  of  STOR-Re's  and  PSIC-H's  limitations  which  are
     described in Note 14.  STOR-Re and PSIC-H  accrue  liabilities  for covered
     losses  and  loss  adjustment  expense,  which at March  31,  2006  totaled
     $31,830,000  ($32,797,000  at December  31, 2005) with respect to insurance
     provided to the Company and its affiliates.

              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.  While we
     believe that the amount is adequate,  the ultimate loss may be in excess of
     or less than the amounts  provided.  The methods for making such  estimates
     and for establishing the resulting liability are reviewed quarterly.

              PS Insurance Company, Ltd ("PSIC"),  a wholly-owned  subsidiary of
     the Company,  reinsured  policies against claims for losses to goods stored
     by tenants in our self-storage facilities for policy periods prior to March
     31, 2004.  PSIC-H succeeded PSIC with respect to these tenant  re-insurance
     activities  effective April 1, 2004. Prior to January 1, 2006 both of these
     entities  utilize  third-party  insurance  coverage  for  losses  from  any
     individual  event  that  exceeds  a  loss  of  $500,000,  to a  maximum  of
     $10,000,000.  Commencing  January  1,  2006,  PSIC-H  covers  losses  up to
     $1,500,000 with third party insurers  covering the next $9,000,000 from any
     individual event. Losses below the third-party insurers' deductible amounts
     are accrued as cost of operations for the tenant  re-insurance  operations.
     Losses exceeding the third-party  insurers limit are the  responsibility of
     PSIC-H.

              The accrued liability for losses and loss adjustment  expense with
     respect to tenant insurance activities totaled $4,795,000 at March 31, 2006
     ($4,773,000 at December 31, 2005).

                                       10
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

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

              Intangible  assets  consist  of  property   management   contracts
     ($165,000,000)  that  were  acquired  in 1995  and  are net of  accumulated
     amortization of $68,570,000 ($66,919,000 at December 31, 2005). Included in
     depreciation and  amortization  expense for each of the three month periods
     ended March 31, 2006 and 2005 is $1,651,000,  respectively, with respect to
     the  amortization  of property  management  contracts.  These assets have a
     defined  life and are  amortized  on a  straight-line  basis over a 25-year
     period.

              Goodwill  ($94,719,000)  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 is
     based  directly  on  such  acquisitions.  Goodwill  is net  of  accumulated
     amortization  of  $16,515,000  at March 31, 2006 and December 31, 2005. Our
     goodwill has an  indeterminate  life and, in accordance with the provisions
     of Statement of Financial  Accounting  Standards No. 142,  amortization  of
     goodwill ceased effective January 1, 2002.

     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 of expense
     recognition could be affected.

              Cost of operations,  general and administrative expense,  interest
     expense,  as  well  as  television,  yellow  page,  and  other  advertising
     expenditures are expensed as incurred. Accordingly, the amounts incurred in
     an  interim  period may not be  indicative  of the  amounts to be  incurred
     during a full year. Television,  yellow page, and other advertising expense
     totaled $8,701,000 and $7,571,000 for the three months ended March 31, 2006
     and 2005, respectively.

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

              Our policy is to accrue  environmental  assessments  and estimated
     remediation cost 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 any of our facilities, which individually or
     in the  aggregate  would be  material to our  overall  business,  financial
     condition, or results of operations.

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

              Distributions  paid to the  holders  of our  Cumulative  Preferred
     Stock totaled  $46,615,000 and $40,413,000 for the three months ended March
     31,  2006 and 2005,  respectively,  have been  deducted  from net income to
     arrive at net income allocable to our common shareholders.

                                       11
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

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

              In conformity with the SEC Observer's clarification, an additional
     $1,904,000  was  allocated to preferred  stockholders  for the three months
     ended  March 31,  2005  (none for March 31,  2006),  for the  excess of the
     redemption  amount over the  carrying  amount of our  Cumulative  Preferred
     Stock.  It is our  policy  to  record  such  allocations  at the  time  the
     securities are called for redemption.

              Net income  allocated to our common  shareholders has been further
     allocated  among our two classes of common stock;  our regular common stock
     and our Equity Stock,  Series A. The allocation  among each class was based
     upon the two-class method.  Under the two-class method,  earnings per share
     for each  class of  common  stock 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  and  $5,375,000  for each of the three
     months  ended  March  31,  2006  and  2005,  respectively.   The  remaining
     $62,245,000  and  $48,719,000 for the three months ended March 31, 2006 and
     2005, 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 dilutive  impact of stock options and  restricted  stock
     units outstanding). Weighted average common shares excludes shares owned by
     the  Consolidated  Entities as  described  in Note 10 for the three  months
     ended  March  31,  2006 and  2005,  as these  shares  of  common  stock are
     eliminated in consolidation.

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

              We segregate all of our disposed  components  that have operations
     that (i) can be distinguished  from the rest of the entity and (ii) will be
     eliminated  from  the  ongoing  operations  of  the  entity  in a  disposal
     transaction.

              Since  January  1,  2002,  we  closed a total of 43  containerized
     storage  facilities that were determined to be  non-strategic  (the "Closed
     Facilities").  As the decision was made to close each facility, the related
     assets were evaluated for  recoverability and asset impairment charges were
     recorded  for the  excess of these  assets'  net book value over their fair
     value (less costs to sell), determined based upon recent selling prices for
     similar  assets.  No asset  impairment  or lease  termination  charges were
     recorded during 2005 or for the three months ended March 31, 2006.

              During the first  quarter  of 2005,  we sold the  non-real  estate
     assets  of six of the  Closed  Facilities,  resulting  in a gain on sale of
     approximately $1,143,000.

              During  July 2005,  in an eminent  domain  proceeding,  one of our
     self-storage  facilities  located  in  the  Portland,   Oregon  market  was
     condemned.  We received  the  proceeds,  totaling  $6.6  million,  from the
     disposal of this  facility  during the third quarter of 2005 and recorded a
     gain of $5.2 million.

                                       12
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

              During  the  first  quarter  of  2006,  we  were  notified  that a
     self-storage facility in Seattle,  Washington is to be condemned. We expect
     the  condemnation  to be  completed by the third  quarter of 2006,  with an
     expected gain on sale of approximately $2 million.

              Collectively the Portland and Seattle self-storage  facilities are
     referred to as "the Eminent  Domain  Facilities".  The  operations of these
     facilities  prior to their  disposition  are  classified  as  "discontinued
     operations"  for  all  periods  presented  on  our  condensed  consolidated
     statements of income and included under "Eminent Domain  Facilities" in the
     table below.

              The following table  summarizes the historical  operations of each
     component of our discontinued operations:

Discontinued Operations:
<TABLE>
<CAPTION>

                                          Three Months
                                          Ended March 31,
                                    -------------------------
                                        2006           2005
                                    -----------   -----------
                                     (Amounts in thousands)
Rental income (a):
<S>                                   <C>          <C>
  Eminent Domain Facilities.......    $   113      $   248
  Closed Facilities...............          -           95
                                    -----------   -----------
Total rental income...............        113          343
                                    -----------   -----------

Cost of operations (a):
  Eminent Domain Facilities.......         50          118
  Closed Facilities...............          -          194
                                    -----------   -----------
Total cost of operations..........         50          312
                                    -----------   -----------

Depreciation expense (a):
  Eminent Domain Facilities.......         21           38
  Closed Facilities...............          -           29
                                    -----------   -----------
Total depreciation ...............         21           67

Other items (b)...................          -        1,143
                                    -----------   -----------
Net discontinued operations (c)...    $    42      $ 1,107
                                     ==========   ==========
</TABLE>

(a)   These amounts  represent the  historical  operations of the Eminent Domain
      Facilities  and the Closed  Facilities,  and  include  amounts  previously
      classified as rental income, cost of operations,  and depreciation expense
      in the financial statements in prior periods.

(b)   During the quarter ended March 31, 2005,  assets of the Closed  Facilities
      were sold, resulting in a gain on sale of approximately $1,143,000.

(c)   Earnings  per share for the three  months  ended 2005,  were  increased by
      $0.01 per share (none for the three months ended March 31,  2006),  due to
      the impact from discontinued operations.

                                       13
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

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

              Activity in real estate facilities is as follows:
<TABLE>
<CAPTION>

                                                              Three Months Ended
                                                                March 31, 2006
                                                             -------------------
                                                                (In thousands)
Real estate facilities, at cost:
<S>                                                            <C>
   Balance at December 31, 2005........................        $    5,930,484
   Facilities consolidated pursuant to EITF 04-5 (Note 2)              22,459
   Newly developed facilities opened for operations....                18,775
   Acquisition of real estate facilities...............                51,079
   Capital improvements................................                 8,379
                                                            -------------------
   Balance at March 31, 2006...........................             6,031,176
                                                            -------------------
Accumulated depreciation:
   Balance at December 31, 2005........................            (1,500,128)
   Additions during the year...........................               (47,580)
                                                            -------------------
   Balance at March 31, 2006...........................            (1,547,708)
                                                            -------------------

Construction in process:
   Balance at December 31, 2005........................                54,472
   Current development.................................                21,188
   Dispositions........................................                (1,970)
   Newly developed facilities opened for operations....               (18,775)
                                                            -------------------
   Balance at March 31, 2006...........................                54,915
                                                            -------------------
Total real estate facilities at March 31, 2006.........        $    4,538,383
                                                            ===================
</TABLE>


              During the three months ended March 31, 2006,  we opened one newly
     developed  self-storage  facility  (89,000 net rentable square feet) for an
     aggregate  cost  of  $9,343,000.  We  also  completed  two  projects  which
     converted space previously used by our containerized  storage business into
     70,000 net rentable square feet of self-storage space for an aggregate cost
     of  $4,643,000.  In addition,  we  completed  one  expansion  project to an
     existing  self-storage  facility adding 16,000 net rentable square feet for
     an aggregate of $2,126,000, and we incurred trailing development costs with
     respect to development  projects completed in prior years, for an aggregate
     net cost of $2,663,000.

              During the three  months  ended March 31,  2006,  we disposed of a
     parcel of land for an aggregate of $1,970,000.  The net proceeds were equal
     to the  book  value  of this  parcel;  accordingly,  no  gain  or loss  was
     recorded.

              During the three  months  ended March 31,  2006,  we acquired  six
     self-storage  facilities  (380,000  net  rentable  square  feet) from third
     parties at an aggregate cost of  $51,079,000,  consisting of $46,489,000 in
     cash and assumed mortgage debt totaling $4,590,000.

              Construction  in process at March 31, 2006  consists  primarily of
     three self-storage facilities (248,000 net rentable square feet) with costs
     incurred  of  $39,893,000  at March 31, 2006 and total  estimated  costs to
     complete of $11,446,000,  46 projects  (2,802,000 net rentable square feet)
     which  expand or enhance the visual and  structural  appeal of our existing
     self-storage  facilities with cost incurred of $7,612,000 at March 31, 2006
     and total  estimated costs to complete of  $222,963,000,  and five projects
     (419,000 net rentable square feet) to convert space at former containerized
     storage facilities into self-storage space with cost incurred of $1,788,000
     at March 31, 2006 and total estimated costs to complete of $15,314,000.

                                       14
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

              Our policy is to capitalize  interest  incurred on debt during the
     course of construction of our self-storage facilities. Interest capitalized
     during the three  months  ended  March 31, 2006 and 2005 was  $716,000  and
     $665,000, respectively.

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

              At March 31, 2006, 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 the Company's.

              For the three months ended March 31, 2006, we recognized earnings
     from our investments of $4,501,000 as compared to $5,678,000 for the same
     period in 2005. For the three months ended March 31, 2006 and 2005, equity
     in earnings includes an increase of $312,000 and $1,265,000, respectively,
     for our pro rata share of PSB's gain on sale of real estate assets. 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 for the three
     months  ended  March 31,  2006 and 2005,  in the amount of  $5,776,000  and
     $4,537,000, respectively.

              The  following  table sets forth our  investments  in real  estate
     entities  at March  31,  2006 and  December  31,  2005,  and our  equity in
     earnings of real estate  entities for the three months ended March 31, 2006
     and 2005 (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,
                                             2006            2005                   2006           2005
                                   -----------------  -----------------      -------------  ---------------
<S>                                 <C>                <C>                    <C>             <C>
   PSB (a).......................   $      287,980     $     288,694          $     2,976     $     4,209
   Acquisition Joint Venture.....            2,871             2,865                   6             (15)
   Other Investments (b).........           14,707            36,996                  484           1,484
                                   -----------------  -----------------      -------------  ---------------
     Total.......................   $      305,558     $     328,555          $     3,466     $     5,678
                                  ================    =================      =============  ================
</TABLE>

(a)      Equity in earnings of real estate entities  includes our pro rata share
         of the net  impact of  gains/losses  on sale of assets  and  impairment
         charges relating to the impending sale of real estate assets as well as
         our pro rata share of the impact of the  application of EITF Topic D-42
         on  redemptions  of preferred  securities  recorded by PSB. Our net pro
         rata  impact  from these  items  resulted  in an  increase of equity in
         earnings of $312,000  and  $1,265,000  for the three months ended March
         31, 2006 and 2005, respectively.


(b)      As  described  in Note  2,  effective  January  1,  2006  we  commenced
         consolidating  the  accounts  of  three  limited  partnerships  that we
         previously  had accounted  for on the equity  method.  As a result,  we
         decreased  our  investment  in  these   partnerships  by  approximately
         $20,687,000 on January 1, 2006.

     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,  2006.  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, 2006 and  December 31, 2005;  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, 2006 ($55.92 per share of PSB common stock), the shares and units
     had a market value of  approximately  $711.5  million as compared to a book
     value of $288.0 million.

                                       15
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

              At March  31,  2006,  PSB owned  approximately  17.9  million  net
     rentable  square  feet  of  commercial  space.  In  addition,  PSB  manages
     commercial  space  owned  by the  Company  and  the  Consolidated  Entities
     pursuant to property management agreements.

              The  following  table  sets  forth  the  condensed  statements  of
     operations  for each of the three  month  periods  ended March 31, 2006 and
     2005 (as restated for discontinued  operations),  and the condensed balance
     sheets of PSB at March 31, 2006 and December 31,  2005.  The amounts  below
     represent 100% of PSB's balances and not our pro rata share.

<TABLE>
<CAPTION>

                                                            Three Months Ended March 31,
                                                       ----------------------------------------
                                                               2006               2005
                                                       -------------------  -------------------
                                                             (Amounts in thousands)
<S>                                                      <C>                 <C>
   Total revenue....................................     $       58,903      $       53,908
   Cost of operations and other operating expenses..            (19,596)            (17,308)
   Other income and expense, net....................              1,487                 116
   Depreciation and amortization....................            (20,586)            (18,426)
   Discontinued operations (a)......................                458               2,958
   Minority interest................................             (4,349)             (4,155)
                                                       -------------------  -------------------
     Net income.....................................     $       16,317      $       17,093
                                                       ===================  ===================


                                                           March 31,              December 31,
                                                              2006                    2005
                                                       -------------------  -------------------
                                                             (Amounts in thousands)
   Total assets (primarily real estate).............     $    1,453,015      $    1,463,678
   Total debt.......................................             25,726              25,893
   Other liabilities................................             41,433              39,126
   Preferred equity and preferred minority interest.            729,100             729,100
   Common equity and common minority interest.......            656,756             669,559

</TABLE>

(a)      Included in  discontinued  operations  for the three months ended March
         31,  2006 is a net  gain on  disposition  of real  estate  of  $711,000
         ($2,914,000 for the same period in 2005).

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

              As described more fully under  "Accounting for  Acquisition  Joint
     Venture"  in  Note 2, we  formed  a  partnership  (the  "Acquisition  Joint
     Venture")  in January  2004 for the purpose of acquiring up to $125 million
     in existing  self-storage  facilities from third parties.  Through December
     31, 2004,  the  Acquisition  Joint  Venture had  acquired two  self-storage
     facilities  directly from third parties at an aggregate cost of $9,086,000,
     of which our pro rata share was  $2,930,000.  Our  investment  in these two
     facilities  is  accounted  for using the equity  method of  accounting.  In
     December 2004, we sold seven facilities to the Acquisition Joint Venture as
     well as  interest in three  facilities  in the first  quarter of 2005.  Our
     accounting for these ten facilities is described in Note 2.

