SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                    FORM 10-Q

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

For the quarterly period ended September 30, 1998
                               ------------------

                                       or

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

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

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

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


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


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


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





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

                                [ X ] Yes [ ] No

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of October 30, 1998:

Common Stock, $.10 par value, 115,704,762 shares outstanding
------------------------------------------------------------

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

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

<PAGE>

                              PUBLIC STORAGE, INC.

                                      INDEX



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

Item 1.  Condensed Consolidated Balance Sheets at
           September 30, 1998 and December 31, 1997                      1

         Condensed Consolidated Statements of Income for the
           Three and Nine Months Ended September 30, 1998 and 1997       2

         Condensed Consolidated Statements of  Shareholders Equity
           for the Nine Months Ended September 30, 1998                  3

         Condensed Consolidated Statements of Cash Flows
           for the Nine Months Ended September 30, 1998 and 1997         4- 5

         Notes to Condensed Consolidated Financial Statements            6 - 14

Item 2.  Management's Discussion and Analysis of
           Financial Condition and Results of Operations                 15 - 27

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

Item 1.  Legal Proceedings                                               28

Item 5.  Other Information                                               28 - 29

Item 6.  Exhibits and Reports on Form 8-K                                29

<PAGE>

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

<TABLE>
<CAPTION>

                                                                                       September 30,          December 31,
                                    ASSETS                                                 1998                   1997
                                    ------                                           -----------------     -----------------
                                                                                       (Unaudited)
<S>                                                                                       <C>              <C>          
Cash and cash equivalents....................................................          $   54,950           $     41,455
Real estate facilities, at cost:
   Land......................................................................             797,110                845,299
   Buildings.................................................................           2,137,179              2,232,230
                                                                                     -----------------     -----------------
                                                                                        2,934,289              3,077,529
   Accumulated depreciation..................................................            (385,647)              (378,248)
                                                                                     -----------------     -----------------
                                                                                        2,548,642              2,699,281
   Construction in process...................................................              75,635                 42,635
                                                                                     -----------------     -----------------
                                                                                        2,624,277              2,741,916
                                                                                     -----------------     -----------------

Investment in real estate entities...........................................             430,171                225,873
Intangible assets, net.......................................................             205,960                212,944
Mortgage notes receivable from affiliates....................................              24,856                 21,807
Other assets.................................................................              71,619                 67,650
                                                                                     -----------------     -----------------
              Total assets...................................................          $3,411,833            $ 3,311,645
                                                                                     =================     =================

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

Revolving line of credit.....................................................              $    -          $       7,000
Notes payable................................................................              85,617                 96,558
Accrued and other liabilities................................................              77,380                 70,648
                                                                                     -----------------     -----------------
         Total liabilities...................................................             162,997                174,206
                                                                                     -----------------     -----------------

Minority interest............................................................             150,532                288,479

Commitments and contingencies

Shareholders' equity:
   Preferred Stock, $0.01 par value,  50,000,000 shares  authorized,  
     11,129,650 shares  issued  and  outstanding  (13,261,984  issued  
     and  outstanding  at December 31, 1997), at liquidation preference:
         Cumulative Preferred Stock, issued in series........................             868,900                868,900
         Convertible Preferred Stock.........................................                   -                 53,308
   Common stock, $0.10 par value,  200,000,000  shares  authorized,  
     115,713,762 shares issued and outstanding (105,102,145 at 
     December 31, 1997)......................................................
                                                                                           11,573                 10,511
   Class B Common Stock, $0.10 par value, 7,000,000 shares authorized and
     issued..................................................................                 700                    700
   Paid-in capital...........................................................           2,172,115              1,903,782
   Cumulative net income.....................................................             742,918                575,069
   Cumulative distributions paid.............................................            (697,902)              (563,310)
                                                                                     -----------------     -----------------
         Total shareholders' equity..........................................           3,098,304              2,848,960
                                                                                     -----------------     -----------------
              Total liabilities and shareholders' equity.....................          $3,411,833            $ 3,311,645
                                                                                     =================     =================
</TABLE>
                            See accompanying notes.
                                       1

<PAGE>

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

                                   (Unaudited)

<TABLE>
<CAPTION>

                                                       For the Three Months Ended               For the Nine Months Ended
                                                             September 30,                            September 30,
                                                    ---------------------------------        ---------------------------------
                                                         1998               1997                  1998              1997
                                                    ---------------  ----------------        ---------------  ----------------
    Revenues:
       Rental income:
    <S>                                              <C>                <C>                    <C>                 <C>      
           Self-storage facilities............       $ 129,385          $ 102,308              $ 360,950           $ 273,798
           Portable self-storage..............           6,780              2,566                 18,069               4,140
           Commercial properties .............           1,833             11,526                 21,229              27,694
      Equity earnings of real estate entities.           6,662              4,414                 16,598              14,652
      Facility management fee.................           1,388              2,376                  4,805               8,319
      Interest and other income...............           3,921              2,817                 11,925               7,489
                                                    ---------------  ----------------        ---------------  ----------------
                                                       149,969            126,007                433,576             336,092
                                                    ---------------  ----------------        ---------------  ----------------
      Expenses:
      Cost of operations:
           Self-storage facilities............          37,755             29,617                108,593              82,392
           Portable self-storage..............          13,713             14,635                 43,226              25,325
           Commercial properties..............             685              4,277                  7,187              11,034
      Cost of facility management.............             226                358                    780               1,300
       Depreciation and amortization..........          26,217             23,651                 79,628              64,141
       General and administrative.............           2,684              1,911                  7,246               5,185
       Interest expense.......................             831              2,262                  2,926               5,821
                                                    ---------------  ----------------        ---------------  ----------------
                                                        82,111             76,711                249,586             195,198
                                                    ---------------  ----------------        ---------------  ----------------

       Income before minority interest........          67,858             49,296                183,990             140,894

       Minority interest in income............          (5,572)            (2,748)               (16,141)             (7,777)
                                                    ---------------  ----------------        ---------------  ----------------

    Net income................................       $  62,286          $  46,548              $ 167,849            $133,117
                                                    ===============  ================        ===============  ================

    Net income allocation:
      Allocable to preferred shareholders.....       $  19,053           $ 18,316              $  59,322             $68,134
      Allocable to common shareholders........          43,233             28,232                108,527              64,983
                                                    ---------------  ----------------        ---------------  ----------------
                                                     $  62,286           $ 46,548              $ 167,849            $133,117
                                                    ===============  ================        ===============  ================
    Per common share:
      Net income per share - Basic............           $0.37              $0.27                  $0.96               $0.67
                                                    ===============  ================        ===============  ================
      Net income per share - Diluted..........           $0.37              $0.27                  $0.95               $0.67
                                                    ===============  ================        ===============  ================

      Weighted average common shares - 
         Basic................................         116,421            102,964                113,311              96,586
                                                    ===============  ================        ===============  ================
      Weighted average common shares - 
         Diluted..............................         116,726            103,536                113,762              97,154
                                                    ===============  ================        ===============  ================
</TABLE>
                            See accompanying notes.
                                       2

<PAGE>

                              PUBLIC STORAGE, INC.
            CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                  For the nine months ended September 30, 1998
                    (Amounts in thousands except share data)

                                   (Unaudited)

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

<S>                                                           <C>            <C>           <C>           <C>         <C>         
Balances at December 31, 1997........................         $  868,900     $   53,308    $   10,511    $     700   $1,903,782  

Issuance of common stock:
     Public issuance (7,951,821 shares)..............                  -              -           794            -       233,731 
     Conversion of 8.25% Convertible Preferred Stock
        into common stock (3,589,552 shares).........                  -        (53,308)          359            -        52,949 
     Acquisition of investment in real estate
        entities and minority interest from
        affiliate (914,094 shares)...................                  -              -            92            -        28,110 
     Acquisition of minority interests from third
        parties (316,595 shares) ....................                  -              -            31           -         7,965 
     In connection with mergers (433,526 shares).....                  -              -            44            -        13,773 
     Exercise of stock options (192,429 shares)......                  -              -            21            -         2,901 

Repurchase of Common Shares (2,786,400 shares) ......                  -              -          (279)           -       (71,096)

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

Cash distributions:
   Cumulative Senior Preferred Stock.................                  -              -             -            -             - 
   8.25% Convertible Preferred Stock.................                  -              -             -            -             - 
   Common Stock......................................                  -              -             -            -             - 
                                                             -------------  -------------  ------------- ---------- -------------
Balances at September 30, 1998.......................         $  868,900     $        -    $   11,573     $    700   $2,172,115  
                                                             =============  =============  ============= ========== =============
</TABLE>

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

<S>                                                            <C>           <C>              <C>          
Balances at December 31, 1997........................          $  575,069    $  (563,310)     $   2,848,960

Issuance of common stock:
     Public issuance (7,951,821 shares)..............                   -              -             234,525
     Conversion of 8.25% Convertible Preferred Stock
        into common stock (3,589,552 shares).........                   -              -                   -
     Acquisition of investment in real estate
        entities and minority interest from
        affiliate (914,094 shares)...................                   -              -              28,202
     Acquisition of minority interests from third
        parties (316,595 shares) ....................                   -             -                7,996
                                                             
     In connection with mergers (433,526 shares).....                   -              -              13,817
     Exercise of stock options (192,429 shares)......                   -              -               2,922

Repurchase of Common Shares (2,786,400 shares) ......                   -              -             (71,375)

Net income...........................................             167,849              -             167,849

Cash distributions:
   Cumulative Senior Preferred Stock.................                   -        (57,159)            (57,159)
   8.25% Convertible Preferred Stock.................                   -         (2,163)             (2,163)
   Common Stock......................................                   -        (75,270)            (75,270)
                                                              ------------  --------------    ---------------
Balances at September 30, 1998.......................           $ 742,918    $  (697,902)     $    3,098,304
                                                              ============  ==============    ===============
</TABLE>

                            See accompanying notes.
                                       3

<PAGE>

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

                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                                  For the Nine Months Ended
                                                                                                        September 30,
                                                                                             ----------------------------------
                                                                                                   1998               1997
                                                                                             ----------------   ---------------
      CASH FLOWS FROM OPERATING ACTIVITIES:
        <S>                                                                                   <C>                  <C>        
        Net income..................................................................          $   167,849          $   133,117
        Adjustments to  reconcile  net income to net cash  provided by operating
            activities:
        Depreciation and amortization...............................................               79,628               64,141
        Depreciation included in equity in earnings of real estate entities.........                9,902                9,177
        Minority interest in income.................................................               16,141                7,777
                                                                                             ----------------   ---------------
               Total adjustments....................................................              105,671               81,095
                                                                                             ----------------   ---------------
                   Net cash provided by operating activities........................              273,520              214,212
                                                                                             ----------------   ---------------

      CASH FLOWS FROM INVESTING ACTIVITIES:
        Mortgage loans made to affiliates...........................................              (33,000)                   -
        Principal payments received on mortgage notes to affiliates.................               27,456                  897
        Capital improvements to real estate facilities..............................              (19,257)             (24,056)
        Construction in process.....................................................              (58,371)             (18,465)
        Investment in portable self-storage business................................               (7,649)             (15,393)
        Acquisition of minority interests in consolidated real estate partnerships..              (17,508)             (20,967)
        Proceeds from the disposition of real estate investments....................               10,275                    -
        Reduction in cash due to the deconsolidation of PSBP (Note 2)...............              (11,259)                   -
        Refund of deposit on real estate purchase...................................               12,500                    -
        Investment in real estate entities..........................................              (74,964)             (58,728)
        Acquisition of real estate facilities.......................................              (47,392)             (50,172)
        Acquisition cost of business combinations...................................              (84,576)            (120,986)
        Other.......................................................................                2,846                4,777
                                                                                             ----------------   ---------------
                   Net cash used in investing activities............................             (300,899)            (303,093)
                                                                                             ----------------   ---------------