                                       16
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

              The  following  table  sets  forth  certain  condensed   financial
     information  (representing  100% of this entity's  balances and not our pro
     rata share) with respect to the two self-storage facilities acquired by the
     Acquisition  Joint  Venture that we account for using the equity  method of
     accounting:
<TABLE>
<CAPTION>
                                                                   Three Months Ended March 31,
                                                            --------------------------------------------
                                                                     2006                  2005
                                                            -------------------   ----------------------
                                                                    (Amounts in thousands)
<S>                                                           <C>                   <C>
   Total revenue........................................      $          354        $          305
   Cost of operations and other expenses................                (134)                 (120)
   Depreciation and amortization........................                 (69)                  (66)
                                                            -------------------   ----------------------
     Net income.........................................      $          151        $          119
                                                            ===================  ======================
</TABLE>

<TABLE>
<CAPTION>

                                                                At March 31,           At December 31,
                                                                    2006                   2005
                                                            -------------------   ----------------------
                                                                    (Amounts in thousands)
<S>                                                           <C>                   <C>
   Total assets (primarily storage facilities)..........      $        9,202        $        8,974
   Liabilities..........................................                  87                    62
   Partners' equity.....................................               9,115                 8,912
</TABLE>

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

              The   Other   Investments   consist   primarily   of  an   average
     approximately  24% common  equity  ownership  during the three months ended
     March 31, 2006 and 2005, in four limited  partnerships  (collectively,  the
     "Other Investments") owning an aggregate of 20 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 Other Investments:
<TABLE>
<CAPTION>
                                                                 Three Months Ended March 31,
                                                             -------------------------------------
                                                                    2006               2005
                                                             ------------------  -----------------
                                                                  (Amounts in thousands)
<S>                                                           <C>                 <C>
   Total revenue........................................      $        3,937      $        3,664
   Cost of operations and other expenses................              (1,538)             (1,555)
   Depreciation and amortization........................                (423)               (428)
                                                            ------------------  -----------------
     Net income.........................................      $        1,976      $        1,681
                                                             ================   ===================
</TABLE>

<TABLE>
<CAPTION>
                                                                  March 31,             December 31,
                                                                     2006                   2005
                                                            ------------------  -----------------
                                                                  (Amounts in thousands)
<S>                                                           <C>                 <C>
   Total assets (primarily storage facilities)..........      $       39,685      $       39,813
   Other liabilities....................................               1,058               1,178
   Partners' equity.....................................              38,627              38,635

</TABLE>

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

              We have a revolving line of credit (the "Credit  Agreement")  with
     an aggregate limit with respect to borrowings and letters of credit of $200
     million,  that has a  maturity  date of April 1,  2007 and  bears an annual
     interest rate ranging from the London Interbank Offered Rate ("LIBOR") plus
     0.45% to LIBOR plus 1.20% depending on our credit ratings  (currently LIBOR
     plus 0.45%). In addition, we are required to pay a quarterly commitment fee
     ranging  from  0.15% per annum to 0.30% per annum  depending  on our credit
     ratings (currently the fee is 0.15% per annum).

                                       17
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

              The  Credit  Agreement  includes  various   covenants,   the  more
     significant  of which require us to (i) maintain a balance  sheet  leverage
     ratio of less than 0.55 to 1.00, (ii) maintain certain  quarterly  interest
     and fixed-charge coverage ratios (as defined therein) of not less than 2.25
     to 1.0 and 1.5 to 1.0,  respectively,  and (iii)  maintain a minimum  total
     shareholders' equity (as defined therein).  In addition,  we are limited in
     our ability to incur  additional  borrowings  (we are  required to maintain
     unencumbered  assets with an aggregate  book value equal to or greater than
     1.5 times our unsecured  recourse  debt).  We were in  compliance  with all
     covenants of the Credit  Agreement at March 31, 2006. At March 31, 2006 and
     at May 8, 2006, we had no outstanding borrowings on our line of credit.

              At March 31, 2006 and May 8, 2006, we had undrawn standby letters
     of credit totaling $17,919,000. The beneficiaries of these standby letters
     of credit were certain insurance companies associated with our captive
     insurance and tenant re-insurance activities.

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

              Notes payable at March 31, 2006 and December 31, 2005 consist of
the following:
<TABLE>
<CAPTION>

                                                                         Carrying Amount
                                                                 ------------------------------
                                                                   March 31,       December 31,
                                                                       2006           2005
                                                                 ---------------  -------------
                                                                     (Amounts in thousands)
Unsecured senior notes:

<S>                                                              <C>               <C>
  7.66% note due January 2007.............................       $     11,200      $     22,400

Mortgage notes payable:

  5.58% mortgage note secured by a real estate facility
  with a net book value of $9.1 million, principal and
  interest payable monthly, due in September 2013.........              4,573                 -

  7.134% and 8.75% mortgage notes secured by two real estate
  facilities with a net book value of $10.7 million, principal
  and interest payable monthly, due at varying dates between
  October 2009 and September 2028.........................              1,443             1,484

  5.05% mortgage notes (including unamortized note premium of
  $1.8 million) secured by 25 real estate facilities with a
  net book value of $95.4 million, principal and interest due
  monthly,  due at varying dates  between  October 2010 and
  May 2023................................................             37,825             38,568

  5.25% mortgage notes (including unamortized note premium
  of $3.4 million) secured by seven real estate facilities
  with a net book value of $90.0 million, principal and
  interest due monthly, due at varying dates between
 June 2011 and July 2013..................................             51,159            51,498
                                                                 ---------------  -------------
        Total notes payable..............................        $    106,200       $   113,950
                                                                 ===============  =============

</TABLE>

              All of our notes  payable are fixed  rate.  The  unsecured  senior
     notes require interest and principal  payments to be paid semi-annually and
     have various restrictive covenants, all of which have been met at March 31,
     2006.

              We assumed the 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.

                                       18
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

              We assumed the 5.05% and 5.25% mortgage  notes in connection  with
     property acquisitions in 2004. The stated interest rates on the notes range
     from 5.4% to 8.0% with a weighted average of approximately 6.65%. The notes
     were recorded at their estimated fair value based upon the estimated market
     rate upon  assumption  of 5.05% and 5.25%,  an aggregate  of  approximately
     $94,693,000,   as  compared   to  actual   assumed   balances   aggregating
     approximately $88,247,000. This initial premium of approximately $6,446,000
     over the  principal  balance  of the notes  payable is  amortized  over the
     remaining term of the loans based upon the effective interest method.

              We incurred  interest  expense with  respect to our notes  payable
     aggregating  $1,515,000 and $1,657,000 for the three months ended March 31,
     2006 and 2005, respectively. These amounts were comprised of $1,751,000 and
     $1,984,000  in cash for the three  months  ended  March 31,  2006 and 2005,
     respectively,  less  $236,000  and  $327,000  in  amortization  of premium,
     respectively.

              At March  31,  2006,  approximate  principal  maturities  of notes
     payable are as follows:

<TABLE>
<CAPTION>

                                      Unsecured            Mortgage
                                     senior notes        notes payable          Total
                                   ----------------    ----------------      ------------
                                               (dollar amounts in thousands)
<C>                                  <C>                  <C>                  <C>
2006 (remainder of)..........        $          -         $    3,499           $   3,499
2007.........................              11,200              4,898              16,098
2008.........................                   -              5,155               5,155
2009.........................                   -              5,358               5,358
2010.........................                   -              5,404               5,404
Thereafter...................                   -             70,686              70,686
                                   ----------------    ----------------      ------------
                                     $     11,200         $   95,000           $ 106,200
                                   ================    ================      ============
Weighted average rate........               7.7%               5.2%                 5.5%
                                   ================    ================      ============

</TABLE>

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

              As  described   more  fully  in  Note  2,  our  partner's   equity
     contributions  with respect to certain  transactions has been classified as
     debt under the caption  "Debt to Joint  Venture  Partner."  The balances of
     $35,740,000  and  $35,697,000  as of March 31, 2006 and  December 31, 2005,
     approximate the fair value of our partners' interest in these facilities as
     of each respective date.

              A total of $758,000 and $671,000 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, 2006 and
     2005,  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 $715,000 and  $628,000  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, 2006 and
     2005, respectively,  and an increase in the debt balance of $43,000 in each
     of the three months ended March 31, 2006 and 2005.

              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.

9.       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.

                                       19
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

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

              The following  table  summarizes the preferred  partnership  units
     outstanding at March 31, 2006 and December 31, 2005:

<TABLE>
<CAPTION>

                    Earliest Redemption
                       Date or Dates      Distribution     Units       Carrying
      Series              Redeemed            Rate      Outstanding     Amount
-----------------  ---------------------- ------------  ------------  -----------
                                                          (amounts in thousands)
<S>                      <C>                   <C>           <C>      <C>
Series NN........        March 17, 2010        6.400%        8,000    $   200,000
Series Z.........      October 12, 2009        6.250%        1,000         25,000
                                                         -----------  -----------
Total............                                            9,000    $   225,000
                                                         ===========  ===========

</TABLE>

              Income  allocated  to the  preferred  minority  interests  totaled
     $3,591,000  and  $6,249,000  for the three  months ended March 31, 2006 and
     2005,  respectively,  comprised of distributions paid and the allocation of
     income resulting from the application of EITF Topic D-42 (see below).

              On March 17,  2005,  we  redeemed  all  outstanding  9.5% Series N
     Preferred  Units  ($40,000,000)  and on  March  29,  2005 we  redeemed  all
     outstanding 9.125% Series O Preferred Units  ($45,000,000),  for their face
     value  plus  accrued  distributions,  for  cash.  The  redemption  of these
     Preferred  Units  resulted in an increase in income  allocated  to minority
     interests  and a reduction to the Company's net income for the three months
     ended  March 31, 2005 of  $874,000  as a result of the  application  of the
     SEC's  clarification  of EITF Topic D-42 which  allocates the excess of the
     stated  amount of the  preferred  units over their  carrying  amount to the
     holders of the redeemed securities.

              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 million.

              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,  to require us to redeem their
     units for $25.0 million in cash, plus any unpaid distribution.

                                       20
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

     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  table sets forth the  minority  interests  at March 31, 2006 and
     December 31, 2005 as well as the income allocated to minority interests for
     the three  months  ended March 31, 2006 and 2005 with  respect to the other
     partnership interests (amounts in thousands):
<TABLE>
<CAPTION>


                                                                                   Minority Interests in Income
                                                Minority Interest at                for the Three Months Ended
                                            ------------------------------        --------------------------------
                                             March 31,       December 31,           March 31,         March 31,
               Description                     2006              2005                  2006             2005
                                            -------------   --------------        --------------   ---------------
<S>                                          <C>              <C>                   <C>              <C>
Convertible Partnership Units...........     $    6,177       $     6,177           $       116      $        90
Consolidated Development Joint Venture...             -                 -                     -            1,568
Newly Consolidated Partnerships..........         3,963                 -                   930                -
Other consolidated partnerships..........        22,649            22,793                 2,522            2,737
                                            -------------   ---------------       ----------------  --------------
Total other partnership interests........    $   32,789       $    28,970           $     3,568      $     4,395
                                            =============   ===============       ================  ===============
</TABLE>

              Distributions paid to minority interests with respect to the Newly
     Consolidated Partnerships and the other partnership interests for the three
     months  ended  March 31,  2006 and 2005  were  $3,712,000  and  $4,016,000,
     respectively.

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

              As of  March  31,  2006,  one of  the  Consolidated  Entities  had
     approximately 231,978 convertible operating partnership units ("Convertible
     Units")  outstanding  (237,934 at December 31, 2005) representing a limited
     partnership  interest  in  the  partnership.   The  Convertible  Units  are
     convertible on a one-for-one  basis (subject to certain  limitations)  into
     our common  stock at the option of the  unitholder.  Minority  interest  in
     income with  respect to the  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.  During the
     three months  ended March 31,  2006, a total of 5,956 units were  converted
     into common shares (none during 2005).

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

              In November  1999,  we formed a  development  joint  venture  (the
     "Consolidated  Development  Joint  Venture")  with a joint venture  partner
     (PSAC  Storage  Investors,  LLC,  referred  to as  "PSAC")  whose  partners
     included a third party  institutional  investor  and B. Wayne  Hughes ("Mr.
     Hughes"),   the  Chairman  of  the  Board  of  the   Company,   to  develop
     approximately $100 million of self-storage  facilities and to purchase $100
     million  of the our  Equity  Stock,  Series  AAA (see Note 10).  We owned a
     controlling  interest in the  Consolidated  Development  Joint  Venture and
     included the accounts of this  partnership  in our  consolidated  financial
     statements  since  its  inception.  PSAC's  interest  in  the  Consolidated
     Development  Joint  Venture  was  accounted  for as minority  interest,  as
     denoted in the above table.

              On  August 5,  2005,  we  acquired  the  institutional  investor's
     interest in PSAC for approximately  $41,420,000 in cash and on November 17,
     2005,  we  acquired  the  remaining  interest  in PSAC from Mr.  Hughes for
     $64,513,000 in cash.

                                       21
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

     Newly Consolidated Partnerships
     -------------------------------

              As  further  described  in Note 2,  effective  January  1, 2006 we
     commenced  consolidating  the  accounts of three  partnerships  that we had
     previously  accounted  for  on  the  equity  method  of  accounting.   This
     consolidation  resulted in a  $3,963,000  increase in minority  interest on
     January 1, 2006.  Effective  January 1, 2006,  the income  allocated to the
     interests we do not own in these three  partnerships  is shown in the table
     above.

     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, 2006,  the Other  Consolidated  Partnerships  reflect
     common  equity  interests  that  we do not  own in 22  entities  owning  an
     aggregate of 73 self-storage facilities.

              In January 2005, we acquired a portion of the minority interest we
     did  not  own in  one of the  Consolidated  Entities  for an  aggregate  of
     $4,366,000 in cash. The  acquisition  resulted in the reduction of minority
     interest by $2,828,000  with the excess of cost over  underlying book value
     ($1,538,000) allocated to real estate.

              In April 2005,  we acquired  minority  interests we did not own in
     two  Consolidated  Entities for an aggregate of  $32,432,000  in cash.  The
     acquisition  resulted in a reduction  of minority  interest of  $15,394,000
     with the excess of cost over underlying book value ($17,038,000)  allocated
     to real estate.

              In August 2005,  we acquired the remaining  minority  interests we
     did not own in the Consolidated Entities for an aggregate of $14,597,000 in
     cash.  The  acquisition  resulted  in a reduction  of minority  interest of
     $7,151,000 with the excess of cost over underlying book value  ($7,446,000)
     allocated to real estate.

     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.

                                       22
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

10.      Shareholders' Equity
         --------------------

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

              At March 31, 2006 and  December  31,  2005,  we had the  following
     series of Cumulative Preferred Stock outstanding:

<TABLE>
<CAPTION>

                                                             At March 31, 2006            At December 31, 2005
                                                        -----------------------------   ----------------------------
                           Earliest
                          Redemption      Dividend        Shares        Carrying         Shares         Carrying
       Series                Date (a)      Rate        Outstanding      Amount        Outstanding       Amount
-----------------       --------------  ------------- --------------- -------------- ----------------  --------------
                                                                       (Dollar amount in thousands)
<S>                      <C>                  <C>             <C>       <C>                  <C>       <C>
Series R                 9/28/06              8.000%          20,400    $   510,000          20,400    $   510,000
Series S                 10/31/06             7.875%           5,750        143,750           5,750        143,750
Series T                 1/18/07              7.625%           6,086        152,150           6,086        152,150
Series U                 2/19/07              7.625%           6,000        150,000           6,000        150,000
Series V                 9/30/07              7.500%           6,900        172,500           6,900        172,500
Series W                 10/6/08              6.500%           5,300        132,500           5,300        132,500
Series X                 11/13/08             6.450%           4,800        120,000           4,800        120,000
Series Y                 1/2/09               6.850%       1,600,000         40,000       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               -              -
                                                        -------------  --------------   ------------- -------------
      Total Cumulative Preferred Stock                     1,702,536    $ 2,603,400       1,698,336    $ 2,498,400
                                                        =============  ==============  =============  =============
</TABLE>


(a)      Except under certain conditions relating to the Company's qualification
         as a REIT, the Cumulative  Preferred Stock are not redeemable  prior to
         the dates indicated.  On or after the dates  indicated,  each series of
         Cumulative Preferred Stock will be redeemable,  at our option, in whole
         or in part, at $25.00 per depositary share (or per share in the case of
         the Series Y), plus accrued and unpaid dividends.


              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, 2006,  there were no dividends in arrears and the Debt
     Ratio was 2.0%.

              Upon issuance of our Cumulative  Preferred  Stock, we classify the
     liquidation value as preferred stock on our 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.

                                       23
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

              On January 19, 2006, we issued 4,000,000  depositary shares,  with
     each depositary share  representing  1/1,000 of a share of 6.95% Cumulative
     Preferred Stock,  Series H. The offering  resulted in $100 million of gross
     proceeds.  On January 27, 2006, we issued an additional  200,000 depository
     shares,  with each depositary share representing  1/1,000 of a share of our
     6.95% Cumulative Preferred Stock, Series H resulting in $5 million of gross
     proceeds.

              During the first  quarter of 2006,  we redeemed our 8.60% Series Q
     Cumulative  Preferred  Stock  for  $172,500,000  plus  accrued  and  unpaid
     dividends.   The  Series  Q  Cumulative  Preferred  Stock  was  called  for
     redemption  in  December  2005;   accordingly,   the  redemption  value  of
     $172,500,000  was  classified  as a liability  at  December  31,  2005.  In
     addition,  during 2005, we redeemed our 9.75% Series F Cumulative Preferred
     Stock for $57,500,000, plus accrued and unpaid dividends.

              During 2005, we issued four series of Cumulative  Preferred Stock:
     Series D - issued  February 28, 2005, net proceeds  totaling  $130,548,000,
     Series E - issued  April 27,  2005,  net  proceeds  totaling  $136,601,000,
     Series F - issued August 23, 2005, net proceeds  totaling  $242,550,000 and
     Series G - issued  December  12,  2005,  aggregate  net  proceeds  totaling
     $96,886,000.

              Subsequent  to March 31,  2006,  we issued  20,700,000  depositary
     shares  each  representing  1/1,000  of a  share  of our  7.25%  Cumulative
     Preferred  Stock,  Series I, for gross  proceeds  of  approximately  $517.5
     million.