      CASH FLOWS FROM FINANCING ACTIVITIES:
        Net paydowns on revolving line of credit....................................               (7,000)                   -
        Principal payments on notes payable.........................................              (10,940)              (8,094)
        Net proceeds from the issuance of preferred stock...........................                    -              144,925
        Net proceeds from the issuance of common stock..............................              237,447              127,550
        Repurchase of the Company's common stock....................................              (71,375)                   -
        Reimbursement for properties contributed to development joint venture.......                    -               21,284
        Distributions paid to shareholders..........................................             (134,592)            (130,125)
        Distributions from operations to minority interests in real estate entities.              (25,565)             (14,201)
        Net reinvestment by minority interests in consolidated real estate entities.               52,899                3,347
                                                                                             ----------------   ---------------
                   Net cash provided by financing activities........................               40,874              144,686
                                                                                             ----------------   ---------------

      Net increase in cash and cash equivalents.....................................               13,495               55,805
      Cash and cash equivalents at the beginning of the period......................               41,455               26,856
                                                                                             ----------------   ---------------
      Cash and cash equivalents at the end of the period............................          $    54,950          $    82,661
                                                                                             ================   ===============
</TABLE>
                             See accompanying notes.
                                       4

<PAGE>


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

                                   (Unaudited)

                                   (Continued)

<TABLE>
<CAPTION>
                                                                                               For the Nine Months Ended
                                                                                                     September 30,
                                                                                           ----------------------------------
                                                                                                1998                1997
                                                                                           -----------------  ---------------
      SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
      <S>                                                                                 <C>                  <C>    
      Acquisition of real estate  facilities  in exchange for the  assumption of
          notes payable, increase in minority interest, cancellation of mortgage
          note receivable, and reduction in investment..............................      $      (18,753)      $         -

      Assumption of note payable in connection with the acquisition of real estate
          facilities................................................................              14,526                  -

      Cancellation of mortgage note receivable in connection with the acquisition
          of real estate facilities.................................................               2,495                  -

      Assets and liabilities acquired with respect to business combinations:
          Real estate facilities....................................................            (225,202)          (540,945)
          Other assets..............................................................                (670)            (3,097)
          Accrued and other liabilities.............................................               3,793             16,640
          Minority interest.........................................................              37,367             42,038

      Reduction to investment in real estate entities:
          In connection with business combination...................................              86,319            152,378
          In connection with acquisition of real estate facilities..................                 527                  -

      Acquisition  of minority  interest  and real estate in exchange for common
               stock:
          Real estate facilities....................................................             (19,475)                 -
          Minority interest.........................................................             (17,098)                 -

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

       Issuance of common stock:
          In connection with the conversion of 8.25% convertible preferred stock....              53,308              1,390
          In connection with business combinations..................................              13,817            212,000
          In connection with the conversion of mandatory convertible preferred stock                   -             58,955
          To acquire interests in real estate entities..............................              17,133                  -
          To acquire minority interest in consolidated real estate entities.........              19,065                  -

      Conversion of 8.25% convertible preferred stock...............................             (53,308)            (1,390)

      Conversion of mandatory convertible preferred stock...........................                   -            (58,955)

      Acquisition of investment in real estate entities for common stock............             (17,133)                 -

      Increase in minority interest in connection with the acquisition of real
          estate facilities.........................................................               1,205                  -

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

</TABLE>
                            See accompanying notes.
                                       5

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1998


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

                  Public   Storage,   Inc.  (the   "Company")  is  a  California
         corporation  which  was  organized  in  1980.  The  Company  is a fully
         integrated,  self-administered  and self-managed real estate investment
         trust ("REIT") that acquires,  develops, owns and operates self-storage
         facilities  which  offer  self-storage  spaces for lease,  usually on a
         month-to-month  basis,  for  personal  and  business  use.  The Company
         invests in real estate facilities  primarily through the acquisition of
         wholly-owned   facilities  combined  with  the  acquisition  of  equity
         interests in real estate  entities  owning real estate  facilities.  At
         September  30,  1998,  the  Company  had  direct  and  indirect  equity
         interests in 1,191  properties  located in 38 states,  including  1,089
         self-storage facilities, 99 commercial properties, and three industrial
         facilities  for use in the  operations  of Public  Storage  Pickup  and
         Delivery.  All of  the  self-storage  facilities  are  operated  by the
         Company  under  the  "Public   Storage"  name,   while  the  commercial
         properties  are  operated by PS Business  Parks,  Inc.,  an  affiliated
         public REIT, and its operating  partnership  (the REIT and  partnership
         collectively referred to as "PSBP").

                  In 1996 and 1997, the Company  organized Public Storage Pickup
         and Delivery,  Inc. as a separate corporation and a related partnership
         (the  corporation  and  partnership  are  collectively  referred  to as
         "PSPUD") to operate a portable self-storage business that rents storage
         containers  to  customers  for  storage  generally  in  leased  central
         warehouses.  At September 30, 1998,  PSPUD operated 48 facilities in 15
         states.

     2.  Summary of significant accounting policies
         ------------------------------------------

                  Basis of presentation
                  ---------------------
                  The accompanying  unaudited condensed  consolidated  financial
         statements  have been prepared in accordance  with  generally  accepted
         accounting  principles  for  interim  financial  information  and  with
         instructions   to  Form  10-Q  and  Article  10  of   Regulation   S-X.
         Accordingly,  they do not include all of the  information and footnotes
         required by  generally  accepted  accounting  principles  for  complete
         financial  statements.  The preparation of the  consolidated  financial
         statements in conformity with generally accepted accounting  principles
         requires  management to make estimates and assumptions  that affect the
         amounts   reported  in  the  consolidated   financial   statements  and
         accompanying notes. Actual results could differ from estimates.  In the
         opinion of management,  all adjustments (consisting of normal recurring
         accruals)  necessary  for  a  fair  presentation  have  been  included.
         Operating  results for the three and nine months  ended  September  30,
         1998 are not necessarily indicative of the results that may be expected
         for the year ended December 31, 1998. 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, 1997.

                  The consolidated  financial statements include the accounts of
         the  Company,  PSPUD,  and  22  controlled  limited  partnerships  (the
         "Consolidated   Entities").   Collectively,   the   Company   and   the
         Consolidated  Entities  own a  total  of 955  real  estate  facilities,
         consisting of 951 self-storage facilities, one commercial property, and
         three industrial facilities for use by PSPUD.

                  At September 30, 1998, the Company also has equity investments
         in 26 other affiliated limited partnerships whose principal business is
         the ownership of 138  self-storage  facilities  in aggregate  which are
         managed by the  Company.  In  addition,  the Company  has an  ownership
         interest in PSBP, which owns and operates 98 commercial properties. The
         Company's  ownership interest in such real estate entities is less than
         50% of the total equity interest and the Company's investments in these
         entities are accounted for using the equity method.

                  From the time of PSBP's formation  through March 31, 1998, the
         Company consolidated the accounts of PSBP in its financial  statements.
         During the second quarter of 1998, the Company's  ownership interest in
         PSBP was reduced below 50%, and accordingly, the Company ceased to have
         a  controlling  interest in PSBP. As a result,  the Company,  effective
         April  1,  1998,  no  longer  includes  the  accounts  of  PSBP  in its
         consolidated  financial statements and has accounted for its investment
         during the second and third  quarters of 1998 using the equity  method.
         The income  statement  for the nine  months  ended  September  30, 1998

                                       6

<PAGE>

         includes  the  consolidated  operating  results  of PSBP for the  three
         months ended March 31, 1998 and the  Company's  equity in the income of
         PSBP for the second and third quarters of 1998. Accordingly, commercial
         property  operations  for the periods  after March 31, 1998 reflect the
         commercial  operations  of  facilities  owned by the Company which have
         both  self-storage  and  commercial  use combined at the same  property
         location.

                  Income taxes
                  ------------
                  For  all  taxable  years   subsequent  to  1980,  the  Company
         qualified  and intends to continue to qualify as a REIT,  as defined in
         Section 856 of the Internal Revenue Code. As a REIT, the Company is not
         taxed on that portion of its taxable income which is distributed to its
         shareholders provided that the Company meets certain tests. The Company
         believes it will meet these  tests  during  1998 and,  accordingly,  no
         provision for income taxes has been made in the accompanying  financial
         statements.

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

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

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

                  Intangible assets
                  -----------------
                  Intangible  assets  consist of property  management  contracts
         ($165,000,000)  and the cost over the fair  value of net  tangible  and
         identifiable  intangible assets ($67,726,000) acquired in a 1995 merger
         with an affiliate. Intangible assets are amortized by the straight-line
         method over 25 years. At September 30, 1998,  intangible assets are net
         of accumulated amortization of $26,766,000 ($19,782,000 at December 31,
         1997).  Included in depreciation and amortization expense for the three
         and nine months ended  September  30, 1998 and 1997 is  $2,328,000  and
         $6,984,000,  respectively,  related to the  amortization  of intangible
         assets.

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

                  Net income per common share
                  ---------------------------
                  In 1997,  the  Financial  Accounting  Standards  Board  issued
         Statement  No. 128,  Earnings  per Share.  Statement  128  replaced the
         calculation  of  primary  and fully  diluted  net income per share with
         basic and diluted net income per share.  Unlike  primary net income per
         share,  basic net income per share  excludes  any  dilutive  effects of
         options,  warrants and convertible  securities.  Diluted net income per
         share is very  similar to the  previously  reported  fully  diluted net
         income per share. All net income per share amounts for all periods have
         been presented and where appropriate,  restated to conform to Statement
         128 requirements.

                  Diluted  net  income per common  share is  computed  using the
         weighted  average  common  shares   outstanding   (adjusted  for  stock
         options). The Class B Common Stock is not included in the determination
         of net income per common share because all  contingencies  required for
         the  conversion to common stock have not been satisfied as of September
         30, 1998. In addition, for periods prior to the July 1, 1998 conversion

                                       7

<PAGE>

         of the  Company's  convertible  preferred  stock into common stock (the
         conversion  is discussed in Note 8), the inclusion of the effect of the
         assumed conversion of the Company's  convertible preferred stock in the
         determination of net income per common share was anti-dilutive.

                  In  computing  earnings  per  common  share,  preferred  stock
         dividends  totaling  $19,053,000  and  $18,316,000 for the three months
         ended  September 30, 1998 and 1997,  respectively,  and $59,322,000 and
         $68,134,000  for the nine  months  ended  September  30, 1998 and 1997,
         respectively, reduced income available to common stockholders.

                  Reclassifications
                  -----------------
                  Certain  reclassifications  have been made to the consolidated
         financial  statements  for  1997  in  order  to  conform  to  the  1998
         presentation.

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

                  Mergers with Affiliated REITS
                  -----------------------------
                  On March 17, 1998,  the  Company,  through  PSBP,  completed a
         merger  transaction  with an  affiliated  public REIT  (Public  Storage
         Properties XI, Inc.) whereby PSBP acquired all the outstanding stock of
         the REIT  which the  Company  did not  previously  own.  The  aggregate
         acquisition  cost of  this  merger  was  approximately  $49.6  million,
         consisting  of the  issuance  of $34.8  million  of PSBP  common  stock
         (classified  as  minority   interest  on  the  Company's   consolidated
         financial statements) and the Company's pre-existing  investment in the
         affiliated REIT totaling $14.8 million.

                  On May 8, 1998,  the Company  completed  a merger  transaction
         with an affiliated  public REIT (Public  Storage  Properties  XX, Inc.)
         whereby  the Company  acquired  all the  outstanding  stock of the REIT
         which it did not  previously  own in exchange for cash and common stock
         of the  Company.  The  aggregate  acquisition  cost of this  merger was
         approximately $22.3 million,  consisting of $4.8 million in cash, $13.8
         million in the Company's common stock,  and the Company's  pre-existing
         investment in the affiliated REIT totaling $3.7 million.

                  Affiliated Partnership Acquisitions
                  -----------------------------------
                  In January  1998,  the  Company  acquired  all of the  limited
         partnership  interests in two affiliated  partnerships.  As a result of
         the  Company's   increased   ownership  interest  and  control  of  the
         partnerships,  the Company began to  consolidate  the accounts of these
         partnerships.  The total  consideration  in these  transactions of $6.8
         million consists of $5.2 million of cash and the Company's pre-existing
         investment of $1.6 million.

                  During  the third  quarter  of 1998,  the  Company  acquired a
         limited  partnership  interest in an affiliated  partnership  for $74.6
         million  in  cash.  The  acquisition  of this  interest  increased  the
         Company's ownership in the partnership in excess of 50%. Because of the
         Company's  increased ownership interest and control of the partnership,
         the Company began to consolidate the accounts of this partnership.  The
         total consideration in this transaction includes the $74.6 million cash
         acquisition  cost as well as the Company's  pre-existing  investment of
         $66.2 million.

                  The above mergers and  acquisitions of affiliated  partnership
         interests   have  been   accounted  for  as   purchases;   accordingly,
         allocations of the total  acquisition  cost to the net assets  acquired
         were made based on the fair value of such assets and  liabilities as of
         the dates of each respective transaction. The fair market values of the
         assets and  liabilities  assumed with respect to the  transactions  are
         summarized as follows:

                                       8

<PAGE>


                                    REIT           Partnership
                                   mergers         acquisitions         Total
                                 -------------     ------------     -----------
                                             (Amounts in thousands)

 Real estate facilities.........  $    73,971      $   151,231      $  225,202
 Other assets...................          271              399             670
 Accrued liabilities............       (2,280)          (1,513)         (3,793)
 Minority interest..............      (34,830)          (2,537)        (37,367)
                                 -------------     ------------     -----------
                                  $    37,132      $   147,580      $  184,712
                                 =============     ============     ===========

                  The  historical   operating  results  of  the  above  business
         combinations  prior to each respective  acquisition  date have not been
         included  in the  Company's  historical  operating  results.  Pro forma
         selected  financial  data for the nine months ended  September 30, 1998
         and 1997 as though the above business  combinations  had been effective
         at the beginning of each period are as follows:

                                        Nine Months Ended      Nine Months Ended
(In thousands, except per share data)   September 30, 1998    September 30, 1997
-------------------------------------   ------------------    ------------------


Revenues ..............................     $   444,952             $   355,923
Net income.............................     $   167,313             $   131,787
Net income per common share (Basic)....     $      0.95             $      0.66
Net income per common share (Diluted)..     $      0.95             $      0.66

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

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

                  Activity in real estate facilities during 1998 is as follows:

                                       9

<PAGE>


                                                                  In thousands
Operating facilities, at cost:
   Balance at December 31, 1997...............................   $  3,077,529
   Property acquisitions
     Business combinations (Note 3) ..........................        225,202
     Other  acquisitions......................................         66,145
  Newly opened development facilities.........................         25,371
   Acquisition of minority interest...........................         19,475
  Capital improvements........................................         19,257
  Property dispositions  (Deconsolidation of PSBP)............       (498,690)
                                                                 --------------
   Balance at September 30, 1998..............................      2,934,289
                                                                 --------------

Accumulated depreciation:
  Balance at December 31, 1997................................       (378,248)
  Additions during the year...................................        (72,644)
  Property dispositions  (Deconsolidation of PSBP)............         65,245
                                                                 --------------
   Balance at September 30, 1998..............................       (385,647)
                                                                 --------------

Construction in progress:
  Balance at December 31, 1997................................         42,635
  Current development cost....................................         58,371
  Newly opened development facilities.........................        (25,371)
                                                                 --------------
   Balance at September 30, 1998..............................         75,635
                                                                 --------------

Total real estate facilities, net at September 30, 1998.......   $  2,624,277
                                                                 ==============

                  Construction  in progress at September 30, 1998 consists of 15
         self-storage   facilities,   3  expansions  of  existing  self  storage
         facilities  and 8  industrial  facilities  which  could be  utilized as
         portable self-storage  facilities.  Newly opened development facilities
         include 2 self storage facilities and 3 industrial facilities which are
         for use by the Company's PSPUD operations.  Interest capitalized during
         the three and nine months  ended  September  30, 1998 was  $997,000 and
         $3,277,000,  respectively,  compared to $332,000 and $1,421,000 for the
         same periods in 1997.


                  As discussed in Note 2,  effective  April 1, 1998, the Company
         ceased to have a  controlling  interest  in PSBP and,  as a result,  no
         longer  includes  the  accounts of PSBP in its  consolidated  financial
         statements.  In the above table,  operating  facilities and accumulated
         depreciation have been reduced to reflect the deconsolidation of PSBP.

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

                  The Company's  investment in real estate entities at September
         30, 1998 consists of (i) limited and general  partnership  interests in
         approximately  26  affiliated   partnerships   which   principally  own
         self-storage  facilities,  (ii) the Company's  ownership  interest in a
         joint  venture   established   to  develop  and  operate   self-storage
         facilities  and (iii) the Company's  ownership  interest in PSBP.  Such
         interests are accounted for using the equity method of accounting.

                  In April 1997, the Company formed a joint venture  partnership
         with  a  state  pension  fund  to  participate  in the  development  of
         approximately  $220  million  of  self-storage  facilities.  The  joint
         venture has opened a total of 19 facilities  with a total cost of $92.4
         million at September  30, 1998,  and has 10 projects in process with an
         aggregate cost at September 30, 1998 of $34.7 million ($13.8 million to
         complete).  The  joint  venture  is  currently  reviewing  the final 20
         projects ($38.7 million  incurred at September 30, 1998, with remaining
         costs to complete of $54.1 million).  Upon approval of these additional
         20  facilities,  the joint  venture will be fully  committed.  These 20

                                       10

<PAGE>

         projects  are  currently   being  developed  by  the  Company  and  the
         construction  costs will be  transferred to the joint venture once they
         have been approved.  At September 30, 1998, included in construction in
         process is  approximately  $24.7  million,  and included in real estate
         facilities is $14.0 million, with respect to these projects.

                  During the nine months ended  September 30, 1998,  the Company
         recognized earnings from its investments totaling $16,598,000. Included
         in equity in earnings of real estate entities for the nine months ended
         September  30,  1998 is the  Company's  share of  depreciation  expense
         totaling  $9,902,000.  Summarized  combined  financial  data  (based on
         historical  cost) with  respect  to those  unconsolidated  real  estate
         entities in which the Company had an  ownership  interest at  September
         30, 1998 are as follows:

<TABLE>
<CAPTION>
                                                       For the nine months ended September 30, 1998
                                        ------------------------------------------------------------------------
                                              Other            Development
                                         Equity Investments   Joint Venture          PSBP              Total
                                         ------------------   -------------      ------------      -------------
                                                                  (Amounts in thousands)

<S>                                           <C>                 <C>             <C>                <C>     
Rental income........................         $  48,959           $3,732          $  61,459          $114,150
Other income                                      1,313              346              1,517             3,176
                                         ------------------   -------------      ------------      -------------
    Total revenues...................            50,272            4,078             62,976           117,326
                                         ------------------   -------------      ------------      -------------
Cost of operations...................            16,267            2,293             18,361            36,921
Depreciation.........................             5,948            1,214             11,421            18,583
Other expenses.......................             6,341               56              3,374             9,771
                                         ------------------   -------------      ------------      -------------
    Total expenses...................            28,556            3,563             33,156            65,275
                                         ------------------   -------------      ------------      -------------
Net income before minority interest..            21,716              515             29,820            52,051
Minority interest ...................                 -                -             (8,696)           (8,696)
                                         ------------------   -------------      ------------      -------------
    Net income.......................         $  21,716             $515          $  21,124           $43,355
                                         ==================   =============      ============      =============

At September 30, 1998:
----------------------
Real estate, net ....................        $  169,887         $131,231          $644,694           $  945,812
Total assets.........................           216,409          142,648           683,431            1,042,488
Total liabilities....................            78,885           14,345            43,426              136,656
Minority interest....................                 -                -           152,611              152,611
Total equity.........................           137,524          128,303           487,394              753,221

The Company's investment (book                                                    
    value) at September 30, 1998.....          $156,102          $44,600          $229,469             $430,171
                                               

The Company's effective average
    ownership interest at
    September 30, 1998...............            37%                30%               39%                33%

</TABLE>

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

                  As of September 30, 1998, the Company had no borrowings on its
         unsecured credit agreement with a group of commercial banks. The credit
         agreement  (the  "Credit  Facility")  has a  borrowing  limit of $150.0
         million and an expiration  date of July 31, 2001. The  expiration  date
         may  be  extended  by one  year  on  each  anniversary  of  the  credit
         agreement.  Interest on outstanding  borrowings is payable monthly.  At
         the option of the Company, the rate of interest charged is equal to (i)
         the prime rate or (ii) a rate ranging from the London Interbank Offered
         Rate  ("LIBOR")  plus  0.40%  to  LIBOR  plus  1.10%  depending  on the
         Company's credit ratings and coverage ratios, as defined.  In addition,
         the Company is required  to pay a  quarterly  commitment  fee of 0.250%
         (per annum). The Credit Facility allows the Company,  at its option, to
         request  the group of banks to  propose  the  interest  rate they would
         charge on specific borrowings not to exceed $50 million. However, in no
         case may the interest rate proposal be greater than the amount provided
         by the Credit Facility.

                                       11

<PAGE>

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

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

                  During the nine months ended  September 30, 1998,  the Company
         reduced  minority   interest  by   approximately   $17.1  million  (the
         historical book value of such interests in the underlying net assets of
         the  partnerships)  through the  acquisition of such interests for cash
         and through the issuance of common  stock.  The excess of the cost over
         the  underlying  book value ($19.5  million) has been allocated to real
         estate facilities in consolidation.

                  Minority interest was increased by $37.4 million in connection
         with business combinations, representing the remaining partners' equity
         interest in the aggregate net assets (book value) of the  partnerships.
         Minority  interest was increased  $47.6 million in connection  with the
         issuance of common stock of PSBP in the first  quarter of 1998 and $1.2
         million in connection with the acquisition of real estate facilities by
         PSBP in the first  quarter of 1998.  Minority  interest  was reduced by
         approximately  $202.9  million in the second quarter as a result of the
         deconsolidation of PSBP.