     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,  2006  and  December  31,  2005,  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.

                                       24
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

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

              During the three  months ended March 31,  2006,  we issued  73,066
     shares  of  common   stock  in   connection   with   employee   stock-based
     compensation.

              At March 31,  2006 and  December  31,  2005,  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.

              The following chart  reconciles our legally issued and outstanding
     shares of Common Stock and the reported  outstanding shares of Common Stock
     at March 31, 2006 and December 31, 2005:



Reconciliation of Common Shares Outstanding
-------------------------------------------
<TABLE>
<CAPTION>

                                                    At March 31,     At December 31,
                                                       2006                2005
                                                  ---------------    -----------------
<S>                                                  <C>               <C>
Legally issued and outstanding shares.......         129,308,836       129,235,770
Less - Shares owned by entities we consolidate
    that are eliminated in consolidation....          (1,146,207)       (1,146,207)
                                                  ---------------   ------------------
Reported issued and outstanding shares......         128,162,629       128,089,563
                                                 ================  ====================
</TABLE>

     Dividends
     ---------

              The following table summarizes dividends declared and paid during
     the three months ended March 31, 2006:
<TABLE>
<CAPTION>

                                             Distributions Per
                                            Share or Depositary
                                                   Share          Total Distributions
                                          ----------------------  -------------------
Preferred Stock:
<S>                                                <C>             <C>
Series Q..............................             $0.108        $    742,000
Series R..............................             $0.500          10,200,000
Series S..............................             $0.492           2,830,000
Series T..............................             $0.477           2,900,000
Series U..............................             $0.477           2,860,000
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..............................             $0.350           1,471,000
                                                                 -------------------
                                                                   46,615,000
Common Stock:
Equity Stock, Series A................             $0.613           5,356,000
Common ...............................             $0.500          64,298,000
                                                                --------------------
   Total dividends....................                           $116,269,000
                                                                ====================
</TABLE>

                                       25
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

              The  dividend  rate on the common stock was $0.50 per common share
     for the three months ended March 31, 2006.  The dividend rate on the Equity
     Stock A was $0.6125 per  depositary  share for the three months ended March
     31, 2006.


11.      Segment Information
         -------------------

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

              Our reportable segments reflect significant  operating  activities
     that are  evaluated  separately  by  management.  We have  four  reportable
     segments:   self-storage  operations,   containerized  storage  operations,
     commercial property operations,  and ancillary  operations.  These segments
     are organized generally based upon their operating characteristics.

              The   self-storage   segment   comprises  the  direct   ownership,
     development,  and  operation of  traditional  storage  facilities,  and the
     ownership of equity interests in entities that own storage properties.  The
     containerized  storage operations represent another segment. The commercial
     property  segment  reflects our interest in the ownership,  operation,  and
     management of commercial  properties.  The vast majority of the  commercial
     property  operations are conducted through PSB, and to a much lesser extent
     the Company and certain of its  unconsolidated  subsidiaries own commercial
     space,   managed  by  PSB,  within  facilities  that  combine  storage  and
     commercial space for rent. The ancillary operations include four sources of
     operating  income:  (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) truck rentals at our  self-storage
     facilities and (iv)  management of facilities  owned by third-party  owners
     and facilities owned by the Unconsolidated Entities.

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

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

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

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

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

                                       26
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

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

              The following table reconciles the performance of each segment, in
     terms of segment income, to our consolidated net income.

<TABLE>
<CAPTION>

                                                                 Three Months Ended
                                                                     March 31,
                                                              -------------------------
                                                                2006           2005
                                                             ------------  ------------
                                                               (Amounts in thousands)
Reconciliation of Net Income by Segment:

Self-storage
<S>                                                          <C>            <C>
  Self-storage net operating income.......................   $   163,777    $ 145,702
  Self-storage depreciation...............................       (49,204)     (46,197)
  Equity in earnings - self-storage property operations...           787        1,734
  Equity in earnings - depreciation (self-storage)........          (215)        (432)
  Discontinued operations (Note 3) .......................            42           92
                                                             ------------  ------------
      Total self-storage segment net income...............       115,187      100,899
                                                             ------------  ------------
  Commercial  properties
  Commercial properties net operating income..............         1,644        1,721
  Depreciation and amortization - commercial properties...          (585)        (579)
  Equity in earnings - commercial property operations.....        17,930       17,214
  Equity in earnings - depreciation (commercial
     properties) .........................................        (9,039)      (8,253)
                                                             ------------  ------------
      Total commercial property segment net income.........        9,950       10,103
                                                             ------------  ------------
  Containerized storage
  Containerized storage net operating income..............           620        1,095
  Containerized storage depreciation......................          (260)      (1,162)
  Discontinued operations (Note 3) .......................             -        1,015
                                                             ------------  ------------
      Total containerized storage segment net income......           360          948
                                                             ------------  ------------
  Ancillary Operations
   Revenue less cost of operations........................         4,558        3,601
                                                             ------------  ------------
  Other items not allocated to segments
  -------------------------------------
  General and administrative and other included in equity
     in earnings..........................................        (5,997)      (4,585)

  Cumulative effect of change in accounting principal.....           578            -
  Interest and other income...............................         5,075        2,893
  General and administrative..............................        (6,779)      (5,141)
  Interest expense........................................        (1,557)      (1,663)
  Minority interest in income.............................        (7,159)     (10,644)
                                                             ------------  ------------
      Total other items not allocated to segments                (15,839)     (19,140)
                                                             ------------  ------------
       Total consolidated net income......................   $   114,216    $  96,411
                                                             ============  ============
</TABLE>

                                       27
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

12.      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.

              For the three  months  ended March 31, 2006 and 2005,  we recorded
     $267,000 and $211,000,  respectively,  in stock option compensation expense
     related to options  granted after January 1, 2002. The estimated per option
     value of $10.50 for the stock options  granted in the first three months of
     2006 was based upon an estimated life of 5 years, an average risk-free rate
     of  4.32%,  an  expected  dividend  yield of 7%,  and an  average  expected
     volatility of 0.265.

              A total of 125,000  stock  options were  granted  during the three
     months ended March 31, 2006, 54,857 shares were exercised, and 2,000 shares
     were  forfeited.  A total of 1,491,289  stock options were  outstanding  at
     March 31, 2006 (1,423,146 at December 31, 2005).

     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 condensed
     consolidated income statement for the quarter ended March 31, 2006.

                                       28
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

              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.

              From December 31, 2005 through March 31, 2006,  194,520 restricted
     stock units were granted, 8,750 restricted stock units were forfeited,  and
     27,900 restricted stock units vested. This vesting resulted in the issuance
     of  18,209  shares  of  the  Company's  Common  Stock.  In  addition,  cash
     compensation  was paid to employees in lieu of 9,691 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, 2006,  approximately  457,700  restricted stock units
     were outstanding  (299,830 at December 31, 2005). A total of $1,269,000 and
     $1,018,000  in  restricted  stock expense was recorded for the three months
     ended March 31, 2006 and 2005, respectively.

13.      Related Party Transactions
         --------------------------

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

              Mr.  Hughes and his family (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  36% of our Common Stock  outstanding  at March 31, 2006.  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.

              Through PSIC and PSCI-H, 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 its
     acquisition of PSIC. During each of the three month periods ended March 31,
     2006 and 2005, we received $259,000 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.

              In November  1999, we formed the  Consolidated  Development  Joint
     Venture  with  a  joint   venture   partner  whose   partners   include  an
     institutional  investor and Mr. Hughes.  On August 5, 2005, we acquired the
     institutional investor's interest in PSAC for approximately  $41,420,000 in
     cash. This acquisition gave us a controlling position in PSAC and the right
     to acquire  the  remaining  interest in PSAC held by Mr.  Hughes,  which we
     exercised,  for a stipulated  amount of $64,513,000 plus accrued  preferred
     return on November 17, 2005.

              The Company and Mr. Hughes are  co-general  partners in certain of
     the Consolidated Entities and the Unconsolidated  Entities.  Mr. Hughes and
     his  family  also own  limited  partnership  interests  in certain of these
     partnerships.   The  Company  and  Mr.   Hughes  and  his  family   receive
     distributions  from these  partnerships in accordance with the terms of the
     partnership agreements.

                                       29
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

13.      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 $13,000 and $11,000 for the
      three months ended March 31, 2006 and 2005, 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 $149,000,  and $145,000, for the three months
      ended  March 31 2006 and  2005,  respectively,  in  management  fees  with
      respect to PSB's property management services.

              We manage the Company's  wholly-owned  self-storage  facilities as
     well  as the  facilities  owned  by the  Unconsolidated  Entities  and  the
     Consolidated Entities 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 total of such expenses  which were
     included  in  the   operations   of  the   Unconsolidated   Entities   were
     approximately  $591,000,  and  $631,000 or the three months ended March 31,
     2006 and 2005, respectively.

              Pursuant to a cost-sharing and administrative  services agreement,
      PSB  reimburses  us for certain  administrative  services.  PSB's share of
      these costs totaled approximately $80,000 and $85,000 for the three months
      ended March 31, 2006 and 2005, respectively.

              Stor-RE  and third  party  insurance  carriers  have  provided  PS
      Canada,  the  Company,  PSB,  and other  affiliates  of the  Company  with
      liability and casualty  insurance coverage until March 31, 2004. PS Canada
      has a 2.2% interest,  and PSB has 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.

14.      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.
                                       30
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                   (Unaudited)

              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.

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

              As previously  reported,  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. Following
      the  filing,  in June  2003,  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.  These
      proceedings have previously been reported.

              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 June 2005, the court
      granted  the  defendants'  motion to dismiss the  complaint  with leave to
      amend  the  complaint.  In July  2005,  the  plaintiffs  filed an  amended
      complaint,  and the  defendants  filed a motion  to  dismiss  the  amended
      complaint.  The matter is  currently  under  submission.  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  Brinkley  plaintiffs  are  suing the  Company  on behalf of a
      purported class of California  property  managers who claim that they were
      not compensated for all the hours they worked.  The Brinkley suit is based
      upon California wage and hour laws. The maximum potential liability cannot
      be  estimated,  but would be increased if a class or classes are certified
      or, if claims are  permitted  to be brought on behalf of others  under the
      California Unfair Business Practices Act. We are vigorously contesting the
      claims and intend to resist any expansion  beyond the named  plaintiffs on
      the grounds of lack of commonality of claims.  We do not believe that this
      matter will have any material  adverse effect on the results of operations
      of the Company.

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

              The Simas  plaintiffs  bring 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  brought  under
      California  Business and Professions Code Section 17200. The Company filed
      a demurrer to the  complaint.  While the demurrer was pending,  Plaintiffs
      amended  the  complaint  to allege a national  class and claims for unfair
      business  practices,  quasi-contract,  common  counts,  and  negligent and
      intentional  misrepresentation.  We are  vigorously  contesting the claims
      upon  which  this  lawsuit  is  based,  including  any  efforts  for class
      certifications.

     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.

                                       31
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                  (Unaudited)

         INSURANCE AND LOSS EXPOSURE

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

              The Company, STOR-Re, PSIC-H and its affiliates' maximum aggregate
     annual  exposure for losses that are below the deductibles set forth in the
     third-party  insurance  contracts,  assuming  multiple  significant  events
     occur, is  approximately  $35 million.  In addition,  if losses exhaust the
     third-party  insurers'  limit of  coverage  of  $125,000,000  for  property
     coverage (a maximum of $80,000,000 with respect to earthquake coverage) and
     $102,000,000 for general  liability,  our exposure could be greater.  These
     limits are higher  than  estimates  of maximum  probable  losses that could
     occur from individual catastrophic events (i.e. earthquake and wind damage)
     determined in engineering and actuarial studies.

              Our tenant  re-insurance  program,  operating through PSIC through
     March 31,  2004,  and through  PSIC-H  beginning  April 1, 2004,  reinsures
     policies  against  claims  for  losses to goods  stored by  tenants  at our
     self-storage  facilities.  For 2005, we had outside  third-party  insurance
     coverage for claims paid exceeding  $500,000  resulting from any individual
     event, to a limit of $10,000,000.  Effective January 1, 2006, such coverage
     was revised to cover claims paid  exceeding  $1,500,000  resulting from any
     individual event, to a limit of $9,000,000.

         DEVELOPMENT AND ACQUISITION OF REAL ESTATE FACILITIES

              We  currently  have  54  projects  in  our  development  pipeline,
     including  newly  developed  facilities and expansions and  enhancements to
     existing  self-storage  facilities.  The  total  estimated  cost  of  these
     facilities is approximately  $299 million,  of which $49.3 million has been
     spent at March 31, 2006. These projects are subject to contingencies.

              As of  May 8,  2006,  we  are  under  contract  to  purchase  four
     self-storage  facilities  (total  approximate  net rentable  square feet of
     336,000) at an aggregate cost of approximately $28.1 million. We anticipate
     that  these  acquisitions  will be  funded  entirely  by us.  Each of these
     contracts  is  subject  to  significant  contingencies,  and  there  is  no
     assurance that any of these facilities will be acquired.

         MERGER WITH SHURGARD

              On March 6, 2006, we entered into an agreement with Shurgard under
     which Public Storage will acquire Shurgard at a total  transaction value of
     approximately $5.0 billion. Under the transaction, which is taxable, Public
     Storage will issue  approximately  38.7  million  shares of common stock in
     exchange for outstanding  Shurgard common stock and assume  Shurgard's debt
     and line of credit of  approximately  $1.9 billion (as of March 31,  2006).
     Concurrent  with the closing of the merger,  we expect to repay  Shurgard's
     line of credit ($621 million at March 31, 2006), and pay  approximately $90
     million in legal, consulting,  and other merger related costs. In addition,
     approximately $136 million of Shurgard's  preferred stock will be redeemed.
     The transaction is subject to customary  closing  conditions and regulatory
     approvals,  including the approval of the  shareholders  of both companies,
     and is currently targeted to close during the third quarter of 2006.

                                       32

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006
                                  (Unaudited)

              Completion  of the  transaction  is not  assured and is subject to
     risks,  including that shareholders of either Public Storage or Shurgard do
     not approve the  transaction  or that the other closing  conditions are not
     satisfied. In addition,  Shurgard may under limited circumstances terminate
     the agreement to take a superior proposal.  Public Storage and Shurgard are
     not aware of any significant  governmental  approvals that are required for
     consummation  of the merger.  If any approval or action is required,  it is
     presently  contemplated  that Public  Storage and Shurgard  would use their
     reasonable best efforts to obtain such approval.  There can be no assurance
     that any approvals, if required, will be obtained.

              The foregoing description of the terms of our agreement to acquire
     Shurgard does not purport to be complete,  and is qualified in its entirety
     by reference to the full text of the merger  agreement,  a copy of which is
     filed with our current report on Form 8-K dated March 7, 2006, and our Form
     S-4, which was filed April 20, 2006.

              During the quarter ended March 31, 2006, we incurred approximately
     $1.2  million  in legal,  consulting,  and other  costs  incurred  prior to
     signing  the  merger  agreement,  which are  included  in our  general  and
     administrative  expense for the quarter.  We expect that  additional  costs
     will be incurred subsequent to the merger related to the integration of the
     two companies and the winding down of Shurgard.  Such costs,  the amount of
     which cannot be determined  at this time,  are expected to be expensed when
     incurred and, as a result, have a negative impact on earnings.

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

              From  March 31,  2006  through  May 8,  2006,  we  acquired  three
     additional self-storage facilities (228,000 net rentable square feet) at an
     aggregate cost of approximately  $31.1 million in cash. These  acquisitions
     were entirely funded by us.

              On May 3,  2006,  we  issued  20,700,000  depositary  shares  each
     representing  1/1,000 of a share of our 7.25%  Cumulative  Preferred Stock,
     Series I, for gross proceeds of  approximately  $517.5  million.  We expect
     that these proceeds will be used to fund cash  requirements with respect to
     the merger with Shurgard.

              On May 9, 2006, one of the Consolidated  Entities issued 4,000,000
     7.25%  Cumulative   Redeemable   Preferred  Units,   Series  J,  which  are
     exchangeable   under  certain   circumstances  into  our  7.25%  Cumulative
     Redeemable Preferred Stock, Series J. Gross proceeds received by PSAIP were
     $100  million and are  expected to be used to fund cash  requirements  with
     respect to the merger with Shurgard.

                                       33

<PAGE>

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

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

         Forward Looking Statements: 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 10Q. These risks include,
but are not limited to, the following:  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
which  would  reduce  our  profitability;  difficulties  in  raising  capital at
reasonable  rates,  which  would  impede  our  ability  to grow;  delays  in the
development  process,  which  could  adversely  affect  profitability;  economic
uncertainty  due to the impact of war or terrorism  could  adversely  affect its
business  plan; and risks related to our agreement to acquire  Shurgard  Storage
Centers,  Inc,  including  risks  related to the timing  and  completion  of the
transaction,   risks  associated  with  Shurgard's  level  of  debt,  Shurgard's
investment in European operations,  and risks associated with the integration of
Shurgard's  operations.  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.  The
preparation of financial  statements and related  disclosures in conformity with
United States generally  accepted  accounting  principles 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 consolidated  financial statements summarizes the significant  accounting
policies  and methods  used in the  preparation  of our  consolidated  financial
statements and related disclosures.

         Management  believes the  following  are critical  accounting  policies
whose application has a material impact on our 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. 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
a REIT for any  particular  taxable  year.  For any taxable year that we fail or

                                       34

<PAGE>

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.

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

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

         ESTIMATED  LEVEL OF RETAINED RISK AND UNPAID TENANT CLAIM  LIABILITIES:
As  described in Notes 2 and 14 to the  consolidated  financial  statements,  we
retain certain risks with respect to property perils, legal liability, and other
such risks.  In addition,  a  wholly-owned  subsidiary of the Company  reinsures
policies   against  claims  for  losses  to  goods  stored  by  tenants  in  our
self-storage facilities.  In connection with these risks, we accrue losses based
upon 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.

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

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

MERGER WITH SHURGARD
--------------------

         On March 6, 2006, we entered into an agreement  with  Shurgard  Storage
Centers,  Inc ("Shurgard") under which Public Storage will acquire Shurgard at a
total  transaction value of approximately  $5.0 billion.  Under the transaction,
which is taxable, Public Storage will issue approximately 38.7 million shares of
common  stock in  exchange  for  outstanding  Shurgard  common  stock and assume
Shurgard's  debt and line of credit of  approximately  $1.9 billion (as of March
31, 2006). Concurrent with the closing of the merger, we expect to repay

                                       35

<PAGE>

Shurgard's   line  of  credit  ($621  million  at  March  31,  2006),   and  pay
approximately $90 million of legal, consulting,  and other merger-related costs.
In addition,  approximately  $136 million of Shurgard's  preferred stock will be
redeemed.  The  transaction  is  subject to  customary  closing  conditions  and
regulatory  approvals,  including  the  approval  of the  shareholders  of  both
companies, and is currently targeted to close during the third quarter of 2006.

         Completion of the  transaction  is not assured and is subject to risks,
including that  shareholders of either Public Storage or Shurgard do not approve
the  transaction  or that the other closing  conditions  are not  satisfied.  In
addition,  Shurgard may under limited  circumstances  terminate the agreement to
take a superior  proposal.  Public  Storage  and  Shurgard  are not aware of any
significant  governmental  approvals that are required for  consummation  of the
merger. If any approval or action is required, it is presently contemplated that
Public  Storage and Shurgard would use their  reasonable  best efforts to obtain
such approval.  There can be no assurance that any approvals,  if required, will
be obtained.

         The  foregoing  description  of the terms of our  agreement  to acquire
Shurgard  does not purport to be  complete,  and is qualified in its entirety by
reference  to the full text of the  merger  agreement,  a copy of which is filed
with our current report on Form 8-K dated March 7, 2006, and our Form S-4, which
was filed April 20, 2006.

         During the quarter ended March 31, 2006, we incurred approximately $1.2
million in legal,  consulting,  and other  costs  incurred  prior to signing the
merger agreement,  which are included in our general and administrative  expense
for the quarter.  We expect that additional costs will be incurred subsequent to
the merger related to the  integration of the two companies and the winding down
of Shurgard.  Such costs, the amount of which cannot be determined at this time,
are  expected to be expensed  when  incurred  and, as a result,  have a negative
impact on earnings.

RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2006:

         Net income for the three months  ended March 31, 2006 was  $114,216,000
compared to $96,411,000 for the same period in 2005, representing an increase of
$17,805,000,  or 18.5%.  This increase is primarily  due to improved  operations
from our Same Store,  newly  developed  and  acquired  self-storage  facilities,
reduced minority interest in income and higher interest income. These items were
partially  offset  by  increases  in  general  and  administrative  expense  and
depreciation  along  with a  decrease  in  equity  in  earnings  of real  estate
entities.

         Net income allocable to our common  shareholders  (after allocating net
income to our preferred and equity  shareholders)  was  $62,245,000 or $0.48 per
common  share on a diluted  basis  for the three  months  ended  March 31,  2006
compared to  $48,719,000  or $0.38 per common  share on a diluted  basis for the
same period in 2005,  representing  an increase  of $0.10 per common  share,  or
26.3%. The increases in net income allocable to common shareholders and earnings
per  common  diluted  share  are due  primarily  to the  impact  of the  factors
described above.

         For the three  months  ended  March 31,  2006 and  2005,  we  allocated
$46,615,000  and $40,413,000 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
preferred  securities  issued.  We also  recorded  allocations  of income to our
preferred  shareholders  with  respect  to the  application  of EITF  Topic D-42
totaling $1,904,000 for the three months ended March 31, 2005 (none for the same
period in 2006).

         Weighted  average diluted shares decreased to 129,009,000 for the three
months  ended March 31, 2006 from  129,175,000  for the three months ended March
31, 2005.

         As described more fully under "Liquidity and Capital  Resources" below,
we have approximately $653,750,000 in higher coupon preferred stock that becomes
available  for  redemption  during  the  remainder  of 2006.  While  there is no

                                       36

<PAGE>

assurance that we will be able to raise the necessary capital and at appropriate
rates to redeem these securities, if we do redeem these securities,  during 2006
there  would  be an  additional  allocation  to the  preferred  shareholders  of
approximately  $22 million ($0.17 per common share,  based upon weighted average
shares  during the first  quarter of 2006)  from the  application  of EITF Topic
D-42.

         In the ensuing discussions of our operations,  we present Net Operating
Income (before depreciation) and cost of operations (before depreciation), which
exclude  the  impact  of  depreciation  expense.  Although  depreciation  is  an
operating  expense,  we believe  that these  operating  metrics  are  meaningful
measures of operating  performance,  because we utilize these measures 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.

REAL ESTATE OPERATIONS

         SELF-STORAGE  OPERATIONS:  Our  self-storage  operations are by far the
largest component of our operations, representing approximately 90% of our total
revenues  generated for the three months ended March 31, 2006. The  improvements
in  rental  income  for the  periods  presented  on our  condensed  consolidated
statements  of  income,  are due to  improvements  in the  performance  of those
facilities  that we owned  prior to  January 1, 2004,  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 self-storage operating results.


<TABLE>
<CAPTION>

Self - storage operations summary:                      Three Months Ended March 31,
----------------------------------                   ------------------------------------
                                                                               Percentage
                                                       2006          2005        Change
                                                     -----------  -----------  ----------
                                                        (dollar amounts in thousands)
Rental income (a):
<S>                                                  <C>          <C>              <C>
   Same Store Facilities (b)...................      $  208,228   $  198,059       5.1%
   Acquired Facilities (c).....................          14,115        7,496      88.3%
   Expansion Facilities (d)....................          12,556       11,145      12.7%
   Developed Facilities (e)....................          13,315       10,646      25.1%
   Newly consolidated facilities (g)...........           3,298            -       -
                                                     -----------  -----------  ----------
     Total rental income.......................         251,512      227,346      10.6%
                                                     -----------  -----------  ----------
Cost of operations (excluding depreciation) (f):
   Same Store Facilities.......................          72,030       69,991       2.9%
   Acquired Facilities.........................           5,701        3,428      66.3%
   Expansion Facilities........................           4,256        4,028       5.7%
   Developed Facilities........................           4,969        4,197      18.4%
   Newly consolidated facilities (g)...........             779            -       -
                                                     -----------  -----------  ----------
   Total cost of operations....................          87,735       81,644       7.5%
                                                     -----------  -----------  ----------
Net operating income before depreciation :
-----------------------------------------
   Same Store Facilities.......................         136,198      128,068       6.3%
   Acquired Facilities.........................           8,414        4,068     106.8%
   Expansion Facilities........................           8,300        7,117      16.6%
   Developed Facilities........................           8,346        6,449      29.4%
   Newly consolidated facilities (g)...........           2,519            -       -
                                                     -----------  -----------  ----------
   Total net operating income before depreciation       163,777      145,702      12.4%
 Depreciation..................................         (49,204)     (46,197)      6.5%
                                                     -----------  -----------  ----------
   Net operating income........................      $  114,573   $   99,505      15.1%
                                                     ===========  ===========  ==========
Number of self-storage facilities (at end of
period)........................................           1,485        1,431       3.8%
Net rentable square feet (in thousands, at end of
   period) (h): ...............................          90,860       87,305       4.1%

</TABLE>

(a)   Rental income includes late charges and administrative  fees and is net of
      promotional  discounts given.  Rental income excludes retail sales,  truck
      rental  income  and  tenant   reinsurance   revenues  generated  at  these
      facilities.  Such  ancillary  revenues  are  reflected  as a component  of
      "Ancillary Operations" on our consolidated statements of income.

                                       37

<PAGE>

(b)   The Same Store Facilities include 1,266 facilities  containing  73,946,000
      net  rentable  square  feet that have been owned prior to January 1, 2004,
      and  operated at a mature,  stabilized  occupancy  level since  January 1,
      2004.

(c)   The Acquired  Facilities  include 83 facilities  containing  5,891,000 net
      rentable square feet that were acquired after January 1, 2004.

(d)   The Expansion  Facilities include 61 facilities  containing  5,185,000 net
      rentable square feet of self-storage  space;  these  facilities were owned
      since  January 1, 2004,  however,  operating  results  are not  comparable
      throughout the periods  presented due primarily to expansions in their net
      rentable square feet (described below).

(e)   The Developed  Facilities include 59 facilities  containing  4,840,000 net
      rentable  square  feet  of  self-storage   space.  These  facilities  were
      developed  and  opened  since  January  1, 2002 at a total  cost of $501.2
      million.

(f)   Cost of  operations  includes all costs,  both direct and indirect  costs,
      incurred in the operating activities of the facilities. Cost of operations
      excludes,  costs associated with retail sales,  truck rentals,  and tenant
      reinsurance   activities;   such  costs  are  reflected  under  "Ancillary
      Operations" on our income statement.

(g)   Effective  January 1, 2006, in connection with our  implementation of EITF
      04-5,   we  commenced   consolidation   the  accounts  of  three   limited
      partnerships that we had previously  accounted for on the equity method of
      accounting.  As a result,  we began  including  the  revenues  and cost of
      operations  of 16  facilities  with an  aggregate  of 998,000 net rentable
      square feet in the table above.

(h)  Square footages do not include 472,000 net rentable square feet of
     industrial space initially developed for containerized storage activities.
     This space is being converted into self-storage space; see "Development
     Pipeline Summary" below.

         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  measures
our ongoing level of revenue associated with the leasing of the units.

         Self-Storage Operations - Same Store Facilities

         We  increased  the  number of  facilities  included  in the Same  Store
Facilities  from 1,260  facilities  at December 31, 2005 to 1,266  facilities at
March 31, 2006.  The increase in the Same Store pool of facilities is due to the
inclusion  of 23  facilities  previously  classified  as  Developed or Expansion
facilities and the removal of 17 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, 2004 and therefore  provide
meaningful comparative data for 2004, 2005, and 2006.

         As a result of the change in the Same Store  Facilities,  the  relative
weighting of markets has changed.  Accordingly,  comparisons  should not be made
between  information  presented  in  2005  reports  for  the  1,260  Same  Store
Facilities  and the  current  1,266 Same Store  Facilities  in order to identify
trends in occupancies, realized rents per square foot, or operating results.

         The Same  Store  Facilities  contain  approximately  73.9  million  net
rentable  square  feet,  representing  approximately  81% of the  aggregate  net
rentable square feet of our consolidated  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."
The following  table sets forth  additional  operating  data with respect to the
Same Store Facilities:

                                       38

<PAGE>

<TABLE>
<CAPTION>

SAME STORE FACILITIES                                        Three Months Ended March 31,
                                                        -------------------------------------
                                                                                   Percentage
                                                            2006         2005        Change
                                                        ------------  ------------ ----------
                                                        (Dollar amounts in thousands, except
                                                               rents per square foot)

<S>                                                      <C>           <C>              <C>
Rental income......................................      $  199,091    $  189,572       5.0%
Late charges and administrative fees collected.....           9,137         8,487       7.7%
                                                        ------------  ------------ ----------
   Total rental income.............................         208,228       198,059       5.1%
                                                        ------------  ------------ ----------
Cost of operations (excluding depreciation):
     Payroll expense...............................          21,330        21,095       1.1%
     Property taxes................................          20,663        19,931       3.7%
     Repairs and maintenance.......................           6,701         6,682       0.3%
     Advertising and promotion.....................           6,679         5,970      11.9%
     Utilities.....................................           4,800         4,557       5.3%
     Property insurance............................           1,850         2,002      (7.6)%
     Telephone reservation center..................           1,949         1,753      11.2%
     Other cost of management......................           8,058         8,001       0.7%
                                                        ------------  ------------ ----------
   Total cost of operations........................          72,030        69,991       2.9%
                                                        ------------  ------------ ----------
Net operating income before depreciation ..........         136,198       128,068       6.3%
Depreciation.......................................         (38,548)      (38,968)     (1.1)%
                                                        ------------  ------------ ----------
 Net operating income..............................      $   97,650    $   89,100       9.6%
                                                        ============  ===========  ==========
Gross margin (before depreciation).................          65.4%         64.7%        1.1%

Weighted average for the fiscal year:
   Square foot occupancy (a).......................          90.2%         89.9%        0.3%
   Realized annual rent per occupied square foot (b) .      $11.94        $11.41        4.6%
   REVPAF (c)......................................         $10.77        $10.25        5.1%

 Weighted average at March 31:
   Square foot occupancy...........................          90.4%         90.0%        0.4%
   In place annual rent per occupied square foot (d)         $12.99        $12.36       5.1%

Total net rentable square feet (in thousands)......          73,946        73,946       -

</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.

         Rental income increased  approximately  5.1% for the three months ended
March 31,  2006,  as  compared  to the same period in 2005.  This  increase  was
primarily  attributable  to higher  average  realized  annual  rental  rates per
occupied  square  foot,  which were 4.6% higher for the three months ended March
31, 2006, as compared to the same period in 2005. Our occupancy levels increased
approximately 0.3% for the three months ended March 31, 2006, as compared to the
same period in 2005.

         Our primary  goal is to continue to grow rental  income in a consistent
and  sustainable  manner.  Growth in rental  income  will  depend  upon  various
factors,  including  our ability to (i) maintain  high  occupancy  levels,  (ii)
increase  rental  rates  charged to both new and existing  customers,  and (iii)

                                       39

<PAGE>

reduce the amount of  promotional  discounts  to attract  new  tenants.  In this
regard,  we are continuously  evaluating call volume,  reservation  activity and
move-in/move-out  rates  relative to our marketing  activities and rental rates.
When  warranted we will adjust our  pricing,  promotional  discounts,  and media
strategies  to  accommodate  changing  conditions  in each  market  in  which we
operate.

         We  believe  that our Same Store  Facilities  are well  positioned  for
continued rental income growth for the remainder of 2006. At March 31, 2006, our
existing  tenants  were paying  rental rates that were 5.1% higher than one year
earlier and occupancies improved by 0.4% for the same period.

         There can be no assurance  that we will achieve our goal of sustainable
growth in our rental income, while sustaining our occupancy levels.

         Cost of operations (excluding  depreciation)  increased by 2.9% for the
three months ended March 31, 2006, as compared to the same period in 2005.

         Payroll  expense has increased 1.1% in the quarter,  due principally to
higher wage rates offset partially by reduced incentives.

         Advertising  and promotion  costs increased  approximately  11.9%,  due
principally  to  increases  in internet  and  television  advertising  expenses.
Television  advertising  increased  from  $3,588,000  to $3,978,000 in the three
months  ended  March  31,  2006 as  compared  to the same  period  in 2005,  due
principally to more aggressive  media programs.  Future  television  advertising
expenditures  will continue to be volatile as we adopt to market and competitive
conditions.

         Telephone  reservation center costs increased 11.2% in the quarter.  In
preparation  for our seasonal  rental period,  we increased our staffing  levels
earlier  this year  compared  to the same  period in 2005,  resulting  in higher
payroll costs.  We should see some benefit from this through  better  conversion
ratios and lower temporary staffing costs in the second and third quarters.

         Property insurance expense declined 7.6% in the quarter ended March 31,
2006 as compared to the same period in 2005,  due to improved  cost  controls as
well as a somewhat softer  insurance market that was in place when our insurance
contracts  for the policy year April 1, 2005 through March 31, 2006 were entered
into. However,  our policy renewed on April 1, 2006, with substantial  increases
in our property  insurance  premiums  primarily due to the impact of last year's
hurricanes.  This  increase is expected to be  approximately  $1.0  million each
quarter,  as compared to the same quarter in the previous  year, for the current
policy year.

         Utility  costs  increased  5.3% in the quarter  ended March 31, 2006 as
compared to the same period in 2005. We expect that this trend will continue and
accelerate throughout 2006, as energy prices remain high.

         Our  operating  expense  growth in the first  quarter  of 2006 was more
moderate than we anticipated.  We believe that this will change in the remainder
of 2006, for the reasons indicated above.