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

                  Preferred stock
                  ---------------
                  At September  30, 1998 and December 31, 1997,  the Company had
         the following series of Preferred Stock outstanding:

<TABLE>
<CAPTION>
                                                        At September 30, 1998            At December 31, 1997
                                                     -----------------------------   ----------------------------
                                        Dividend        Shares         Carrying         Shares         Carrying
               Series                     Rate       Outstanding        Amount       Outstanding        Amount
------------------------------------   -----------   ------------    -------------   ------------    ------------

<S>                                       <C>          <C>           <C>               <C>           <C>         
Series A ..........................       10.000%      1,825,000     $ 45,625,000      1,825,000     $ 45,625,000
Series B ..........................        9.200%      2,386,000       59,650,000      2,386,000       59,650,000
Series C...........................    Adjustable      1,200,000       30,000,000      1,200,000       30,000,000
Series D...........................        9.500%      1,200,000       30,000,000      1,200,000       30,000,000
Series E...........................       10.000%      2,195,000       54,875,000      2,195,000       54,875,000
Series F...........................        9.750%      2,300,000       57,500,000      2,300,000       57,500,000
Series G ..........................        8.875%          6,900      172,500,000          6,900      172,500,000
Series H ..........................        8.450%          6,750      168,750,000          6,750      168,750,000
Series I ..........................        8.625%          4,000      100,000,000          4,000      100,000,000
Series J ..........................        8.000%          6,000      150,000,000          6,000      150,000,000
                                                     ------------    -------------   ------------    ------------
  Total  Senior Preferred Stock....                   11,129,650      868,900,000     11,129,650      868,900,000

Convertible........................        8.250%              -                -      2,132,334       53,308,000
                                                     ------------    -------------   ------------    ------------
                                                      11,129,650     $868,900,000     13,261,984     $922,208,000
                                                     ============    =============   ============    ============
</TABLE>


                  The Series A through Series J stock  (collectively the "Senior
         Preferred  Stock")  have  general  preference  rights  with  respect to
         liquidation  and  quarterly  distributions.  Holders  of the  Company's
         preferred  stock,  except under certain  conditions and as noted below,
         will  not be  entitled  to vote  on most  matters.  In the  event  of a
         cumulative  arrearage  equal to six  quarterly  dividends or failure to
         maintain  a Debt  Ratio (as  defined)  of 50% or less,  holders  of all
         outstanding series of preferred stock (voting as a single class without
         regard to series) will have the right to elect two  additional  members
         to serve on the  Company's  Board of Directors  until events of default
         have been cured.  At  September  30,  1998,  there were no dividends in
         arrears and the Debt Ratio was 2.5%.

                                       12

<PAGE>

                  Except  under  certain  conditions  relating to the  Company's
         qualification  as a REIT, the Senior Preferred Stock are not redeemable
         prior to the following dates: Series A - September 30, 2002, Series B -
         March 31,  2003,  Series C - June 30,  1999,  Series D - September  30,
         2004,  Series E - January 31, 2005, Series F - April 30, 2005, Series G
         - December  31, 2000,  Series H - January 31, 2001,  Series I - October
         31, 2001, Series J - August 31, 2002. On or after the respective dates,
         each of the series of Senior  Preferred Stock will be redeemable at the
         option  of the  Company,  in  whole or in part,  at $25 per  share  (or
         depository  share in the case of the Series G,  Series H,  Series I and
         Series J), plus accrued and unpaid dividends.

                  On June 1, 1998,  the Company  exercised  its option to redeem
         the Convertible Preferred Stock for common stock at the conversion rate
         of  1.6835  shares  of  common  stock  for each  share  of  Convertible
         Preferred Stock. Pursuant to the redemption,  which was effective as of
         July 1, 1998, the Company issued 3,503,343 shares of common stock.

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

                  Common Stock
                  ------------
                  During  the first  nine  months of 1998,  the  Company  issued
         7,951,821  shares of  common  stock in public  and  private  offerings,
         raising net proceeds of approximately $234.5 million. In addition,  the
         Company  issued  433,526  shares of common  stock  ($13.8  million)  in
         connection with the merger with an affiliated  REIT,  3,589,552  shares
         ($53.3  million)  in  connection  with   Convertible   Preferred  Stock
         conversions,  1,230,689  shares ($36.2  million) in connection with the
         acquisition of partnership interests, and 192,429 shares ($2.9 million)
         in connection with the exercise of stock options.

                  On June 12,  1998,  the  Company  announced  that the Board of
         Directors  authorized  the  repurchase  from  time  to  time  of  up to
         10,000,000  shares of the Company's  common stock on the open market or
         in privately  negotiated  transactions.  Through September 30, 1998 the
         Company has repurchased a total of 2,786,400  shares of common stock at
         an aggregate cost of approximately $71.4 million.  From October 1, 1998
         through November 4, 1998, the Company  repurchased an additional 33,000
         shares of common stock at an aggregate cost of approximately $902,000.

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

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

                                       13

<PAGE>

                  For these purposes, FFO per share of Common Stock (as defined)
         was $2.01 for the four  consecutive  calendar  quarters ended September
         30, 1998.

                  Dividends
                  ---------
                  The following  summarizes dividends paid during the first nine
         months of 1998:

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

 Series A..............................      $    1.874        $   3,420,000
 Series B..............................      $    1.725            4,116,000
 Series C..............................      $    1.265            1,518,000
 Series D..............................      $    1.783            2,139,000
 Series E..............................      $    1.875            4,116,000
 Series F..............................      $    1.827            4,203,000
 Series G..............................      $    1.664           11,484,000
 Series H..............................      $    1.584           10,695,000
 Series I..............................      $    1.617            6,468,000
 Series J..............................      $    1.500            9,000,000
 Convertible...........................      $    1.032            2,163,000
                                                               -------------
                                                                  59,322,000
 Common................................      $    0.660           75,270,000
                                                               -------------
      Total dividends paid                                      $134,592,000
                                                               =============

                  The  dividend  rate on the  Series C  Preferred  Stock for the
         third  quarter of 1998 was equal to 6.75% per annum.  The dividend rate
         per annum will be adjusted  quarterly  and will be equal to the highest
         of one of three U.S.  Treasury  indices  (Treasury  Bill Rate, Ten Year
         Constant   Maturity  Rate,  or  Thirty  Year  Constant  Maturity  Rate)
         multiplied by 110%. However,  the dividend rate for any dividend period
         will neither be less than 6.75% per annum nor greater than 10.75%.  The
         dividend rate for the quarter  ending  September 30, 1998 will be equal
         to 6.75% per annum.

      9.  Subsequent Events
          -----------------

         Proposed  Merger With  Storage  Trust  Realty. 
         ---------------------------------------------- 
                  The Company and Storage Trust Realty ("Storage  Trust"), a New
         York Stock  Exchange  listed REIT,  have entered into an Agreement  and
         Plan of Merger  among  Storage  Trust,  the  Company  and Newco  Merger
         Subsidiary,  Inc., a subsidiary of the Company ("PSI Sub"), dated as of
         November 12, 1998 (the "Merger  Agreement").  Storage  Trust is a fully
         integrated,  self-managed and  self-administered  REIT headquartered in
         Columbia,  Missouri,  engaged in the  management  and  ownership of 237
         self-storage  stores located in 16 states totaling  approximately  12.5
         million net rentable  square feet and 109,000  units.  Under the Merger
         Agreement,  PSI Sub would be merged into Storage Trust,  and each share
         of  beneficial  interest of Storage  Trust would be exchanged  for 0.86
         shares of the Company's  common stock.  This exchange  ratio implies an
         enterprise  value for  Storage  Trust of  approximately  $600  million,
         including the assumption of approximately $192 million of indebtedness.
         Upon the effectiveness of the merger,  the Company's board of directors
         would be expanded by one seat and Mr. Daniel C. Staton, Storage Trust's
         Chairman  of  the  Board,  would  be  elected  as a new  member  of the
         Company's  board of directors.  The merger has been structured as a tax
         free  transaction.  The  transaction is expected to be completed in the
         first quarter of 1999.  The  transaction  is subject to the approval of
         the  shareholders of Storage Trust and customary  regulatory  approvals
         and other conditions.

                                       14

<PAGE>

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

                  Forward Looking Statements
                  --------------------------
                  Management's  Discussion  and Analysis of Financial  Condition
         and Results of Operations  contains "forward  looking"  statements that
         involve  risks  and  uncertainties  and  are  based  upon a  number  of
         assumptions.  Actual results and trends may differ materially depending
         upon a number  of  factors.  Information  regarding  these  factors  is
         contained in the  Company's  Annual  Report on Form 10-K for the fiscal
         year ended  December  31,  1997 and in the  reports  for the  quarterly
         periods on Form 10-Q for the quarters ended March 31, 1998 and June 30,
         1998.

                  Results of Operations
                  ---------------------
                  Net income for the three months ended  September  30, 1998 was
         $62,286,000  compared  to  $46,548,000  for the  same  period  in 1997,
         representing  an increase of $15,738,000  or 33.8%.  Net income for the
         nine  months  ended  September  30, 1998 was  $167,849,000  compared to
         $133,117,000  for the same period in 1997,  representing an increase of
         $34,732,000  or 26.1%.  The  increases  in net income for the three and
         nine months ended  September  30, 1998  compared to the same periods in
         1997 was primarily the result of improved  property  operations and the
         acquisition  of  additional  real  estate  facilities  and  partnership
         interests during 1997 and 1998. The variance in the three month periods
         also reflects a decrease in startup  operating  losses on the Company's
         Pickup and  Delivery  business,  while the  variance  in the nine month
         periods also reflects an increase in such losses.

                  Net income allocable to common shareholders was $43,233,000 or
         $0.37  per  common  share on a  diluted  basis  (based  on  116,726,000
         weighted  average  diluted shares) for the three months ended September
         30, 1998 compared to $28,232,000 or $0.27 per common share on a diluted
         basis (based on 103,536,000  weighted  average  diluted shares) for the
         same  period  in 1997.  In  computing  net  income  per  common  share,
         dividends to the  Company's  preferred  shareholders  ($19,053,000  and
         $18,316,000  for the three  months ended  September  30, 1998 and 1997,
         respectively)  have been  deducted from net income in  determining  net
         income allocable to the Company's common shareholders.

                  Net income  allocable to common  shareholders was $108,527,000
         or $0.95 per common share on a diluted  basis  (based upon  113,762,000
         weighted  average  diluted  shares) for the nine months ended September
         30, 1998 compared to $64,983,000 or $0.67 per common share on a diluted
         basis (based upon 97,154,000  weighted  average diluted shares) for the
         same  period  in 1997.  In  computing  net  income  per  common  share,
         dividends to the  Company's  preferred  shareholders  ($59,322,000  and
         $68,134,000  for the nine  months  ended  September  30, 1998 and 1997,
         respectively)  have been  deducted from net income in  determining  net
         income allocable to the Company's common shareholders.

                  Net  income   allocable  to  common   shareholders   has  been
         negatively  impacted by operating  losses  generated  from the portable
         self-storage  business of $6,933,000 or approximately  $0.06 per common
         share on a diluted basis for the three months ended September 30, 1998,
         compared to  $12,069,000 or  approximately  $0.12 per common share on a
         diluted  basis  for the same  period in 1997.  Losses  on the  portable
         self-storage business for the nine months ended September 30, 1998 were
         $25,157,000  or  approximately  $0.22 per  common  share,  compared  to
         $21,185,000 or approximately $0.22 per common share for the same period
         in 1997.