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

                                       40

<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>               <C>
     2006             $   208,228
     2005             $   198,059        $   203,302         $  208,745          $  208,272        $   818,378

Total cost of operations
 (excluding depreciation):
     2006             $    72,030
     2005             $    69,991        $    67,736         $   67,730          $   65,873        $   271,330

Property tax expense:
     2006             $    20,663
     2005             $    19,931        $    18,402         $   19,573          $   17,025        $    74,931

Television advertising
 expense:
     2006             $     3,978
     2005             $     3,588        $     2,955         $    2,314          $    2,141        $    10,998

REVPAF:
     2006             $    10.77
     2005             $    10.25         $    10.51          $   10.77           $    10.76        $    10.58

Weighted average realized annual rent
 per occupied square foot:
     2006             $    11.94
     2005             $    11.41         $    11.42          $   11.75           $    11.89        $    11.61

Weighted average occupancy levels
 for the period:
     2006                 90.2%
     2005                 89.9%              92.1%               91.7%               90.5%              91.1%

</TABLE>

                                       41

<PAGE>


ANALYSIS OF REGIONAL TRENDS

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

                                              Three Months Ended March 31,
                                         ---------------------------------------
                                              2006         2005         Change
                                          -----------  ------------  -----------
Same Store Facilities Operating          (Dollar amounts in thousands, except by
 Trends Region rents per square
 foot) Rental income:
   Southern California
   (126 facilities).................      $   34,237   $   32,646      4.9%
   Northern California
   (127 facilities).................          25,190       23,855      5.6%
   Texas  (149 facilities)..........          18,207       17,462      4.3%
   Florida  (130 facilities)........          21,903       20,000      9.5%
   Illinois  (91 facilities)........          15,284       14,955      2.2%
   Georgia  (58 facilities).........           7,140        6,693      6.7%
   All other states  (585 facilities)         86,267       82,448      4.6%
                                          -----------  ------------  -----------
Total rental income.................         208,228      198,059      5.1%

Cost of operations (excluding
   depreciation expense)
   Southern California..............           8,235        7,634      7.9%
   Northern California..............           6,748        6,364      6.0%
   Texas............................           8,249        8,101      1.8%
   Florida..........................           7,208        6,989      3.1%
   Illinois.........................           7,479        6,926      8.0%
   Georgia..........................           2,532        2,406      5.2%
   All other states.................          31,579       31,571      0.0%
                                          -----------  ------------  -----------
Total cost of operations............          72,030       69,991      2.9%

Net operating income (excluding
   depreciation expense)
   Southern California..............          26,002       25,012      4.0%
   Northern California..............          18,442       17,491      5.4%
   Texas............................           9,958        9,361      6.4%
   Florida..........................          14,695       13,011     12.9%
   Illinois.........................           7,805        8,029     (2.8)%
   Georgia..........................           4,608        4,287      7.5%
   All other states.................          54,688       50,877      7.5%
                                          -----------  ------------  -----------
Total net operating income..........      $  136,198   $  128,068      6.3%

Weighted average occupancy:
   Southern California..............         91.3%        92.5%       (1.3)%
   Northern California..............         89.8%        89.3%        0.6%
   Texas............................         89.9%        88.8%        1.2%
   Florida..........................         93.4%        91.9%        1.6%
   Illinois.........................         87.6%        87.7%       (0.1)%
   Georgia..........................         92.5%        91.1%        1.5%
   All other states.................         89.5%        89.5%        0.0%
                                          -----------  ------------  -----------
Total weighted average occupancy....         90.2%        89.9%        0.3%

REVPAF
   Southern California..............       $  16.66     $  15.88       4.9%
   Northern California..............          13.96        13.23       5.5%
   Texas............................           7.50         7.22       3.9%
   Florida..........................          11.21        10.24       9.5%
   Illinois.........................          10.53        10.32       2.0%
   Georgia..........................           8.03         7.56       6.2%
   All other states.................           9.83         9.40       4.6%
                                          -----------  ------------  -----------
Total REVPAF:.......................       $  10.77     $  10.25       5.1%

                                       42

<PAGE>


Same Store Facilities Operating Trends        Three Months Ended March 31,
by Region (Continued)                     --------------------------------------
                                              2006         2005         Change
                                          -----------  ------------  -----------
Realized annual rent per occupied
    square foot
   Southern California..............       $  18.25     $  17.17       6.3%
   Northern California..............          15.55        14.81       5.0%
   Texas............................           8.34         8.13       2.6%
   Florida..........................          12.00        11.14       7.7%
   Illinois.........................          12.02        11.77       2.1%
   Georgia..........................           8.69         8.30       4.7%
   All other states.................          10.98        10.51       4.5%
                                          -----------  ------------  -----------
Total realized rent per square foot:...    $  11.94     $  11.41       4.6%

In place annual rent per occupied
square foot at March 31
   Southern California..............       $  19.80     $  18.77       5.5%
   Northern California..............          16.93        16.11       5.1%
   Texas............................           9.15         8.80       3.9%
   Florida..........................          13.08        11.96       9.4%
   Illinois.........................          12.93        12.51       3.4%
   Georgia..........................           9.67         9.04       7.0%
   All other states.................          11.92        11.40       4.6%
                                          -----------  ------------  -----------
Total in place rent per occupied
  square foot:......................       $  12.99     $  12.36       5.1%


         Self-Storage Operations - Acquired Facilities

         During  2004,  2005 and the first three  months of 2006,  we acquired a
total of 83  self-storage  facilities  containing  5,891,000 net rentable square
feet.  The  following  table  summarizes  operating  data with  respect to these
facilities.

                               ACQUIRED SELF-STORAGE FACILITIES

<TABLE>
<CAPTION>

                                                             Three Months Ended March 31,
                                                        -------------------------------------
                                                            2006       2005         Change
                                                        -----------  ----------   -----------
                                                         (Dollar amounts in thousands, except
                                                               per square foot amounts)
Rental income:
<S>                                                     <C>          <C>          <C>
   Self-storage facilities acquired in 2006......       $    397     $      -     $     397
   Self-storage facilities acquired in 2005......          5,638          500         5,138
   Self-storage facilities acquired in 2004......          8,080        6,996         1,084
                                                        -----------  ----------   -----------
   Total rental income...........................         14,115        7,496         6,619
                                                        -----------  ----------   -----------

</TABLE>

                                       43

<PAGE>


                         ACQUIRED SELF-STORAGE FACILITIES (Continued)
<TABLE>
<CAPTION>

Cost of operations (excluding depreciation):
<S>                                                          <C>            <C>         <C>
   Self-storage facilities acquired in 2006......            225            -           225
   Self-storage facilities acquired in 2005......          2,469          277         2,192
   Self-storage facilities acquired in 2004......          3,007        3,151          (144)
                                                        -----------  ----------   -----------
   Total cost of operations......................          5,701        3,428         2,273
                                                        -----------  ----------   -----------
Net operating income before depreciation:
   Self-storage facilities acquired in 2006......            172            -           172
   Self-storage facilities acquired in 2005......          3,169          223         2,946
   Self-storage facilities acquired in 2004......          5,073        3,845         1,228
                                                        -----------  ----------   -----------
   Total net operating income before depreciation          8,414        4,068         4,346
Depreciation.....................................         (3,928)      (1,627)       (2,301)
                                                        -----------  ----------   -----------
   Net operating income..........................       $  4,486     $  2,441     $   2,045
                                                        ===========  ==========   ===========
Weighted average square foot occupancy during the
period:
   Self-storage facilities acquired in 2006......          55.7%         -               -
   Self-storage facilities acquired in 2005......          81.9%        73.0%         12.2%
   Self-storage facilities acquired in 2004......          85.9%        82.9%          3.6%
                                                        -----------  ----------   -----------
                                                           83.1%        81.6%          1.8%
                                                        ===========  ==========   ===========
Weighted average realized annual rent per occupied
square foot for the period (a):
   Self-storage facilities acquired in 2006......       $  16.63     $      -             -
   Self-storage facilities acquired in 2005......          11.02         7.64         44.2%
   Self-storage facilities acquired in 2004......          12.12        10.80         12.2%
                                                        -----------  ----------   -----------
                                                        $  11.73     $  10.58         10.9%
                                                        ===========  ==========   ===========
In place annual rent per occupied square foot at
March 31(b):
   Self-storage facilities acquired in 2006......       $  17.08     $      -             -
   Self-storage facilities acquired in 2005......          12.24         8.61         42.2%
   Self-storage facilities acquired in 2004......          13.05        12.08          8.0%
                                                        -----------  ----------   -----------
                                                        $  12.81     $  11.74          9.1%
                                                        ===========  ==========   ===========
Number of Facilities:
     2006........................................              6            -             6
     2005........................................             32            6            26
     2004........................................             45           45             -
                                                        -----------  ----------   -----------
                                                              83           51            32
                                                        ===========  ==========   ===========
Net rentable square feet at March 31:
Self-storage facilities acquired in 2006.........            380            -           380
Self-storage facilities acquired in 2005.........          2,390          460         1,930
Self-storage facilities acquired in 2004 (c).....          3,121        3,109            12
                                                        -----------  ----------   -----------
                                                           5,891        3,569         2,322
                                                        ===========  ==========   ===========
Cumulative acquisition cost at March 31:
Self-storage facilities acquired in 2006.........       $ 51,079     $      -     $  51,079
Self-storage facilities acquired in 2005.........        254,549       23,751       230,798
Self-storage facilities acquired in 2004 (c).....        260,801      259,487         1,314
                                                        -----------  ----------   -----------
                                                        $566,429     $283,238     $ 283,191
                                                        ===========  ==========   ===========
</TABLE>

(a)   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.

                                       44
<PAGE>


(b)   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.

(c)   During 2005, we expanded one of the 2004  acquisitions,  adding 12,000 net
      rentable square feet at a cost of $1,314,000.

         The  2005  and  2006   acquisitions  were  acquired  at  various  dates
throughout  each period.  Accordingly,  rental income,  cost of operations,  net
operating income and weighted average square foot occupancy levels represent the
operating results for the partial period that we owned the facilities during the
year acquired.

         During 2004, we acquired a total of 45  self-storage  facilities for an
aggregate cost of approximately  $259,487,000.  These facilities  contain in the
aggregate  approximately  3,121,000  net  rentable  square  feet and are located
principally  in  the  Buffalo,   Dallas,  Miami,   Milwaukee,   and  Minneapolis
metropolitan areas.

         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.

         For the three months  ended March 31, 2006,  we acquired a total of six
self-storage facilities, principally in single-property transactions, containing
an aggregate of approximately  380,000 net rentable square feet for an aggregate
cost of  $51,079,000  located in  California,  Florida,  Illinois,  New York and
Virginia.

         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  2006 as these  facilities  continue to improve  their  occupancy
levels as well as realized  rental rates.  In addition,  during the remainder of
2006 we expect to continue to acquire additional self-storage facilities.

         Between April 1, 2006 and May 8, 2006, we acquired  three  self-storage
facilities from third parties with total net rentable square feet of 228,000, at
an aggregate cost of approximately $31.1 million in cash. At May 8, 2006, we are
under contract to purchase four self-storage  facilities (total  approximate net
rentable  square feet of 336,000) at an aggregate  cost of  approximately  $28.1
million.  We anticipate that these  acquisitions  will be funded entirely by us.
Each of these contracts is subject to significant contingencies, and there is no
assurance that any of these facilities will be acquired.

Self-Storage Operations - Expansion Facilities

         Our expansion facilities consist of (i) 53 self-storage facilities that
we have owned for a number of years and have  recently  expanded,  or are in the
process of expanding,  the amount of square footage  available for rent combined
with (ii) eight self-storage facilities located in New Orleans that were heavily
impacted by Hurricane  Katrina during 2005. The 53  self-storage  facilities are
generally  older  facilities  that are located in prime  locations where we have
added additional space by either constructing new buildings on available land at
the  existing  site  or by  demolishing  existing  single  story  buildings  and
rebuilding multi-story buildings in their place.

         The operating  results of these 53 expansion  facilities  and the eight
facilities  located in New Orleans are not  comparable on a year over year basis
due to the addition of square footage or the damage caused by the hurricane,  in
the  case of the  New  Orleans  facilities.  The  operating  results  for  these
facilities are presented in the table below.

                                       45

<PAGE>

<TABLE>
<CAPTION>


EXPANSION SELF-STORAGE FACILITIES                        Three Months Ended March 31,
                                                    ---------------------------------------
                                                       2006          2005         Change
                                                    ------------  -----------  ------------
                                                      (Amounts in thousands, except per
                                                            square foot amounts)
Rental income:
<S>                                                 <C>             <C>         <C>
   New Orleans facilities (a) ...............       $    1,516      $  1,444    $       72
   Other expansion facilities................           11,040         9,701         1,339
                                                    ------------  -----------  ------------
     Total rental income.....................           12,556        11,145         1,411
                                                    ------------  -----------  ------------
Cost of operations (excluding depreciation):
   New Orleans facilities....................              368           506          (138)
   Other expansion facilities................            3,888         3,522           366
                                                    ------------  -----------  ------------
     Total cost of operations................            4,256         4,028           228
                                                    ------------  -----------  ------------
Net operating income before depreciation :
   New Orleans facilities....................            1,148           938           210
   Other expansion facilities................            7,152         6,179           973
                                                    ------------  -----------  ------------
   Total net operating income before depreciation        8,300         7,117         1,183
 Depreciation................................           (2,967)       (2,533)         (434)
                                                    ------------  -----------  ------------
   Net operating income......................       $    5,333      $  4,584    $      749
                                                    ============  ===========  ============
Weighted average square foot occupancy during the
 period:
   New Orleans facilities (b)................            78.1%         89.3%        (12.5)%
   Other expansion facilities................            78.6%         82.5%         (4.7)%
                                                    ------------  -----------  ------------
                                                         78.5%         83.3%         (5.8)%
                                                    ------------  -----------  ------------
Weighted average realized rent per occupied square
 foot during the period (c):
   New Orleans facilities (b) ...............       $   12.88       $  11.74          9.7%
   Other expansion facilities................           12.59          12.27          2.6%
                                                    ------------  -----------  ------------
                                                    $   12.61       $  12.21          3.3%
                                                    ============  ===========  ============
In place annual rent per occupied square foot at
March 31 (d):
   New Orleans facilities (b) ...............       $   13.71       $  12.90          6.3%
   Other expansion facilities................           13.46          12.94          4.0%
                                                    ------------  -----------  ------------
                                                    $   13.49       $  12.93          4.3%
                                                    ============  ===========  ============
Number of Facilities:
   New Orleans facilities....................               8              8            -
   Other expansion facilities................              53             53            -
                                                    ------------  -----------  ------------
                                                           61             61            -
                                                    ============  ===========  ============
Net rentable square feet (in thousands, at end
of period): (e)
   New Orleans facilities....................              524          524             -
   Other expansion facilities................            4,661        4,003           658
                                                    ------------  -----------  ------------
                                                         5,185        4,527           658
                                                    ============  ===========  ============

</TABLE>

(a)   Rental income for the New Orleans  Facilities  for the quarter ended March
      31, 2006 includes $507,000 in business  interruption proceeds we expect to
      receive  from our  insurers,  relative to losses  occurring in the quarter
      ended March 31, 2006.

(b)   Occupied and available  square footage  excludes the impact of units taken
      offline due to hurricane damage, where such amounts are factored in to the
      computations of weighted  average square foot occupancy,  weighted average
      realized  rent per  occupied  square  foot,  and in place  annual rent per
      occupied square foot.

                                       46

<PAGE>

(c)   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.  Realized rent per square foot excludes the
      impact of $507,000 in business  interruption proceeds we expect to receive
      from our  insurers  relative to the New Orleans  facilities  for the three
      months ended March 31, 2006.

(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)   Square footage excludes 299,000 net rentable  containerized  storage space
      initially  developed for the  containerized  storage business at March 31,
      2006, but includes square footage taken offline due to hurricane damage.

         All of the New  Orleans  facilities  were  closed  for  operations  for
several  weeks  following  the  hurricane;  however,  all  but  three  of  these
facilities have since reopened. The five that are operating are not operating at
full capacity, as many units are unavailable for lease due to damage. Two of the
three  facilities  that remain  closed will not be able to reopen at all without
substantial  restoration  and  repair  work.  Notwithstanding  that  five of our
facilities in New Orleans are currently operating,  we believe that the indirect
economic  effects of the hurricane on the city may have a negative impact on our
facilities' operating results, and these effects are expected to continue for an
indeterminate time period. Included in revenues for the three months ended March
31, 2006 are  $575,000  in expected  business  interruption  proceeds  for these
facilities,  representing  the loss of business for the quarter  ended March 31,
2006.

         We expect  that the  Expansion  Facilities,  other than the New Orleans
facilities,  will continue to provide  growth to our earnings  during 2006 as we
continue to rent the newly added vacant space.  The weighted  average  occupancy
level of these  facilities was 78.6%, and 82.5% for the three months ended March
31, 2006 and 2005, respectively.

         We expect that we will continue to redevelop additional facilities;  at
March 31, 2006,  we have 5 projects  with an aggregate  cost of $17.1 million to
convert the  containerized  storage space into  self-storage  space and 46 other
expansion  and  repackaging  projects  to  enhance  the  visual  appeal  of  our
facilities or increase  their net rentable  space at an aggregate cost of $230.6
million.  These activities will increase our self-storage  space by an aggregate
of 3,221,000 net rentable square feet and will result in short-term  dilution to
earnings.  However,  we believe  that  expansion  of our  existing  self-storage
facilities in markets that have unmet storage demand, and improving our existing
facilities'  competitive position through enhancing their visual appeal, provide
an important means to improve the Company's earnings.  Further, the construction
cost for these expansions is generally lower on a per-square foot basis than the
development of a new facility, resulting in a higher yield potential on invested
capital.  There can be no assurance about the future level of such expansion and
enhancement opportunities, and these projects are subject to contingencies.

Self-Storage Operations - Developed Facilities

         We have 42 newly developed self-storage  facilities,  and 17 facilities
that were developed to contain both  self-storage and  containerized  storage at
the same location  ("Combination  Facilities") that have not been operating at a
stabilized  level of operations  since January 1, 2004. At March 31, 2006, these
newly  developed  facilities  have an aggregate of 4,840,000 net rentable square
feet of  self-storage  space and 173,000 net rentable  square feet of industrial
space developed  originally for our containerized  storage  business.  Aggregate
development  cost for these 59 facilities  was  approximately  $501.2 million at
March 31,  2006.  The  operating  results  of the  self-storage  facilities  and
Combination Facilities are reflected in the Self-Storage  Operations table under
the caption,  "Developed  Facilities."  These facilities are not included in the
"Same Store" portfolio because their operations have not been stabilized.

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

                                       47

<PAGE>

<TABLE>
<CAPTION>

DEVELOPED SELF-STORAGE FACILITIES                       Three Months Ended March 31,
                                                    --------------------------------------
                                                       2006          2005        Change
                                                    ------------  -----------  -----------
                                                     (Amounts in thousands, except per
                                                   square foot amounts and facility count)

Rental income:
<S>                                                 <C>           <C>          <C>
  Self-storage facility opened on March 31, 2006    $        -    $        -   $        -
  Self-storage facilities opened in 2005.......            369             2          367
  Self-storage facilities opened in 2004.......          1,618         1,007          611
  Self-storage facilities opened in 2003 and 2002        6,610         5,750          860
  Combination facilities.......................          4,718         3,887          831
                                                    ------------  -----------  -----------
     Total rental income.......................         13,315        10,646        2,669
                                                    ------------  -----------  -----------
Cost of operations (excluding depreciation):
  Self-storage facility opened on March 31, 2006             -             -            -
  Self-storage facilities opened in 2005.......            414            23          391
  Self-storage facilities opened in 2004.......            578           519           59
  Self-storage facilities opened in 2003 and 2002        2,165         2,048          117
  Combination facilities.......................          1,812         1,607          205
                                                    ------------  -----------  -----------
     Total cost of operations..................          4,969         4,197          772
                                                    ------------  -----------  -----------
Net operating income before depreciation :
  Self-storage facility opened on March 31, 2006             -             -            -
  Self-storage facilities opened in 2005.......            (45)          (21)         (24)
  Self-storage facilities opened in 2004.......          1,040           488          552
  Self-storage facilities opened in 2003 and 2002        4,445         3,702          743
  Combination facilities.......................          2,906         2,280          626
                                                    ------------  -----------  -----------
   Net operating income before depreciation....          8,346         6,449        1,897
 Depreciation..................................         (3,489)       (3,069)        (420)
                                                    ------------  -----------  -----------
   Net operating income........................     $    4,857    $    3,380   $    1,477
                                                    ============  ===========  ===========
Weighted average square foot occupancy during
the period:
  Self-storage facility opened on March 31, 2006          -             -            -
  Self-storage facilities opened in 2005.......          31.0%          8.6%       260.5%
  Self-storage facilities opened in 2004.......          83.8%         59.0%        42.0%
  Self-storage facilities opened in 2003 and 2002        91.5%         86.9%         5.3%
  Combination facilities.......................          74.9%         73.4%         2.0%
                                                    ------------  -----------  -----------
                                                         77.6%         77.6%         -
                                                    ============  ===========  ===========
Weighted average realized rent per occupied
square foot during the period (a):
  Self-storage facility opened on March 31, 2006    $        -   $         -           -
  Self-storage facilities opened in 2005.......           9.65             -           -
  Self-storage facilities opened in 2004.......          15.34         13.34       15.0%
  Self-storage facilities opened in 2003 and 2002        14.34         13.09        9.5%
  Combination facilities.......................          13.14         12.73        3.2%
                                                    ------------  -----------  -----------
                                                    $    13.79    $    12.96        6.4%
                                                    ============  ===========  ===========
In place annual rent per occupied square foot at
March 31 (b):
  Self-storage facility opened on March 31, 2006    $        -    $       -            -
  Self-storage facilities opened in 2005.......          13.78        13.50         2.1%
  Self-storage facilities opened in 2004.......          17.02        16.30         4.4%
  Self-storage facilities opened in 2003 and 2002        15.67        14.38         9.0%
  Combination facilities.......................          14.29        13.74         4.0%
                                                    ------------  -----------  -----------
                                                    $    15.19    $   14.30         6.2%
                                                    ============  ===========  ===========

</TABLE>

                                       48

<PAGE>

<TABLE>
<CAPTION>

DEVELOPED SELF-STORAGE FACILITIES                       Three Months Ended March 31,
(continued)                                         --------------------------------------
-----------                                            2006          2005        Change
                                                    ------------  -----------  -----------
                                                     (Amounts in thousands, except per
                                                    square foot amounts and facility count)

Number of facilities:
<S>                                                        <C>            <C>         <C>
  Self-storage facility opened on March 31, 2006            1             -           1
  Self-storage facilities opened in 2005.......             6             1           5
  Self-storage facilities opened in 2004.......             7             7           -
  Self-storage facilities opened in 2003 and 2002          28            28           -
  Combination facilities.......................            17            17           -
                                                    ------------  -----------  -----------
                                                           59            53           6
                                                    ============  ===========  ===========
Square Footage:
  Self-storage facility opened on March 31, 2006           89             -          89
  Self-storage facilities opened in 2005.......           463            52         411
  Self-storage facilities opened in 2004.......           505           505           -
  Self-storage facilities opened in 2003 and 2002       1,937         1,937           -
  Combination facilities (c)...................         1,846         1,561         285
                                                    ------------  -----------  -----------
                                                        4,840         4,055         785
                                                    ============  ===========  ===========
Cumulative development cost:
  Self-storage facility opened on March 31, 2006     $  9,343      $      -    $  9,343
  Self-storage facilities opened in 2005.......        37,716         4,252      33,464
  Self-storage facilities opened in 2004.......        60,579        61,558        (979)
  Self-storage facilities opened in 2003 and 2002     211,621       204,473       7,148
  Combination facilities (c)...................       181,899       170,745      11,154
                                                    ------------  -----------  -----------
                                                     $501,158      $441,028    $ 60,130
                                                    ============  ===========  ===========

</TABLE>

(a)   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.

(b)   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.


(c)   Square  footages  exclude  industrial  space  developed for  containerized
      storage activities  totaling 173,000 net rentable square feet at March 31,
      2006. Since January 1, 2003, we have converted  industrial space no longer
      used by the discontinued containerized storage business into 1,483,000 net
      rentable  square feet of traditional  self-storage  space, at an aggregate
      cost of $23,207,000.

         Unlike many other forms of real estate,  we are unable to pre-lease our
newly developed facilities due to the nature of our tenants. Accordingly, at the
time a newly  developed  facility  first  opens for  operation  the  facility is
entirely vacant generating no rental income. Historically,  we estimated that on
average it takes  approximately 24 - 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.  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.

                                       49

<PAGE>

         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 cost for these facilities for the quarter ended
March  31,  2006,  based  on  net  operating  income  before  depreciation,  was
approximately  6.7%,  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 2005
have  contributed  greatly to our  earnings  growth.  The  growth in  properties
developed  in 2004 was  principally  due to  occupancy  growth,  and  growth for
properties developed in 2003 and 2002 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 believe that development of self-storage facilities is
favorable,  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.

         However, the development  environment has changed 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.

Self-Storage Operations - Newly Consolidated Facilities

         Effective  January 1, 2006,  as  described  in Note 2 to our  condensed
consolidated financial statements,  we commenced including the accounts of three
limited  partnerships that we had previously  accounted for on the equity method
of accounting.  These facilities are substantially all mature facilities that we
have managed and had an interest in for several  years,  and these 16 facilities
have an aggregate of 998,000 net rentable square feet. Accordingly, their future
operating characteristics and past operating history are similar to those of our
Same Store facilities.

         The following chart sets forth the operations of the Newly Consolidated
Facilities:

                                                   Three Months
                                                      Ended
                                                  March 31, 2006
                                                 ---------------
   Rental income...............................  $      3,298
   Cost of operations (excluding depreciation).           779
                                                 ---------------
   Net operating income before depreciation....         2,519
   Depreciation................................          (272)
                                                 ---------------
      Net operating income.....................         2,247
                                                 ===============
   Weighted average square foot occupancy
   during the period:..........................          88.5%

   Weighted average realized annual rent per
   occupied square foot for the period::.......  $       14.28

   In place annual rent per occupied square
   foot at March 31:...........................  $       15.66

         COMMERCIAL PROPERTY OPERATIONS: Commercial property operations included
in our consolidated  financial  statements include commercial space owned by the
Company and entities consolidated by the Company. We have a much larger interest
in commercial  properties  through our ownership  interest in PS Business  Parks

                                       50

<PAGE>

Inc. and its consolidated operating partnership (PS Business Parks, Inc. and its
consolidated  operating  partnership are hereinafter  referred to as "PSB"). Our
investment in PSB is accounted for 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.

         Our  commercial  operations  are  comprised of  1,296,000  net rentable
square  feet  of  commercial  space  operated  principally  at  certain  of  the
self-storage facilities.

         The results of our commercial operations are provided in the table
below:

Commercial Property Operations:
                                               Three Months Ended March 31,
                                            ----------------------------------
                                              2006         2005       Change
                                            ----------  ----------- ----------
                                                  (amounts in thousands)
Rental income.........................      $   2,992    $   2,848   $    144
 Cost of operations...................          1,348        1,127        221
                                            ----------  ----------- ----------
   Net operating income...............          1,644        1,721        (77)

 Depreciation.........................           (585)        (579)        (6)
                                            ----------  ----------- ----------
   Operating income...................      $   1,059    $   1,142   $    (83)
                                            ==========  =========== ==========

         Our commercial property operations consist primarily of facilities that
are at a stabilized level of operations, and generally reflect the conditions of
the markets in which they operate.  We do not expect any  significant  growth in
net  operating  income from this segment of our  business  for the  remainder of
2006.

         CONTAINERIZED STORAGE OPERATIONS:

         We have closed many of our containerized storage facilities since 2002,
and have refined our market and product  focus to twelve  facilities  located in
eight  densely  populated  markets  with  above-average  rent  and  income.  The
operations  with  respect  to the  facilities  other  than  the  twelve  ongoing
facilities are included in  "Discontinued  Operations" on our income  statement.
The  operations  of the twelve  remaining  facilities  are  included  in PSPUD's
continuing operations and are reflected on the table below:

Containerized Storage:
(excluding discontinued operations)

                                             Three Months Ended March 31,
                                           ---------------------------------
                                             2006        2005       Change
                                           ---------  ---------   ----------
                                                (Amounts in thousands)
Rental and other income ............       $ 3,930     $ 3,837     $     93
Cost of operations:
    Direct operating costs..........         2,952       2,384          568
    Facility lease expense..........           358         358            -
                                           ---------  ---------   ----------
      Total cost of operations......         3,310       2,742          568
                                           ---------  ---------   ----------
Operating income prior to depreciation         620       1,095         (475)
   Depreciation expense (a).........          (260)     (1,162)         902
                                           ---------  ---------   ----------
Operating income....................       $   360     $   (67)    $    427
                                           =========  =========   ==========

(a)   Depreciation   expense   principally   relates  to  the   depreciation  of
      containers; however, depreciation expense for the three months ended March
      31, 2006 includes $200,000,  related to real estate facilities compared to
      $252,000 for the same period in 2005, respectively.

         Rental and other income  includes  monthly  rental charges to customers
for storage of the  containers,  service fees charged for pickup and delivery of
containers to customers'  homes and  businesses  and certain  non-core  services
which were eliminated,  such as handling and packing  customers' goods from city
to city. At March 31, 2006, there were approximately  20,939 occupied containers
in the continuing facilities.

                                       51

<PAGE>

         Direct operating costs principally  includes  payroll,  equipment lease
expense, utilities and vehicle expenses (fuel and insurance).

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

         ANCILLARY  OPERATIONS:  Our Ancillary  operations include the operating
results of our tenant  insurance,  truck rental,  merchandise,  and  third-party
property  management  operations.  The following  table sets forth our ancillary
operations:

                                       52

<PAGE>

                                            Three Months Ended March 31,
                                         --------------------------------------
                                             2006          2005       Change
                                         -------------  ----------- -----------
                                                (amounts in thousands)
Revenues:
    Tenant reinsurance premiums.....       $    6,786   $   5,916     $   870
    Merchandise sales...............            5,013       4,807         206
    Truck rentals...................            2,770       2,581         189
    Property management.............              605         714        (109)
                                         -------------  ----------- -----------
       Total revenues...............           15,174      14,018       1,156
                                         -------------  ----------- -----------
Cost of operations:
    Tenant reinsurance..............            3,092       2,977         115
    Merchandise sales...............            4,573       4,271         302
    Truck rentals...................            2,890       2,958         (68)
    Property management.............               61         211        (150)
                                         -------------  ----------- -----------
       Total cost of operations.....           10,616      10,417         199
                                         -------------  ----------- -----------
Net operating income:
    Tenant reinsurance..............            3,694       2,939         755
    Merchandise sales...............              440         536         (96)
    Truck rentals...................             (120)       (377)        257
    Property management.............              544         503          41
                                         -------------  ----------- -----------
       Total net operating income...       $    4,558   $   3,601     $   957
                                         ============   =========== ===========

         Tenant reinsurance operations
         -----------------------------

         On  December  31,  2001,  we  acquired  PSIC from a related  party.  PS
Insurance  reinsures  policies  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 (described below), as well
as claims adjusting expenses.

         For 2005, we had outside third-party insurance coverage for claims paid
exceeding   $500,000  resulting  from  any  individual  event,  to  a  limit  of
$10,000,000.  Effective  January 1, 2006,  such  coverage  was  revised to cover
claims paid exceeding $1,500,000 resulting from any individual event, to a limit
of $9,000,000.

         The future level of tenant  reinsurance  revenues is largely  dependent
upon the number of new tenants electing to purchase  policies,  premiums charged
for such insurance,  and existing tenant retention to continue  participating in
the  insurance  program.  For the three  months  ended  March 31, 2006 and 2005,
approximately  32% and 33%,  respectively,  of our self-storage  tenant base had
such policies.

         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. The aforementioned increase in
the  deductible of  $1,500,000  per event could result in higher loss expense in
2006, depending upon the number of catastrophic losses that occur.

         Merchandise and truck rental operations
         ---------------------------------------

         Through a taxable REIT subsidiary,  all of our self-storage  facilities
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
subsidiary  maintains 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."

                                       53

<PAGE>

         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 revenues and expenses of these activities have remained  relatively
stable  during the periods  reflected  in the table above.  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.

         Property management operations
         ------------------------------

         We manage 27  self-storage  facilities on behalf of third-party  owners
and 22 self-storage  facilities that are owned by the  Unconsolidated  Entities.
Under the supervision of the property  owners,  we coordinate  rental  policies,
rent collections,  marketing activities, the purchase of equipment and supplies,
maintenance activities, and the selection and engagement of vendors,  suppliers,
and  independent  contractors.  We also assist and advise the property owners in
establishing policies for the hire, discharge,  and supervision of employees for
the operation of these facilities.

         Property management  operations declined in the quarter ended March 31,
2006 as compared to the same period in 2005, due to our consolidation, effective
January 1, 2006, of three partnerships owning 16 self-storage facilities that we
had  previously  accounted  for using the  equity  method  of  accounting.  This
resulted in the elimination in  consolidation  of management fee income and cost
of operations with respect to these three partnerships for periods after January
1, 2006.

         Our operating income from these activities is generally  dependent upon
the revenues  earned at the managed  facilities,  because our  management fee is
based upon revenues.  Management  contracts with the  third-party  owners can be
terminated by either party upon 60 days written notice.

         EQUITY  IN  EARNINGS  OF  REAL  ESTATE  ENTITIES:  In  addition  to our
ownership  of equity  interests  in PSB, we had general and limited  partnership
interests in eight limited  partnerships at March 31, 2006. (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, 2006 and 2005  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:

                                       54

<PAGE>

                                                  Three Months Ended March 31,
                                            ------------------------------------
                                               2006        2005         Change
                                            ----------  -----------  -----------
                                                    (Amounts in thousands)
Property operations:
  PSB                                       $17,930       $17,214        $716
  Acquisition Joint Venture..............        86            51          35
  Newly consolidated partnerships (1)....         -         1,276      (1,276)
  Other investments (2)..................       701           407         294
                                            ----------  -----------  -----------
                                             18,717        18,948        (231)
                                            ----------  -----------  -----------
Depreciation:
  PSB....................................    (9,039)       (8,253)       (786)
  Acquisition Joint Venture..............       (69)          (66)         (3)
  Newly consolidated partnerships (1)....         -          (175)        175
  Other investments (2)..................      (146)         (191)         45
                                            ----------  -----------  -----------
                                             (9,254)       (8,685)       (569)
                                            ----------  -----------  -----------
Other: (3)
  PSB (4)................................    (5,915)       (4,752)     (1,163)
  Newly consolidated partnerships (1)....         -           127        (127)
  Other investments (2)..................       (82)           40        (122)
                                            ----------  -----------  -----------
                                             (5,997)       (4,585)     (1,412)
                                            ----------  -----------  -----------
Total equity in earnings of real estate
entities..................................   $3,466        $5,678     $(2,212)
                                            ==========  ===========  ===========

(1)   As  described  more  fully  in  Note 2 to  our  financial  statements,  we
      commenced consolidating the accounts of three limited partnerships that we
      had  previously   accounted  for  on  the  equity  method  of  accounting.
      Accordingly,  equity in income with respect to these  partnerships  ceased
      effective January 1, 2006.