                  Net income  allocable  to common  shareholders  was reduced by
         $13,412,000 in the nine months ended  September 30, 1997 as a result of
         a special dividend on the Series CC Convertible Preferred Stock paid at
         the end of the  first  quarter  of  1997.  As a result  of the  special
         dividend,  the  Company  would not have to pay  another  dividend  with
         respect to this stock until the quarter  ended March 31,  1999.  During
         the second quarter of 1997, the Series CC Convertible  Preferred  Stock
         converted  into common  stock of the Company.  Accordingly,  all of the
         $13,412,000  of dividends were treated in the second quarter of 1997 as
         an  allocation  of  net  income  to  the  preferred   shareholders   in
         determining the allocation of net income to the common shareholders.

                  Real Estate Operations
                  ----------------------
                  Rental  income and cost of operations  have  increased for the
         nine months  ended  September  30, 1998  compared to the same period in

                                       15

<PAGE>

         1997 due to the Company's merger and acquisition  activities throughout
         1997 and 1998.  As a result  of these  activities,  the  number of self
         storage  facilities  included in the Company's  consolidated  financial
         statements  has  increased  from 863 at  September  30,  1997 to 951 at
         September 30, 1998.

                  SELF-STORAGE OPERATIONS: The Company's self-storage operations
         account for the vast  majority  of the total  property  operations  and
         represent the largest  comparison  variances from period to period. The
         following   table   outlines  the  historical   operating   results  of
         self-storage operations.

          Summary of Self-storage operations - Historical
          -----------------------------------------------

<TABLE>
<CAPTION>
                                           Three months ended                            Nine months ended
                                             September 30,                                 September 30,
                                     ----------------------------                    --------------------------
                                          1998           1997          Change            1998          1997        Change
                                     -------------  -------------     --------       ------------  ------------   --------
                                                            (Amounts in thousands, except per square foot data)

Rental income
    <S>                               <C>              <C>               <C>          <C>            <C>            <C> 
    Pre - 1997 Acquisitions...        $  94,656        $  88,195         7.3%         $ 273,788      255,213        7.3%
    1997 and 1998 acquisitions           34,729           14,113                         87,162       18,585
                                     -------------  -------------     --------       ------------  ------------   --------
                                        129,385          102,308        26.5%           360,950      273,798       31.8%
                                     -------------  -------------     --------       ------------  ------------   --------

Cost of Operations (before
    depreciation)
    Pre - 1997 Acquisitions...           27,705           25,736         7.7%            82,312       77,305        6.5%
    1997 and 1998 acquisitions           10,050            3,881                         26,281        5,087
                                     -------------  -------------     --------       ------------  ------------   --------
                                         37,755           29,617        27.5%           108,593       82,392       31.8%
                                     -------------  -------------     --------       ------------  ------------   --------

Net operating income
    Pre - 1997 Acquisitions...           66,951           62,459         7.2%           191,476      177,908        7.6%
    1997 and 1998 acquisitions           24,679           10,232                         60,881       13,498
                                     -------------  -------------     --------       ------------  ------------   --------
                                      $  91,630        $  72,691        26.1%         $ 252,357    $ 191,406       31.8%
                                     =============  =============     ========       ============  ============   ========

Net rentable square feet (at the
  end of the period, in 000's)....        57,061          52,031         9.7%            57,061       52,031        9.7%

Number of facilities (at the end
  of the period)..................          951             863         10.2%               951          863       10.2%

PRE - 1997 ACQUISITIONS:

Weighted average annualized
  realized rent per occupied               
  square foot.....................         $9.60           $8.88         8.1%             $9.36         $8.76       6.8%
Weighted average annualized
  scheduled rent per square foot..         $9.72           $9.36         3.8%             $9.72         $9.36       3.8%
Weighted average occupancy for
  the period......................         93.2%           93.3%        (0.1%)            92.3%         91.2%       1.1%

</TABLE>

                  Rental income for the three months ended September 30, 1998 is
         net of  promotional  discounts  totaling $3.7 million  compared to $4.0
         million for the same period in 1997.  Rental income for the nine months
         ended September 30, 1998 is net of promotional discounts totaling $11.4
         million  compared  to $10.3  million  for the same  period in 1997.  In
         addition,  included in cost of  operations  for the three  months ended
         September 30, 1998 are costs associated with the telephone  reservation
         center and advertising totaling $2.0 million,  compared to $1.2 million
         for the same  period in 1997.  Included in cost of  operations  for the
         nine months  ended  September  30, 1998 are costs  associated  with the
         telephone  reservation  center and  advertising  totaling $5.0 million,
         compared to $2.2 million for the same period in 1997.

                  In 1997 and through September 30, 1998, the Company acquired a
         total of 230 self-storage facilities, of which 221 were existing mature
         facilities  obtained  from  affiliated  entities  and  managed  by  the
         Company,  4 were newly  developed  facilities  and 5 were  third  party

                                       16

<PAGE>

         acquisitions of existing mature  facilities.  Accordingly,  the Company
         has  knowledge of the  historical  operations  of the  existing  mature
         facilities  obtained from affiliates prior to when the Company acquired
         the facilities.  The following table summarizes the pro forma operating
         results of all of the Company's self-storage facilities,  excluding the
         development facilities summarized in the table which follows,  assuming
         that the Company owned all of the facilities as of January 1, 1997:

          Pro forma summary of self-storage operations:
          ---------------------------------------------

<TABLE>
<CAPTION>
                                      Three months ended                              Nine months ended
                                        September 30,                                   September 30,
                                 ----------------------------                    --------------------------
                                     1998           1997          Change             1998         1997         Change
                                 -------------  -------------    --------        ------------  ------------   --------
                                          Pro forma                                       Pro forma
                                                                  (Amounts in thousands)
<S>                                <C>            <C>              <C>             <C>            <C>             <C> 
Rental income.................     $128,469       $119,466         7.5%            $371,274       $345,268        7.5%

Cost of operations............       37,386         34,923         7.1%             111,733        105,589        5.8%
                                 -------------  -------------    --------        ------------  ------------   --------

Net operating income..........     $ 91,083       $ 84,543         7.7%            $259,541      $ 239,679        8.3%
                                 =============  =============    ========        ============  ============   ========
</TABLE>

                  The  above  table  excludes  the  property  operations  of the
         Company's  newly  developed  properties  (2 opened in 1998, 2 opened in
         1997 and 4 opened in 1996)  which are in various  stages of  "fill-up."
         The  aggregate   development   cost  of  these  8  facilities   totaled
         approximately  $37 million.  The historical  property  operations  with
         respect to these facilities are as follows:

<TABLE>
<CAPTION>
                                      Three months ended                              Nine months ended
                                        September 30,                                   September 30,
                                 ----------------------------                    --------------------------
                                     1998           1997        Change                1998          1997       Change
                                 -------------  -------------    --------        ------------  ------------   --------
                                                                  (Amounts in thousands)
<S>                                <C>            <C>             <C>               <C>           <C>            <C>  
Rental income.................     $  916         $  651          40.7%             $ 2,449       $ 1,332        83.9%

Cost of operations............        369            277          33.2%                 917           723        26.8%
                                 -------------  -------------    --------        ------------  ------------   --------
Net operating income..........     $  547         $  374          46.3%             $ 1,532        $  609       151.6%
                                 =============  =============    ========        ============  ============   ========
</TABLE>

                  Through  September  30, 1998,  the  majority of the  Company's
         self-storage  development  activities  have been  conducted  within the
         Development Joint Venture, a partnership  created in April 1997 between
         the  Company  and a  state  pension  plan to fund  the  development  of
         approximately $220 million of self-storage facilities.  The Development
         Joint  Venture is funded solely with equity  capital  consisting of 30%
         from the  Company  and 70%  from the  state  pension  fund.  Due to the
         Company's  ownership in the  Development  Joint Venture being less than
         50%  and  the  Company's  lack  of  control,   the  operations  of  the
         Development Joint Venture are not consolidated with the Company's.  The
         Company   accounts  for  its   investment   using  the  equity  method,
         accordingly,  its pro rata share of the  operations of the  Development
         Joint  Venture  are  reflected  in "Equity  earnings  from real  estate
         entities."

                  COMMERCIAL  PROPERTY  OPERATIONS:   The  Company's  commercial
         property  operations  principally consist of the operations of PSBP, an
         affiliated real estate investment trust. The following table sets forth
         the historical  commercial  property  amounts included in the Company's
         financial statements:

                                       17

<PAGE>

          Commercial Property Operations - Historical
          -------------------------------------------
<TABLE>
<CAPTION>

                                      Three months ended                              Nine months ended
                                        September 30,                                   September 30,
                                 ----------------------------                    --------------------------
                                     1998           1997          Change             1998           1997       Change
                                 -------------  -------------    --------        ------------  ------------   ---------
                                                                     (Amounts in thousands)

<S>                                 <C>            <C>           <C>               <C>            <C>           <C>    
Rental income.................      $ 1,833        $11,526       (84.1)%           $ 21,229       $ 27,694      (23.3)%

Cost of operations............          685          4,277       (84.0)%              7,187         11,034      (34.9)%
                                 -------------  -------------    --------        ------------  ------------   ---------
Net operating income..........      $ 1,148        $ 7,249       (84.2)%           $ 14,042       $ 16,660      (15.7)%
                                 =============  =============    ========        ============  ============   =========
</TABLE>


                  During the second  quarter of 1998,  the  Company's  ownership
         interest in PSBP was reduced  below 50%, and  accordingly,  the Company
         ceased to have a controlling  interest in PSBP. As a result,  effective
         April 1, 1998,  the Company no longer  includes the accounts of PSBP in
         its  consolidated  financial  statements  and  has  accounted  for  its
         investment  during  the  second  and third  quarters  of 1998 using the
         equity method (see "Equity in earnings of real estate  entities").  The
         income  statement for the nine months ended September 30, 1998 includes
         the consolidated  operating  results of PSBP for the three months ended
         March 31, 1998. The  significant  decrease in rental income and cost of
         operations  for the three and nine  months  ended  September  30,  1998
         reflects the Company's deconsolidation of PSBP.

                  The  following  table  summarizes  the  pro  forma  commercial
         operations of the Company assuming that the operations of PSBP were not
         consolidated  with the Company's  accounts (i.e., as if the Company had
         consistently used the equity method of accounting for its investment in
         PSBP):

          Pro forma summary of commercial operations:
          -------------------------------------------

<TABLE>
<CAPTION>
                                      Three months ended                              Nine months ended
                                        September 30,                                   September 30,
                                 ----------------------------                    --------------------------
                                     1998           1997          Change             1998          1997        Change
                                 -------------  -------------    --------        ------------  ------------   ---------
                                          Pro forma                                       Pro forma
                                                                     (Amounts in thousands)

<S>                                  <C>            <C>            <C>               <C>            <C>           <C> 
Rental income.................       $1,833         $1,734         5.7%              $5,369         $5,073        5.8%

Cost of operations............          685            693        (1.2%)              2,076          2,160       (3.9%)
                                 -------------  -------------    --------        ------------  ------------   ---------
Net operating income..........       $1,148         $1,041        10.3%              $3,293         $2,913       13.0%
                                 =============  =============    ========        ============  ============   =========
</TABLE>


                  EQUITY IN EARNINGS OF REAL ESTATE ENTITIES: In addition to its
         ownership of 12,459,328  common shares and operating  partnership units
         in PSBP, the Company had general and limited  partnership  interests in
         26 limited  partnerships  at  September  30, 1998 (PSBP and the limited
         partnerships  are  collectively  referred  to  as  the  "Unconsolidated
         Entities"). Due to the Company's limited ownership interest and control
         of these  entities,  the Company does not  consolidate  the accounts of
         these entities for financial reporting purposes,  and accounts for such
         investments using the equity method.