(2)   Amounts primarily reflect equity in earnings recorded for investments that
      have been held  consistently  throughout  each of the three  months  ended
      March 31, 2006 and 2005.

(3)   "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 $224,000 for the three months ended March 31, 2006,
      as compared to $123,000, respectively, for the same periods in 2005.

(4)   "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.

         The  decrease  in  equity  in  earnings  of  real  estate  entities  is
principally  due to our  $312,000  pro-rata  share of PSB's gain on sale of real
estate  assets  recorded in the quarter  ended  March 31,  2006,  as compared to
$1,265,000  for the same period in 2005, as well as our  consolidation  of three
limited  partnerships  effective  January 1, 2006 as  described in Note 2 to our
condensed consolidated financial statements.  As a result of this consolidation,
equity in income with respect to these partnerships  ceased effective January 1,
2006.

         Equity in earnings of PSB  represents our pro-rata share (an average of
approximately  44% for the three  months  ended  March 31, 2006 and 2005) of the
earnings of PSB.  Throughout  2005 and the first three months of 2006,  we owned
5,418,273 common shares and 7,305,355  operating  partnership units (units which
are convertible into common shares on a one-for-one  basis) in PSB. At March 31,
2006, PSB owned and operated 17.9 million net rentable square feet of commercial
space located in eight states.  PSB also manages  commercial  space owned by the
Company  and  affiliated  entities  at  March  31,  2006  pursuant  to  property
management agreements.

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

         In January 2004, we entered into a joint  venture  partnership  with an
institutional  investor  for the purpose of  acquiring  up to $125.0  million of
existing  self-storage  properties  in the United States from third parties (the
"Acquisition  Joint  Venture").  The  venture  is funded  entirely  with  equity
consisting of 30% from us and 70% from the institutional  investor. As described
more fully in Note 2 to the  Consolidated  Financial  Statements for the quarter
ended March 31, 2006,  our pro-rata share of earnings with respect to two of the

                                       55

<PAGE>

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 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  approximately
consistent  level of equity interest  throughout 2005 and the first three months
of 2006.  These  limited  partnerships  were  formed by the  Company  during the
1980's. We are the general partner in each limited partnership,  and manage each
of  these  facilities  for a  management  fee  that is  included  in  "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 20  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 the  consolidated  financial  statements for the operating  results of
these entities for the three months ended March 31, 2006 and 2005.

OTHER INCOME AND EXPENSE ITEMS

         INTEREST AND OTHER INCOME: Interest and other income was $5,075,000 for
the three months ended March 31, 2006, respectively,  as compared to $2,893,000,
respectively,  for the same  periods  in 2005.  This  increase  is due to higher
interest income on cash balances due to higher average interest rates.

         As discussed more fully in "Liquidity and Capital  Resources" below, at
March 31, 2006, we had cash balances totaling  approximately $382 million, which
includes significant  proceeds from recent equity issuances.  These balances are
typically  invested in short-term  low-risk  securities that, during the quarter
ended March 31, 2006,  earned a nominal yield.  In addition,  on May 3, 2006, we
raised  approximately  $518 million in gross  proceeds  from our issuance of our
Series I Cumulative  Preferred  Stock and on May 9, 2006 we raised an additional
$100 million through one of the Consolidated  Entities' issuance of its Series J
Preferred Units. The future level of interest and other income will be partially
dependent  upon the timing of our investment of these unused  offering  proceeds
and the level of interest earned on these short-term investments.

         DEPRECIATION AND  AMORTIZATION:  Depreciation and amortization  expense
was  $50,049,000  and  $47,938,000 for the three months ended March 31, 2006 and
2005, respectively.  The increase in depreciation and amortization for the three
months  ended  March  31,  2006 as  compared  to the same  period in 2005 is due
primarily to increased depreciation with respect to newly developed and acquired
facilities,  offset  partially  by a reduction in  depreciation  with respect to
maintenance capital expenditures.

         GENERAL  AND  ADMINISTRATIVE:  General and  administrative  expense was
$6,779,000  for the three months ended March 31, 2006, as compared to $5,141,000
for  the  same  period  in  2005,  representing  an  increase  of  approximately
$1,638,000.  General and administrative  expense  principally  consists of state
income taxes,  investor relation expenses and corporate and executive  salaries.
In addition,  general and  administrative  expense  includes  expenses that vary
depending on the Company's  activity  levels in certain areas,  such as overhead
associated  with the  acquisition  and  development  of real estate  facilities,
employee   severance,   stock-based   compensation   and  product  research  and
development expenditures.

         The increase in general and administrative expense for the three months
ended March 31, 2006 as compared to the same period in 2005 is primarily  due to
costs  incurred  prior to the  signing of the merger  agreement  with  Shurgard,
totaling  approximately  $1,224,000.

                                       56

<PAGE>

         We expect that  additional  costs  associated  with the  integration of
Shurgard and winding down of Shurgard will be incurred.  Such costs,  the amount
of which cannot be  determined  at this time,  are expected to be expensed  when
incurred.

         INTEREST  EXPENSE:  Interest  expense was $1,557,000 and $1,663,000 for
the  three  months  ended  March  31,  2006  and  2005,  respectively.  Interest
capitalized  during the three  months ended March 31, 2006 and 2005 was $716,000
and  $665,000,  respectively.  See also Notes 7 and 8 for a schedule of our debt
balances, principal repayment requirements, and average interest rates.

         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, 2006 and 2005:

<TABLE>
<CAPTION>

                                                         Three Months Ended March 31,
                                                    ----------------------------------------
                                                       2006           2005          Change
                                                    ------------  ------------   -----------
                                                              (Amounts in thousands)
Preferred partnership interests:
<S>                                                  <C>           <C>             <C>
   Ongoing distributions (a).................        $  3,591      $    5,375      $ (1,784)
   Special Distribution and EITF Topic D-42 (b)             -             874          (874)
Acquired minority interests (c)..............               -           2,325        (2,325)
Newly consolidated partnerships (d)                       930               -           930
Convertible Partnership Units (e)............             116              90            26
Other minority interests (f).................           2,522           1,980           542
                                                    ------------  ------------   -----------
    Total minority interests in income.......       $   7,159      $   10,644     $  (3,485)
                                                    ============  ============   ===========

</TABLE>

(a)   The  decrease in ongoing  distributions  is due to the  redemption  of $40
      million of our 9.5%  Series N  Preferred  Units on March 17,  2005 and $45
      million of our 9.125% Series O Preferred units on March 29, 2005.

(b)   In accordance with the Securities and Exchange  Commissions  clarification
      of EITF Topic D-42,  are original  issuance cost with respect to our first
      quarter  of 2005  redemption  of  preferred  units  included  in  minority
      interest in income for the three  months  ended  March 31,  2005  totaling
      $874,000.

(c)   These amounts  reflect  income  allocated to minority  interests  that the
      Company acquired in 2005 and are no longer outstanding at March 31, 2006.

(d)   Thse amounts  reflect  income  allocated to minority  interests  for three
      entities  that we  commenced  consolidating  the  accounts  for  effective
      January  1,  2006  (see  Note 2 to the  condensed  consolidated  financial
      statements).  Included in minority interest in income for the three months
      ended March 31, 2006 was $34,000 in depreciation expense.

(e)   These  amounts   reflect  the  minority   interests   represented  by  the
      Convertible
     Partnership Units (see Note 8 to the condensed consolidated financial
     statements).

(f)   These amounts  reflect  income  allocated to minority  interests that were
      outstanding  consistently throughout the three months ended March 31, 2006
      and  2005.  Included  in  minority  interest  in  income  is  $162,000  in
      depreciation   expense  for  the  three   months  ended  March  31,  2006,
      respectively, as compared to $200,000 for the same period in 2005.

         Other minority interests reflect income allocated to minority interests
that have  maintained a  consistent  level of interest  throughout  2005 and the
three months ended March 31, 2006,  comprised of investments in the Consolidated
Entities described in Note 9 to the Company's financial statements. The level of
income  allocated  to  these  interests  in the  future  is  dependent  upon the
operating results of the storage  facilities that these entities own, as well as
any minority interests that the Company acquires in the future.

                                       57

<PAGE>

         On May 9, 2006, one of the Consolidated Entities issued $100 million of
its  7.25%  Series  J  Preferred   Partnership   Units.   Accordingly,   ongoing
distributions  with  respect to preferred  partnership  interest are expected to
increase.  Discontinued  Operations:  As  described  more fully in Note 3 to the
consolidated financial statements,  during 2002, 2003 and 2004, we implemented a
business  plan which  included  the  closure of 43 of 55  containerized  storage
facilities  that  were  open  at  December  31,  2001.  The  43  facilities  are
hereinafter referred to as the "Closed Facilities."

         During  July  2005,  in  an  eminent  domain  proceeding,  one  of  our
self-storage  facilities  located in the Portland,  Oregon market was condemned,
additionally,  in 2006, we will be losing a facility in our Seattle,  Washington
market  to an  eminent  domain  proceeding,  (collectively  these  facilities  a
referred to as "the Eminent Domain Facilities").

         The following table summarizes the historical operations of the Eminent
Domain Facilities and the Closed Facilities:

Discontinued Operations:                     Three Months Ended March 31,
                                            ----------------------------------
                                               2006         2005      Change
                                            -----------  ----------  ---------
                                                 (amounts in thousands)
Rental income.......................        $    113     $    343           $
                                                                         (230)
Cost of operations...................            (50)        (312)        262
Depreciation and amortization ......             (21)         (67)         46
                                            -----------  ----------  ---------
Income before other items...........              42          (36)         78

Other items:
    Net gain on disposition of assets              -        1,143      (1,143)
                                            -----------  ----------  ---------
Net discontinued operations.........        $     42     $  1,107    $ (1,065)
                                            ==========   ==========  =========
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. At March 31, 2006, cash on hand totaled
$382.3 million and we had no outstanding  borrowings under our $200 million bank
line of credit.

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

                                       58

<PAGE>

<TABLE>
<CAPTION>

                                                                          Three Months Ended March 31,
                                                                        ---------------------------------
                                                                            2006               2005
                                                                        ---------------   ---------------
                                                                             (Amounts in thousands)
<S>                                                                      <C>                <C>
Net cash provided by operating activities.......................         $    162,833       $    148,975

Allocable to minority interest (Preferred Units) - ongoing
distributions...................................................               (3,591)            (5,375)
Allocable to minority interest (common equity)..................               (3,712)            (4,016)
                                                                        ---------------   ---------------
Cash from operations allocable to our shareholders..............              155,530            139,584

Capital improvements to maintain our facilities.................               (8,379)            (6,806)
                                                                        ---------------   ---------------
 Remaining operating cash flow available for distributions to our
    shareholders................................................              147,151            132,778


Distributions paid:
  Preferred stock dividends.....................................              (46,615)           (40,413)
  Equity Stock, Series A dividends..............................               (5,356)            (5,375)
  Distributions to Common shareholders..........................              (64,298)           (58,072)
                                                                        ---------------   ---------------
Cash available for principal payments on debt and reinvestment..         $     30,882       $     28,918
                                                                        ==============    ===============

</TABLE>

         Our financial  profile is characterized by a low level of debt to total
capitalization  and a  conservative  dividend  payout  ratio with respect to the
common stock. We expect to fund our growth strategies with cash on hand at March
31, 2006,  internally  generated  retained  cash flows and proceeds from issuing
equity  securities.  In general,  our current strategy is to continue to finance
our growth with permanent capital; either common or preferred equity. We have in
the past used our $200 million line of credit as  temporary  "bridge"  financing
and repaid those amounts with internally  generated cash flows and proceeds from
the placement of permanent capital.

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

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

         Our  portfolio  of  real  estate   facilities   remains   substantially
unencumbered.  At March 31, 2006,  we had  mortgage  debt  outstanding  of $95.0
million (which encumbers 35 facilities with a book value of approximately $205.2
million) and unsecured debt in the amount of $11.2 million. We also have Debt to
Joint Venture Partner amounting to $35.7 million with respect to ten real estate
facilities with an aggregate book value of $48.3 million.

         RECENT  ISSUANCE  OF  PREFERRED  STOCK  AND  PROJECTED   REDEMPTION  OF
PREFERRED  SECURITIES:  One of our  financing  objectives  over the past several
years has been to  reduce  our  average  cost of  capital  with  respect  to our
preferred  securities.  Accordingly,  we have  redeemed  higher  rate  preferred
securities  outstanding  and have financed the  redemption  with cash on-hand or
from the proceeds  from the  issuance of lower rate  preferred  securities.  The
table below reflects the preferred  stock that is redeemable in 2006 (amounts in
000's):

                                       59

<PAGE>

           Redeem 8.00% Series R (Redeemable 09/28/06)       $    510,000
           Redeem 7.88% Series S (Redeemable 10/31/06)            143,750
                                                             ------------
           Total redemptions                                 $    653,750
                                                             ============

         We believe that our size and financial flexibility enables us to access
capital when appropriate. Since the beginning of 2003 through March 31, 2006, we
have issued  approximately  $1.5 billion of our Cumulative  Preferred Stock, and
used  approximately  $0.8  billion  of these  net  proceeds  in order to  redeem
higher-coupon preferred securities.

         REQUIREMENT  TO  PAY   DISTRIBUTIONS:   We  estimate  the  distribution
requirement with respect to our Preferred Stock outstanding at May 8, 2006 to be
approximately  $222.5 million per year. We estimate that the annual distribution
requirement with respect to the preferred partnership units outstanding at March
31, 2006, to be approximately  $14.4 million per year. On May 9, 2006, we issued
4,000,000  units  of  our  Series  J  Preferred   Partnership   Units,   raising
approximately $100 million in cash proceeds. Our annual distribution requirement
is  estimated  to be  approximately  $7.3 million per year with respect to these
units.

         During each of the three months ended March 31, 2006 and 2005,  we paid
cash dividends totaling $5,356,000 and $5,375,000,  respectively, to the holders
of our Equity Stock,  Series A. With respect to the depositary  shares of Equity
Stock,  Series A, we have no obligation to pay distributions if no distributions
are  paid to the  common  shareholders.  To the  extent  that  we do pay  common
distributions  in any year, the holders of the depositary  shares receive annual
distributions  equal to the lesser of (i) five times the per share  dividend  on
the common stock or (ii) $2.45. The depositary  shares are  non-cumulative,  and
have  no  preference  over  our  common  stock  either  as  to  dividends  or in
liquidation. With respect to the Equity Stock, Series A outstanding at March 31,
2006, we estimate the total regular  distribution for the second quarter of 2006
to be approximately $5.4 million.

         During  the three  months  ended  March  31,  2006,  we paid  dividends
totaling  $64,298,000  ($0.50  per  common  share) to the  holders of our common
stock. Based upon shares outstanding at May 8, 2006 and a quarterly distribution
of $0.50 per share,  which was declared by the Board of Directors on May 3, 2006
and payable on June 29, 2006, to  shareholders  of record as of June 2, 2006, we
estimate a dividend  payment with  respect to our common stock of  approximately
$64.1 million for the second quarter of 2006.

         CAPITAL IMPROVEMENT  REQUIREMENTS:  For 2006, we budgeted approximately
$38 million for capital  improvements.  During the three  months ended March 31,
2006, we incurred capital  improvements of approximately  $8.4 million.  Capital
improvements  include  major  repairs or  replacements  to the  facilities  that
maintain the facilities' existing operating condition and visual appeal. Capital
improvements  do not include costs  relating to the  development or expansion of
facilities,  or expenditures associated with improving the visual and structural
appeal of our existing self-storage facilities.

         DEBT SERVICE  REQUIREMENTS:  We do not believe we have any  significant
refinancing risks with respect to our debt, all of which is fixed rate. At March
31, 2006, we had total  outstanding  debt of approximately  $141.9 million.  See
Note  7 to the  consolidated  financial  statements  for  approximate  principal
maturities of such borrowings.

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

         ACQUISITION AND DEVELOPMENT OF REAL ESTATE FACILITIES: During 2006, 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.

                                       60

<PAGE>

         Between  March 31, 2006 and May 8, 2006, we acquired  three  additional
self-storage facilities from third parties at an aggregate cost of approximately
$31.1  million in cash.  At May 8, 2005,  we are under  contract to acquire four
additional  facilities at an aggregate cost of approximately $28.1 million. Each
of these acquisitions is subject to significant contingencies,  and there can be
no assurance that these facilities will be acquired.

         At March  31,  2006 we have a  development  "pipeline"  of 54  projects
consisting of  self-storage  facilities,  conversion of space at facilities that
was  previously  used for  containerized  storage  and  expansions  to  existing
self-storage facilities. At March 31, 2006, 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  $249.7 million and will be incurred over the next 24 months.  The
following table sets forth certain  information  with respect to our development
pipeline.

<TABLE>
<CAPTION>

DEVELOPMENT PIPELINE SUMMARY (as of March 31, 2006)
                                                                             Total
                                                    Number      Net        estimated      Costs incurred
                                                      of      rentable     development       through         Costs to
                                                   projects   sq. ft         costs            3/31/06         complete
                                                  ---------- ----------   ------------   --------------      ----------
                                                                  (Amounts in thousands, except number of projects)
  Facilities currently under construction:
<S>                                                    <C>        <C>      <C>              <C>              <C>
    Self-storage facilities                            2          191      $   44,223       $   37,558       $    6,665
    Expansions and other enhancements to
     existing self-storage facilities                  8          337          24,624            7,586           17,038
                                                  ---------- ----------   ------------   --------------      ----------
                                                      10          528          68,847           45,144           23,703

  Facilities awaiting  construction,  where land
     has been acquired:
    Self-storage facilities                            1           57           7,116            2,335            4,781
    Expansions and other enhancements to
     existing self-storage facilities                 43        2,884         223,053            1,814          221,239
                                                  ---------- ----------   ------------   --------------      ----------
                                                      44        2,941         230,169            4,149          226,020

  Total Development Pipeline                          54        3,469      $  299,016       $   49,293       $  249,723
                                                  ========== ==========   ============   ==============      ===========
</TABLE>


         In  addition,  we have  parcels  of land held for  development  with an
aggregate cost of $5,622,000.

         MERGER WITH  SHURGARD:  On March 6, 2006,  we entered into an agreement
with Shurgard Storage Centers,  Inc ("Shurgard") under which Public Storage will
acquire Shurgard at a total  transaction  value of  approximately  $5.0 billion.
Under the transaction, which is taxable, Public Storage will issue approximately
38.7 million shares of common stock in exchange for outstanding  Shurgard common
stock  and  assume  Shurgard's  debt and line of credit  of  approximately  $1.9
billion (as of March 31, 2006).  Concurrent  with the closing of the merger,  we
expect to repay  Shurgard's line of credit ($621 million at March 31, 2006), and
pay approximately  $90 million of legal,  consulting,  and other  merger-related
costs.  In addition,  approximately  $136 million of Shurgard's  preferred stock
will be redeemed. The transaction is subject to customary closing conditions and
regulatory  approvals,  including  the  approval  of the  shareholders  of  both
companies, and is currently targeted to close during the third quarter of 2006.

         The  foregoing  description  of the terms of our  agreement  to acquire
Shurgard  does not purport to be  complete,  and is qualified in its entirety by
reference  to the full text of the  merger  agreement,  a copy of which is filed
with our current report on Form 8-K dated March 7, 2006, and our Form S-4, which
was filed April 20, 2006.

         REPURCHASES  OF THE  COMPANY'S  COMMON STOCK:  The  Company's  Board of
Directors authorized the repurchase from time to time of up to 25,000,000 shares
of our common stock on the open market or in privately negotiated  transactions.
For the three months ended March 31, 2006, we did not  repurchase  any shares of
our common stock.

                                       61

<PAGE>

         From the initial authorization through May 8, 2005, we have repurchased
a  total  of  22,201,720  shares  of  common  stock  at  an  aggregate  cost  of
approximately $567 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 of either common
or  preferred  stock.  At March  31,  2006,  our debt as a  percentage  of total
shareholders' equity (based on book values) was 2.9%.

         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 R - September  28, 2006,  Series S - October 31, 2006,
Series T - January 18, 2007,  Series U - February 19, 2007, Series V - September
30, 2007,  Series W - October 6, 2008,  Series X - November 13, 2008, Series Y -
January 2, 2009, Series Z - March 5, 2009, Series A - March 31, 2009, Series B -
June 30,  2009,  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 and Series I - May 3, 2011.  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  $141.9  million  at March 31,  2006.  All of the  Company's  debt bears
interest at fixed rates. See Note 7 to the consolidated  financial statements at
March 31, 2006 for  approximate  principal  maturities  of the notes  payable at
March 31, 2006.

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.

                                       62
<PAGE>

PART II.   OTHER INFORMATION

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

         The  information set forth under the heading "Legal Matters" in Note 14
to the  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, 2005, you should consider the following  factors
in evaluating the Company:

IF THE SHURGARD MERGER IS COMPLETED, IT MAY SUBJECT US TO ADDITIONAL RISKS

         On March 6, 2006, we entered into an agreement  with  Shurgard  Storage
Centers,  Inc ("Shurgard") under which Public Storage will acquire Shurgard at a
total  transaction value of approximately  $5.0 billion.  Under the transaction,
which is taxable, Public Storage will issue approximately 38.7 million shares of
common  stock in  exchange  for  outstanding  Shurgard  common  stock and assume
Shurgard's  debt and line of credit of  approximately  $1.9 billion (as of March
31,  2006 ).  Concurrent  with the  closing  of the  merger,  we expect to repay
Shurgard's   line  of  credit  ($621  million  at  March  31,  2006),   and  pay
approximately $90 million of legal, consulting,  and other merger-related costs.
In addition,  approximately  $136 million of Shurgard's  preferred stock will be
redeemed.  The  transaction  is  subject to  customary  closing  conditions  and
regulatory  approvals,  including  the  approval  of the  shareholders  of  both
companies, and is currently targeted to close during the third quarter of 2006.

         Completion of the  transaction  is not assured and is subject to risks,
including that  shareholders of either Public Storage or Shurgard do not approve
the  transaction  or that the other closing  conditions  are not  satisfied.  In
addition,  Shurgard may under limited  circumstances  terminate the agreement to
take a superior  proposal.  Public  Storage  and  Shurgard  are not aware of any
significant  governmental  approvals that are required for  consummation  of the
merger. If any approval or action is required, it is presently contemplated that
Public  Storage and Shurgard would use their  reasonable  best efforts to obtain
such approval.  There can be no assurance that any approvals,  if required, will
be obtained.

         The  foregoing  description  of the terms of our  agreement  to acquire
Shurgard  does not purport to be  complete,  and is qualified in its entirety by
reference  to the full text of the  merger  agreement,  a copy of which is filed
with our current report on Form 8-K dated March 7, 2006, and our Form S-4, which
was filed April 20, 2006.

         In  addition to the general  risks  related to real estate  noted above
which may also adversely impact  Shurgard's  operations,  we are also subject to
the following  risks in  connection  with our  acquisition  of Shurgard into our
operations, including without limitation the following:

o        difficulties  in  the  integration  of  operations,   technologies  and
         personnel of Shurgard;

o        inability to realize or delays in realizing expected synergies;

o        unanticipated operating costs;

o        diversion  of our  management's  attention  away  from  other  business
         concerns;

o        exposure  to  any  undisclosed  or  unknown  potential  liabilities  of
         Shurgard;

o        potential underinsured losses on Shurgard properties; and

o        risk of  failure  to  mitigate  any  Shurgard  material  weaknesses  in
         internal control to the extent that it affects our internal controls.

         The  success of the merger  will  depend,  in part,  on our  ability to
realize the  anticipated  cost savings from  combining the  businesses of Public
Storage and  Shurgard.  However,  to realize the  anticipated  benefits from the
merger,  we must  successfully  combine  the  businesses  of Public  Storage and
Shurgard in a manner that permits  those cost savings to be realized.  If we are
not able to successfully  achieve those objectives,  the anticipated benefits of
the merger may not be  realized  fully or at all or may take longer or cost more
to realize than  expected.  Public Storage and Shurgard have operated and, until
the  completion  of the merger,  will continue to operate  independently.  It is

                                       63

<PAGE>


possible  that the  integration  process  could  result in the loss of  valuable
employees,  the disruption of each company's ongoing business 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.
Further,  the size of the transaction may make integration of Public Storage and
Shurgard difficult, expensive, and disruptive,  adversely affecting the combined
company's  revenues  and  earnings,  and  implementation  of merger  integration
efforts may divert management's  attention from other strategic  priorities.  In
addition,  the  merger  has  been  structured  so that it  should  be a  taxable
transaction  for U.S.  Federal  income tax purposes.  As a result,  the combined
company should have the benefit of a step-up in tax basis in Shurgard's  assets.
It is  possible  that  the IRS may  challenge  the  step-up  in  basis.  If such
challenge were sustained,  we would not achieve this benefit, which would reduce
our depreciation deductions and our ability to retain cash flow.

         Shurgard  also holds many of its  properties  through  joint  ventures,
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  holds  substantially  all of its real
estate investments in Europe indirectly  through  partnerships and joint venture
arrangements.   If  we  are  unable  to   effectively   control  these  indirect
investments,  there is a risk that our  ownership  of the joint  ventures  could
cause us to lose our REIT status.

         We have assumed based on public filings that Shurgard has qualified and
will  continue  to  qualify as a REIT and that we would be able to  continue  to
qualify as a REIT following an acquisition.  However,  if Shurgard has failed or
fails to  qualify  as a REIT,  we might  succeed  to or  incur  significant  tax
liabilities  and possibly lose our REIT status should  disqualifying  activities
continue after the acquisition.

         Shurgard has a significantly greater level of debt than we do with more
fixed and  floating-rate  debt, as well as derivative  instruments that we would
assume.  Shurgard's  outstanding borrowings on its lines of credit ($621 million
at March 31, 2006) would  become  payable  immediately  upon  completion  of the
merger. In addition, there would be $90 million in additional cash costs related
to the  merger,  cash  requirements  for  the  redemption  of  $136  million  of
Shurgard's  preferred  stock on the merger date,  and  additional  possible cash
requirements  following the merger. As a result,  this transaction may result in
an increase in our exposure to interest rate and refinancing risks.

         We would  also be  acquiring  Shurgard's  international  operations  in
Europe,  which consist principally of facilities that have been completed in the
last few years and are in various  stages of fill-up.  We have no  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;

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.

                                       64

<PAGE>


         In connection  with the proposed  acquisition  of  Shurgard's  European
operations, we will be evaluating various strategic alternatives, including, but
not limited to, public or private offerings of securities,  one or more possible
joint ventures, and possible asset acquisitions and/or sales.

         The foregoing  description of the terms and conditions of our agreement
to acquire  Shurgard  does not purport to be  complete,  and is qualified in its
entirety by reference to the full text of the merger agreement,  a copy of which
is filed with our current report on Form 8-K dated March 7, 2006.

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

         At May 8, 2006, B. Wayne Hughes,  Chairman of the Board, and members of
his family (the "Hughes  Family")  owned  approximately  36% of our  outstanding
shares of common stock.  Consequently,  the Hughes Family could control  matters
submitted to a vote of our shareholders,  including electing directors, amending
our  organizational  documents,  dissolving  and approving  other  extraordinary
transactions,  such as a takeover  attempt,  even though such actions may not be
favorable to the other common shareholders.

PROVISIONS IN OUR ORGANIZATIONAL DOCUMENTS MAY PREVENT CHANGES IN CONTROL.

         Restrictions in our organizational  documents may further limit changes
in  control.  Unless  our  Board  of  Directors  waives  these  limitations,  no
shareholder may own more than (1) 2.0% of our  outstanding  shares of our common
stock or (2) 9.9% of the  outstanding  shares  of each  class or  series  of our
preferred or equity  stock.  Our  organizational  documents  in effect  provide,
however,  that the Hughes  Family may  continue  to own the shares of our common
stock  held by them at the time of the 1995  reorganization.  In the  event  the
Shurgard  transaction  is  completed,  the Hughes Family is permitted to acquire
additional  Common Stock to maintain their premerger 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 has qualified and
will continue to qualify as a REIT  following the merger.  However,  if Shurgard
has failed or fails to qualify as a REIT, we generally would succeed to or incur
significant   tax   liabilities   and  possibly  lose  our  REIT  status  should
disqualifying activities continue after the Shurgard merger.

         You will be  subject  to the risk  that we may not  qualify  as a REIT.
REITs  are  subject  to  a  range  of  complex  organizational  and  operational
requirements.  As a REIT, we must  distribute 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 Code, 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 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.

                                       65

<PAGE>


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.  While we have attempted to mitigate this risk
through offsite backup  procedures and contracted data centers that include,  in
some cases,  redundant  operations,  we could  still be  severely  impacted by a
catastrophic  occurrence,  such as a natural disaster or a terrorist  attack. In
addition,  an increasing  portion of our business  operations are conducted over
the Internet,  increasing  the risk of viruses that could cause system  failures
and  disruptions of operations  despite our  deployment of anti-virus  measures.
Experienced  computer  programmers may be able to penetrate our network security
and  misappropriate our confidential  information,  create system disruptions or
cause shutdowns.

WE AND OUR SHAREHOLDERS ARE SUBJECT TO FINANCING RISKS.

         Debt increases the risk of loss. In making real estate investments,  we
may borrow money,  which increases the risk of loss. At March 31, 2006, our debt
of $141.9 million was 2.6% of our total assets.

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

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

         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 or hurricanes;
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.

                                       66

<PAGE>


         In addition,  we self-insure  certain of our property loss,  liability,
and workers  compensation  risks; areas that other real estate companies may use
third-party  insurers  for. This results in a higher risk of losses that are not
covered  by  third-party  insurance  contracts,  as  described  in Note 16 under
"Insurance and Loss Exposure" to our consolidated  financial statements at March
31, 2006.

         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 three months ended March 31, 2006.
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 provide no assurance
that material legal claims  relating to moisture  infiltration  and the presence
of, or exposure to, mold will not arise in the future.

                                       67

<PAGE>


         Delays in development  and fill-up of our  properties  would reduce our
profitability.  Since  January  1,  2002,  we have  opened  42  newly  developed
self-storage   facilities  and  17  facilities  that  combine  self-storage  and
containerized  storage space at the same location,  with  aggregate  development
costs of approximately $501.2 million. In addition,  at March 31, 2006 we had 54
projects in development that are expected to be completed in  approximately  the
next two years.  These 54 projects have total estimated  costs of  approximately
$299 million.  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
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.

         B. Wayne  Hughes,  Chairman of the Board,  and his family (the  "Hughes
Family") have ownership interests in, and operate, 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,  our  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 our  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 each of the three month  periods ended March 31, 2006
and 2005, we collected  $259,000 in  reinsurance  premiums  attributable  to the
Canadian  operations.  Since PSIC's right to provide  tenant  reinsurance to the
Canadian facilities may be qualified,  there is no assurance that these premiums
will continue.

                                       68

<PAGE>


OUR CONTAINERIZED STORAGE BUSINESS HAS INCURRED OPERATING LOSSES.

         Public  Storage  Pickup & Delivery  ("PSPUD")  was organized in 1996 to
operate a containerized storage business. We own all of the economic interest of
PSPUD.  Since  PSPUD  will  operate  profitably  only if it can  succeed  in the
relatively new field of containerized  storage,  we cannot provide any assurance
as to its  profitability.  PSPUD  incurred an operating  loss of  $10,058,000 in
2002, and generated  operating profits of $2,543,000 in 2003,  $684,000 in 2004,
$1,818,000  for 2005 and  $360,000  for the three  months  ended March 31, 2006.
Since  2002,  PSPUD  closed or  consolidated  facilities  that were  deemed  not
strategic to its business plan, and has 12 facilities open at March 31, 2006.

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
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-quarter  of  our
properties 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 quarter ended March 31, 2006.

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.

                                       69

<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 10, 2006

                                             PUBLIC STORAGE, INC.

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

                                       70

<PAGE>


EXHIBIT NO.                         EXHIBIT INDEX

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.

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.

                                       71

<PAGE>

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.

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.

                                       72

<PAGE>

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.

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.

                                       73

<PAGE>

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        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.

3.45        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.

3.46        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.

3.47        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.

3.48        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.

3.49        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.

3.50        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.

3.51        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.

3.52        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.

3.53        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.

3.54        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.

3.55        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.

                                       74

<PAGE>

3.56        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.

3.57        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.

3.58        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.

3.59        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.

3.60        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.

3.61        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.

3.62        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.

3.63        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.

3.64        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.

3.65        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.

3.66        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.

3.67        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.

3.68        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.

3.69        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.

3.70        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.

                                       75

<PAGE>

3.71        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.

10.1.       Merger  Agreement,  dated as of March 6, 2006, by and among Shurgard
            Storage Centers,  Inc., ASKL Sub LLC and Public Storage,  Inc. Filed
            with Registrant's Current Report on Form 8-K dated March 6, 2006 and
            incorporated herein by reference.

10.2.       Voting Agreement, dated as of March 6, 2006, by and among Charles K.
            Barbo and Public  Storage,  Inc..  Filed with  Registrant's  Current
            Report on Form 8-K dated  March 6, 2006 and  incorporated  herein by
            reference.

10.3.       Deposit  Agreement  dated as of May 3,  2006  among  Registrant  and
            Computershare  Trust  Company  N.A.  and the  holders of  depositary
            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.

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

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

31.1        Rule  13a-14(a)/15d-14(a)  Certification of Chief Executive Officer.
            Filed herewith.

31.2        Rule  13a-14(a)/15d-14(a)  Certification of Chief Financial Officer.
            Filed herewith.

32          Section  1350  Certification  of Chief  Executive  Officer and Chief
            Financial Officer. Filed herewith

                                       76