                  Equity in earnings of real estate  entities  for the three and
         nine months ended September 30, 1998 consists of the Company's pro rata
         share of the Unconsolidated Entities based upon the Company's ownership
         interest for the period. The following table sets forth the significant
         components of the Company's equity in earnings of real estate entities.

                                       18

<PAGE>
          Historical summary:
          -------------------
<TABLE>
<CAPTION>
                                       Three months ended                             Nine months ended
                                          September 30,                                 September 30,
                                 ----------------------------                    --------------------------
                                       1998           1997       Change               1998          1997       Change
                                 -------------  -------------    --------        ------------  ------------   ---------
                                                                     ( Amounts in thousands)
Property operations:
    <S>                                <C>         <C>           <C>                 <C>        <C>           <C>    
    PSBP.....................          $7,437      $       -     $7,437              $14,881    $        -    $14,881
    Development Joint Venture             252             58        194                  432            40        392
    Other partnerships.......           3,061          7,004     (3,943)              13,729        24,969    (11,240)
                                 -------------  -------------    --------        ------------  ------------   ---------
                                       10,750          7,062      3,688               29,042        25,009      4,033
                                 -------------  -------------    --------        ------------  ------------   ---------

Depreciation:
    PSBP.....................          (2,423)             -     (2,423)              (4,818)            -     (4,818)
    Development Joint Venture            (173)           (58)      (115)                (364)          (70)      (294)
    Other partnerships.......            (667)        (2,422)     1,755               (4,720)       (9,107)     4,387
                                 -------------  -------------    --------        ------------  ------------   ---------
                                       (3,263)        (2,480)      (783)              (9,902)       (9,177)      (725)
                                 -------------  -------------    --------        ------------  ------------   ---------

Other: (1)
    PSBP.....................            (275)             -       (275)                (776)            -       (776)
    Development Joint Venture              29             25          4                   87            43         44
    Other partnerships.......            (579)          (193)      (386)              (1,853)       (1,223)      (630)
                                 -------------  -------------    --------        ------------  ------------   ---------
                                         (825)          (168)      (657)              (2,542)       (1,180)    (1,362)
                                 -------------  -------------    --------        ------------  ------------   ---------

Total equity in earnings of
  real estate entities.......          $6,662         $4,414     $2,248              $16,598       $14,652     $1,946
                                 =============  =============    ========        ============  ============   =========
</TABLE>

         (1)  "Other" reflects the Company's share of general and administrative
              expense,    interest   expense,   interest   income,   and   other
              non-property,  non-depreciation related operating results of these
              entities.

                  Equity  in  earnings  of  real   estate   entities   increased
         $2,248,000 and $1,946,000 in the three and nine months ended  September
         30, 1998 from the same  periods in 1997.  These  increases  include the
         impact of the Company's  deconsolidation  of PSBP,  where the Company's
         share of earnings of PSBP after March 31, 1998 is  reflected  in equity
         in earnings of real estate entities. These impacts was partially offset
         by the  impact  of  affiliated  REIT  mergers  and the  acquisition  of
         partnership  interests which occurred in 1997 and 1998 resulting in the
         consolidation of additional ownership entities.

                  PORTABLE  SELF-STORAGE  BUSINESS:  Public  Storage  Pick-up  &
         Delivery  ("PSPUD")  incurred  approximately  $6.9 million of operating
         losses during the third quarter of 1998 compared to operating losses of
         approximately  $12.1  million for the same period in 1997.  The Company
         believes that the  quarterly  losses from the PSPUD  operations  peaked
         during  the third  quarter  of 1997.  Operating  losses  of PSPUD  were
         approximately  $10.5  million  for the  fourth  quarter  of 1997,  $9.9
         million  for the first  quarter of 1998,  $8.3  million  for the second
         quarter of 1998,  and $6.9 million for the third  quarter of 1998.  The
         Company  believes  this  trend  of  decreasing  operating  losses  will
         continue with increases in PSPUD's revenues.

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

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

                                       19

<PAGE>
         acquisition  of such  facilities  reduces  management fee income to the
         Company  and is  offset  by a  corresponding  reduction  in the cost of
         property operations.

                  During  the  three  months  ended   September  30,  1998,  the
         Company's property management operations generated net operating income
         of  $1,162,000  on revenues of  $1,388,000  and expenses of $226,000 as
         compared  to  net  operating   income  of  $2,018,000  on  revenues  of
         $2,376,000  and  expenses of  $358,000  during the same period in 1997.
         During the nine months ended September 30, 1998, the Company's property
         management  operations  generated net operating income of $4,025,000 on
         revenues  of  $4,805,000  and  expenses  of $780,000 as compared to net
         operating  income of $7,019,000 on revenues of $8,319,000  and expenses
         of $1,300,000 during the same period in 1997. The decreases in property
         management   operations  are  due  to  the  Company's   acquisition  of
         facilities which it previously managed for third parties and affiliated
         entities for a fee, as well as the Company's deconsolidation of PSBP.

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

<TABLE>
<CAPTION>
                                             Three months ended September 30,      Nine months ended September 30,
                                             ----------------------------------   ----------------------------------
                                                1998       1997   Dollar Charge     1998        1997   Dollar Charge
                                             ----------  -------  -------------   ---------  --------- -------------
                                                                         (Amounts in thousands)
Sales of Packaging Material and Truck
Rentals:
<S>                                            <C>       <C>          <C>           <C>        <C>          <C>   
Revenues.............................          $2,572    $1,538       $1,034        $6,243     $3,691       $2,552
Cost of operations...................          (1,764)   (1,227)        (537)       (4,897)    (2,944)      (1,953)
                                             ----------  -------  -------------   ---------  --------- -------------
          Net operating income.......             808       311          497         1,346        747          599

Interest and other income............           3,113     2,506          607        10,579      6,742        3,837
                                             ----------  -------  -------------   ---------  --------- -------------

    Total interest and other income..          $3,921    $2,817       $1,104       $11,925     $7,489       $4,436
                                             ==========  =======  =============   =========  ========= =============
</TABLE>

                  Interest  and other  income  principally  consists of interest
         earned  on  cash  balances  and  interest  related  to  mortgage  notes
         receivable.  The  increase  in  interest  income for the three and nine
         months ended September 30, 1998 compared to the same periods in 1997 is
         primarily due to increased interest income on excess cash balances.

                  DEPRECIATION AND  AMORTIZATION:  Depreciation and amortization
         expense has increased  $2,566,000,  to $26,217,000 for the three months
         ended September 30, 1998 as compared to $23,651,000 for the same period
         in  1997.   Depreciation   and   amortization   expense  has  increased
         $15,487,000,  to  $79,628,000  for the nine months ended  September 30,
         1998 as compared  to  $64,141,000  for the same  period in 1997.  These
         increases are  principally  due to the  acquisition of additional  real
         estate  facilities  during  1997  and  1998,  offset  partially  by the
         Company's change in accounting method with respect to its investment in
         PSBP.

                  GENERAL AND ADMINISTRATIVE EXPENSE: General and administrative
         expense has  increased  $773,000,  to  $2,684,000  for the three months
         ended  September 30, 1998 as compared to $1,911,000 for the same period
         in 1997. General and administrative  expense has increased  $2,061,000,
         to $7,246,000 for the nine months ended  September 30, 1998 as compared
         to $5,185,000 for the same period in 1997.  These  increases are due to
         the growth in the size of the Company.

                  MINORITY  INTEREST  IN  INCOME:  Minority  interest  in income
         represents the income allocable to equity interests in the consolidated
         entities  which  are not owned by the  Company.  Minority  interest  in
         income for the three months  ended  September  30, 1998 was  $5,572,000
         compared to $2,748,000 for the same period in 1997.  Minority  interest
         in income for the nine months ended  September 30, 1998 was $16,141,000
         compared to $7,777,000 for the same period in 1997.

                  The increases in minority interest in income are primarily the
         result of the Company's  acquisition of sufficient  ownership  interest
         (but  not  100%  ownership)  and  control  in  affiliated  partnerships
         allowing the  inclusion of the  accounts of these  partnerships  in the
         Company's  consolidated  financial  statements  combined  with improved
         property  operations for those partnerships  already  consolidated with
         the Company whereby the minority  interest  participate in the improved
         operations  through increased  earnings.  However,  these increases are

                                       20

<PAGE>

         partially  offset  in  the  nine-month  period  by  the  effect  of the
         Company's  deconsolidation  of PSBP whereby the minority  interest with
         respect to PSBP after  March 31, 1998 was  removed  from the  Company's
         consolidated financial statements.

                  SUPPLEMENTAL PROPERTY DATA

                  At September  30, 1998,  the  Company's  investment  portfolio
         consists of (i)  wholly-owned  properties  owned by the  Company,  (ii)
         properties  owned by real estate  partnerships in which the Company has
         significant  ownership  interests  (the  "Consolidated  Partnerships"),
         (iii)  properties  owned by real estate entities  (partnerships  and PS
         Business  Parks Inc.) in which the  Company's  ownership  interest  and
         control  are  not  sufficient  to  warrant  the  consolidation  of such
         entities (the "Unconsolidated  Entities") and (iv) three properties for
         the  use  of  PSPUD.  The  following  table  summarizes  the  Company's
         investment  in  real  estate  facilities  as  of  September  30,  1998,
         excluding  the three real estate  facilities  for use by the  Company's
         PSPUD operations:

<TABLE>
<CAPTION>
                                              Number of Facilities in which the      Net Rentable Square Footage
                                              Company has an ownership interest             (in thousands)
                                            ------------------------------------- ---------------------------------
                                             Self-Storage Commercial              Self-Storage Commercial
                                              Facilities  Properties    Total      Facilities  Properties   Total
                                            ------------------------- ----------- ------------------------ --------
<S>                                                <C>          <C>      <C>         <C>           <C>      <C>   
Wholly-owned facilities                            597          1        598         36,350        9        36,359
Facilities owned by Consolidated Partnerships      354          -        354         20,711        -        20,711
                                            -------------- ---------- ----------- ----------- ------------ --------
    Total consolidated facilities                  951          1        952         57,061        9        57,070

Facilities owned by Unconsolidated Entities        138         98        236          7,896     10,334      18,230
                                            -------------- ---------- ----------- ----------- ------------ --------
 Total facilities in which the Company has
 an ownership interest (A)                       1,089         99      1,188         64,957     10,343      75,300
                                            ============== ========== =========== =========== ============ ======== 
</TABLE>

                  (A)  Excludes  three  industrial  facilities  the Company owns
which are for use by the Company's PSPUD operations.


                  In order to evaluate how the Company's  overall  portfolio has
         performed,   management   analyzes  the  operating   performance  of  a
         consistent  group of  self-storage  facilities  representing  985 (57.6
         million net rentable square feet) of the 1,089 self-storage  facilities
         (herein referred to as "Same Store" self-storage facilities) which have
         been  operated  under the "Public  Storage"  name for at least the past
         three years. At September 30, 1998, the Company had ownership interests
         in  a  total  of  1,089  mini-warehouse   facilities.  Of  these  1,089
         properties,  985 or 90% of the  mini-warehouses  have been in operation
         and  managed  by Public  Storage,  Inc.  since  January  1,  1994.  The
         following  table   summarizes  the  operating   results  of  these  985
         properties:

                                       21

<PAGE>
           Same Store mini-warehouse facilities (985 facilities):
           ------------------------------------------------------
           (historical property operations)

<TABLE>
<CAPTION>
                                   Three months ended September 30,           Nine months ended September 30,
                                ---------------------------------------      ------------------------------------
                                   1998           1997           Change        1998           1997         Change
                                ----------      -----------      ------      ---------      ---------      ------
<S>                              <C>             <C>              <C>        <C>            <C>             <C> 
Rental income...............     $135,397        $125,344         8.0%       $390,589       $362,226        7.8%
Cost of operations (includes
  an imputed 6% property
  management fee)...........       45,560          42,249         7.8%        135,822        127,480        6.5%
                                ----------      -----------      ------      ---------      ---------      ------
Net operating income (1)....    $  89,837       $  83,095         8.1%       $254,767       $234,746        8.5%
                                ==========      ===========      ======      =========      =========      ======

Gross profit margin (2).....        66.4%          66.3%          0.1%         65.2%          64.8%         0.4%
-----------------------------------------------------------------------------------------------------------------
Weighted Average:
  Occupancy during the
     period..............           93.6%          93.6%          0.0%         92.6%          91.6%         1.0%

   Annualized realized rent
     per sq. ft. for               
     period.(3).............       $10.08          $9.24          9.1%         $9.72          $9.12         6.6%

   Annualized scheduled rent
     per sq. ft. for period..      $10.32          $9.84          4.9%        $10.20          $9.84         3.7%

</TABLE>
         1.  Assumes  payment of  property  management  fees on all  facilities,
             including those facilities owned by the Company for which no fee is
             paid.

         2.  Gross profit margin is computed by dividing  property net operating
             income (which excludes  depreciation  expense) by rental  revenues.
             Cost of operations  include a 6%  management  fee. The gross profit
             margin  excluding the property  management  fee was 72.4% and 72.3%
             for  the  three   months  ended   September   30,  1998  and  1997,
             respectively;  and  71.2%  and  70.8%  for the  nine  months  ended
             September 30, 1998 and 1997, respectively.

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

                  Rental   income  for  the  Same  Store   facilities   included
         promotional  discounts totaling $3.6 million for the three months ended
         September  30,  1998,  compared to $4.8  million for the same period in
         1997. Rental income for the Same Store facilities included  promotional
         discounts  totaling  $12.0 million for the nine months ended  September
         30,  1998,  compared  to $13.6  million  for the same  period  in 1997.
         Promotional  discounts  are  attributable  to  promotional   activities
         offered through the national telephone reservation center.

                  Cost of  operations  for the three months ended  September 30,
         1998 increased due to (i)  advertising  and promotion,  which increased
         $779,000 due primarily to the Company's national telephone reservations
         center and  television  advertising in certain  markets,  (ii) property
         taxes,  which increased  $622,000,  due primarily to higher assessments
         and (iii) management fees, which increased  $535,000,  due to increased
         rental income.  Cost of operations for the nine months ended  September
         30,  1998  increased  due  to  (i)  advertising  and  promotion,  which
         increased  $3.3  million  due  primarily  to  the  Company's   national
         telephone  reservations  center and  television  advertising in certain
         markets and (ii) property  taxes,  which  increased  $2.2 million,  due
         primarily  to higher  assessments  and  (iii)  management  fees,  which
         increased $1.7 million, due to increased rental income.

         Liquidity and Capital Resources
         -------------------------------

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

                                       22

<PAGE>

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

                  Net cash provided by operations  (as  determined in accordance
         with  generally  accepted  accounting  principles)  reflects  the  cash
         generated from the Company's  business before  distributions to various
         equity   holders,   including  the  preferred   shareholders,   capital
         expenditures or mandatory principal payments on debt. Net cash provided
         by operations has increased to $273,520,000  from  $214,212,000 for the
         nine months ended September 30, 1998 and 1997, respectively.

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

<TABLE>
<CAPTION>
                                                                 For the Nine Months Ended September 30,
                                                                 ---------------------------------------
                                                                       1998                   1997
                                                                 -----------------  --------------------
                                                                         (Amounts in thousands)

<S>                                                                 <C>                     <C>      
Net income..................................................        $ 167,849               $ 133,117
Depreciation and amortization...............................           79,628                  64,141
Depreciation    from    unconsolidated    real   estate                 
  investments...............................................            9,902                   9,177
Minority interest in income.................................           16,141                   7,777
                                                                 -----------------  --------------------
  Net cash provided by operating activities.................          273,520                 214,212
Distributions from operations to minority interests
  (funds from operations allocable to minority                        
  interests) ...............................................          (25,565)                (14,106)
                                                                 -----------------  --------------------
Cash from operations/FFO available to the Company's
  shareholders..............................................          247,955                 200,106
Less: preferred stock dividends (A).........................          (59,322)                (54,722)
                                                                 -----------------  --------------------
Cash from operations/FFO available to common                          
  shareholders..............................................          188,633                 145,384
Capital improvements to maintain facilities.................          (19,257)                (24,056)
Add back: minority interest share of capital                            
  improvements..............................................            1,582                   1,403
                                                                 -----------------  --------------------
Funds available for principal payments on debt, common
  dividends and reinvestment................................          170,958                 122,731
Cash distributions to common shareholders...................          (75,270)                (63,076)
                                                                 -----------------  --------------------
Funds available for principal payments on debt and
  investment................................................        $  95,688               $  59,655
                                                                 =================  ====================

</TABLE>

                  (A) 1997  amount  excludes  $13,412  non-recurring  payment of
         dividends with respect to Series CC Convertible Preferred Stock.

                  See the  consolidated  statements  of cash  flows for the nine
         months ended  September  30, 1998 and 1997 for  additional  information
         regarding the Company's investing and financing activities.

                  FFO  increased  to  $247,955,000  for the  nine  months  ended
         September  30,  1998  compared to  $200,106,000  for the same period in
         1997.  FFO  applicable  to the  common  shareholders  (after  deducting
         preferred  stock  dividends)  increased  to  $188,633,000  for the nine
         months ended September 30, 1998 compared to  $145,384,000  for the same
         period in 1997.  FFO is used by many  financial  analysts in evaluating
         REITs.  The  Company  defines  FFO as net income  (loss)  (computed  in
         accordance  with GAAP)  before (i) gain (loss) on  disposition  of real
         estate,  adjusted as follows:  (i) plus  depreciation and amortization,
         and (ii) less FFO  attributable  to  minority  interest.  The  National
         Association  of  Real  Estate  Investment   Trusts,   Inc.   ("NAREIT")
         definition  of FFO does  not  specifically  address  the  treatment  of
         minority  interest  in the  determination  of FFO.  In the  case of the
         Company,  FFO represents amounts attributable to its shareholders after
         deducting amounts attributable to the minority interests.  FFO does not
         take into consideration  scheduled  principal payments on debt, capital
         improvements,  distributions  and  other  obligations  of the  Company.

                                       23

<PAGE>

         Accordingly,  FFO is a  supplemental  performance  measure and is not a
         substitute  for the  Company's  cash flow or net income  (as  discussed
         above)  as  a  measure  of  the   Company's   liquidity   or  operating
         performance.

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

                  Over the past four years,  the Company's  distribution  policy
         has enabled it to retain significant funds (after capital improvements)
         to make additional  investments and debt  reductions.  During the first
         nine  months  of 1998 and  1997,  the  Company  distributed  to  common
         shareholders  approximately  44.0%  and 51.4% of its FFO  available  to
         common shareholders,  respectively, allowing it to retain approximately
         $95.7 million and $59.7  million,  respectively,  after  satisfying its
         capital improvements and dividend requirements.

                  DISTRIBUTION  REQUIREMENTS:  During the first  nine  months of
         1998, the Company paid dividends totaling $57,159,000 to the holders of
         the Company's Senior Preferred Stock,  $2,163,000 to the holders of the
         Convertible  Preferred  Stock, and $75,270,000 to the holders of Common
         Stock. On June 1, 1998, the Company  exercised its option to redeem the
         Convertible  Preferred  Stock for Common Stock,  and the redemption was
         effective July 1, 1998. Distribution  requirements for fiscal 1998 with
         respect to the Senior  Preferred Stock and Convertible  Preferred Stock
         (prior to the redemption) will be approximately $78 million.

                  CAPITAL IMPROVEMENT REQUIREMENTS: During 1998, the Company has
         budgeted  approximately $23.0 million for capital  improvements for its
         self-storage facilities. The minority interests' share of the estimated
         capital  improvements is approximately  $3.5 million.  During the first
         nine  months of 1998,  the Company  incurred  capital  improvements  of
         approximately  $19.3  million,  of which  $857,000  was for PSBP in the
         first  quarter of 1998 and the  remainder  was for all of the Company's
         other facilities.

                  DEBT SERVICE REQUIREMENTS: The Company does not believe it has
         any  significant  refinancing  risks with respect to its mortgage debt,
         all of which is at a fixed rate. At September 30, 1998, the Company had
         total outstanding notes payable of $85.6 million. Approximate principal
         maturities of notes payable at September 30, 1998 are as follows:

                                                   Fixed Rate
                                                  Mortgage Debt
                            7.08% Unsecured        (Weighted            
                             Senior Notes    average rate of 10.4%)      Total
                             ------------    ----------------------   ----------
                                          (Amounts in thousands)
1998 (remainder of)            $   3,625           $     565          $   4,190
1999                               8,000               6,398             14,398
2000                               8,750               2,622             11,372
2001                               9,500               2,910             12,410
2002                               9,750               3,229             12,979
Thereafter                        10,000              20,268             30,268
                             ------------    ----------------------   ---------
                               $  49,625           $  35,992          $  85,617
                            =============    ======================   =========

                  EXTERNAL FINANCING:  Despite the Company's ability to retain a
         portion of its internally  generated  cash flow,  the Company's  growth
         strategies  have required the Company to seek external  financing.  The
         Company has an unsecured $150.0 million  revolving credit facility with
         a group of banks  which it uses as a  temporary  source of  acquisition
         financing.  The  Company,  however,  seeks to  ultimately  finance  all
         acquisitions  with  permanent  sources  of  capital.  As a result,  the
         Company has raised capital  through the public  issuance of both common
         and  preferred  stock  which  was  used to  repay  borrowings  and make
         additional investments in real estate assets. The Company believes that
         its size and  financial  flexibility  enable it to access  capital  for
         growth  when   appropriate.   The   Company's   financial   profile  is
         characterized  by  a  low  level  of  debt  to  total   capitalization,
         increasing  net income,  increasing  cash flow from  operations,  and a

                                       24

<PAGE>

         conservative  dividend  payout ratio with respect to the common  stock.
         The Company's  credit ratings on its Senior  Preferred Stock by each of
         the  three  major  credit  agencies  are  Baa2 by  Moody's  and BBB+ by
         Standard and Poors and Duff & Phelps.

                  The  Company's  portfolio  of real estate  facilities  remains
         substantially unencumbered. At September 30, 1998, the Company had debt
         outstanding  of  $85.6  million  and  had   consolidated   real  estate
         facilities with a book value of $2.6 billion. The Company, however, has
         been averse to financing its acquisitions  with debt and generally will
         only  increase  its  mortgage   borrowing  through  the  assumption  of
         pre-existing debt on acquired real estate facilities.

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

                  During  the first  nine  months of 1998,  the  Company  issued
         7,951,821  shares of  common  stock in public  and  private  offerings,
         raising net proceeds of  approximately  $234.5  million.  An additional
         1,230,689  shares of common  stock were issued in  connection  with the
         acquisition of partnership interests, and 433,526 shares were issued in
         connection  with the merger of an  affiliated  REIT with the Company in
         May 1998.

                  REPURCHASES OF THE COMPANY'S  COMMON STOCK:  On June 12, 1998,
         the  Company  announced  that the  Board of  Directors  authorized  the
         repurchase  from  time  to  time  of up to  10,000,000  shares  of  the
         Company's  common stock on the open market or in  privately  negotiated
         transactions.  Through September 30, 1998 the Company has repurchased a
         total of 2,786,400 shares of common stock at an aggregate cost of $71.4
         million.  In the fourth quarter  through  November 4, 1998, the Company
         repurchased an additional 33,000 shares of common stock at an aggregate
         cost of approximately $902,000.

                  DEVELOPMENT  ACTIVITIES:  As  previously  announced,  in April
         1997, the Company and an institutional  investor formed a joint venture
         partnership  for  the  purpose  of  developing  up to $220  million  of
         self-storage facilities.  The venture will be funded solely with equity
         capital   consisting   of  30%  from  the  Company  and  70%  from  the
         institutional  investor.  The Company has invested  approximately $44.6
         million in the joint venture at September 30, 1998.

                  During the nine months ended  September  30,  1998,  the joint
         venture  opened 12 new self storage  facilities  that it had  developed
         (approximately 709,000 net rentable sq. ft.). As of September 30, 1998,
         the joint venture was  committed to  developing 10 additional  projects
         (approximately  658,000 net rentable square feet) that were in process,
         with total costs  incurred of $34.7  million  and  estimated  remaining
         costs to complete of $13.8 million.

                  The joint venture is currently reviewing the final 20 projects
         ($38.7 million  incurred at September 30, 1998, with remaining costs to
         complete  of $54.1  million).  Upon  approval  of these  additional  20
         facilities,  the  joint  venture  will be  fully  committed.  These  20
         projects  are  currently   being  developed  by  the  Company  and  the
         construction  costs will be  transferred to the joint venture once they
         have been approved.  At September 30, 1998, included in construction in
         process is  approximately  $24.7  million,  and included in real estate
         facilities is $14.0 million, with respect to these projects.

                  The  Company  has   identified  49  additional   self  storage
         development  projects  (2,847,000 net rentable  square feet) with total
         estimated  development  costs of  approximately  $179 million.  Most of
         these  projects  have already been  approved by the Board of Directors,
         but their  development  is subject to  significant  contingencies.  The
         Company will fund this  development  through cash flow from operations,
         borrowings  on its line of credit,  the issuance of  additional  equity
         securities, or other means.

                                       25

<PAGE>

                  SUBSEQUENT  EVENT - PROPOSED MERGER WITH STORAGE TRUST REALTY:
         The Company and Storage  Trust  Realty  ("Storage  Trust"),  a New York
         Stock Exchange  listed REIT, have entered into an Agreement and Plan of
         Merger among Storage  Trust,  the Company and Newco Merger  Subsidiary,
         Inc., a subsidiary of the Company ("PSI Sub"), dated as of November 12,
         1998 (the "Merger  Agreement").  Storage  Trust is a fully  integrated,
         self-managed  and  self-administered  REIT  headquartered  in Columbia,
         Missouri,  engaged in the management and ownership of 237  self-storage
         stores  located in 16 states  totaling  approximately  12.5 million net
         rentable square feet and 109,000 units. Under the Merger Agreement, PSI
         Sub would be merged into Storage  Trust,  and each share of  beneficial
         interest  of Storage  Trust would be  exchanged  for 0.86 shares of the
         Company's common stock. This exchange ratio implies an enterprise value
         for  Storage  Trust  of  approximately  $600  million,   including  the
         assumption  of  approximately  $192 million of  indebtedness.  Upon the
         effectiveness of the merger,  the Company's board of directors would be
         expanded by one seat and Mr. Daniel C. Staton, Storage Trust's Chairman
         of the Board,  would be elected as a new member of the Company's  board
         of directors. The merger has been structured as a tax free transaction.
         The  transaction  is expected to be completed  in the first  quarter of
         1999. The transaction is subject to the approval of the shareholders of
         Storage Trust and customary regulatory approvals and other conditions.

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

                  As a REIT,  the  Company  is not taxed on that  portion of its
         taxable income which is distributed to its  shareholders  provided that
         at least 95% of its taxable income is so distributed prior to filing of
         the  Company's   tax  return.   The  Company  has  satisfied  the  REIT
         distribution requirement beginning with its taxable year for 1981.

                  IMPACT OF THE YEAR 2000 ISSUE:

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

                 Many of the Company's  critical  applications,  relative to the
         direct  management of properties and the Company's  Pickup and Delivery
         logistics systems, have recently been replaced and the Company believes
         they are already Year 2000 compliant. The Company has an implementation
         in  process  on the  remaining  critical  applications,  including  its
         general  ledger and  related  systems,  that are  believed  to have Y2K
         issues.  The Company expects the  implementation to be complete by June
         1999.  Contingency  plans  have  been  developed  for use in  case  the
         Company's  implementations  are not completed on a timely basis.  While
         the Company presently  believes that the impact of the Y2K Issue on its
         systems can be mitigated,  if the Company's plan for ensuring Year 2000
         Compliance  and  the  related   contingency  plans  were  to  fail,  be
         insufficient,  or  not  be  implemented  on  a  timely  basis,  Company
         operations could be materially impacted.

                 Certain of the Company's  other  non-computer  related  systems
         that may be impacted by the Y2K Issue,  such as security  systems,  are
         currently being evaluated, and the Company expects the evaluation to be
         complete by June 1999. The Company  expects the  implementation  of any
         required  solutions to be complete in advance of December 31, 1999. The
         Company  has not  fully  evaluated  the  impact  of  lack of Year  2000
         compliance on these systems,  but has no reason to believe that lack of
         compliance would materially impact the Company's operations.

                 The Company  exchanges  electronic  data with  certain  outside
         vendors in the banking and payroll  processing  areas.  The Company has
         been advised by these  vendors  that their  systems are or will be Year
         2000 compliant,  but has requested a Year 2000 compliance certification
         from these  entities.  The  Company is not aware of any other  vendors,
         suppliers,  or  other  external  agents  with a Y2K  Issue  that  would

                                       26

<PAGE>

         materially  impact the Company's results of operations,  liquidity,  or
         capital resources.  However,  the Company has no means of ensuring that
         external  agents  will be Year  2000  compliant,  and  there  can be no
         assurance that the Company has identified all such external agents. The
         inability  of external  agents to complete  their Year 2000  compliance
         process in a timely fashion could  materially  impact the Company.  The
         effect of non-compliance by external agents is not determinable.

                 The total cost of the Company's year 2000 compliance activities
         (which primarily  consists of the costs of new systems) is estimated at
         approximately $3.6 million,  of which $2.4 million has been incurred to
         date. These costs are capitalized.

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

                                       27

<PAGE>

         PART II. OTHER INFORMATION


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

                           PUBLIC STORAGE, INC. V AT&T CORPORATION,  ET. AL., U.
                           S. District Court for Central  District of California
                           (Filed May 20, 1998)

                                    The  Company  is  seeking   declaratory  and
                           injunctive relief and indemnification against a group
                           of   long-distance   and  local   telephone   carrier
                           defendants and others.  Certain of the defendants are
                           demanding  payments,  aggregating  in  excess  of  $3
                           million from the Company for unauthorized, fraudulent
                           long-distance telephone calls placed by unknown third
                           parties through the Company's  telephone  lines.  The
                           District  Court has dismissed  the  Company's  claims
                           against   the   long-distance   and   local   carrier
                           defendants,   and  the  Company  is  evaluating   its
                           alternatives. The Company believes that these charges
                           are  covered by  insurance,  although  the  insurance
                           carrier has not acknowledged coverage.

                                    Except  as   described   above  and  in  the
                           Company's 1997 Annual Report on Form 10-K,  there are
                           no material pending legal  proceedings  involving the
                           Company or its subsidiaries.

         Item 5.           Other Information
                           -----------------

                                    (a) PROPOSED MERGER. The Company and Storage
                           Trust  Realty  ("Storage  Trust"),  a New York  Stock
                           Exchange  listed REIT, have entered into an Agreement
                           and Plan of Merger among Storage  Trust,  the Company
                           and Newco Merger  Subsidiary,  Inc., a subsidiary  of
                           the Company  ("PSI  Sub"),  dated as of November  12,
                           1998 (the  "Merger  Agreement").  Storage  Trust is a
                           fully integrated,  self-managed and self-administered
                           REIT headquartered in Columbia,  Missouri, engaged in
                           the  management  and  ownership  of 237  self-storage
                           stores  located in 16 states  totaling  approximately
                           12.5  million  net  rentable  square feet and 109,000
                           units.  Under the Merger Agreement,  PSI Sub would be
                           merged  into  Storage   Trust,   and  each  share  of
                           beneficial   interest  of  Storage   Trust  would  be
                           exchanged  for 0.86  shares of the  Company's  common
                           stock.  This  exchange  ratio  implies an  enterprise
                           value  for  Storage  Trust  of   approximately   $600
                           million,  including the  assumption of  approximately
                           $192 million of indebtedness.  Upon the effectiveness
                           of the merger, the Company's board of directors would
                           be  expanded  by one seat and Mr.  Daniel C.  Staton,
                           Storage  Trust's  Chairman  of the  Board,  would  be
                           elected  as a new  member of the  Company's  board of
                           directors.  The merger has been  structured  as a tax
                           free  transaction.  The transaction is expected to be
                           completed   in  the  first   quarter  of  1999.   The
                           transaction   is  subject  to  the  approval  of  the
                           shareholders   of   Storage   Trust   and   customary
                           regulatory   approvals  and  other  conditions.   For
                           further  information  regarding  the merger,  see the
                           Merger  Agreement  which is  referenced  as Exhibit 2

                                       28

<PAGE>

                           hereto and is  incorporated  herein by this reference
                           and the  Company's  and Storage  Trust's  joint press
                           release  dated  November 12, 1998 which is referenced
                           as Exhibit 99 hereto  and is  incorporated  herein by
                           this reference.

                                    (b)   Revised   Deadlines   for  Receipt  of
                           Shareholder   Proposals  for  Consideration  at  1999
                           Annual Meeting.  The Company expects to hold its 1999
                           Annual  Meeting  of  Shareholders  in May  1999.  Any
                           proposal  that a  shareholder  wishes to  submit  for
                           inclusion in the  Company's  Proxy  Statement for the
                           1999  Annual  Meeting of  Shareholders  ("1999  Proxy
                           Statement")   pursuant  to  Securities  and  Exchange
                           Commission Rule 14a-8 must be received by the Company
                           no later than January 1, 1999. In addition, notice of
                           any proposal that a shareholder wishes to propose for
                           consideration   at  the  1999   Annual   Meeting   of
                           Shareholders,  but does not  seek to  include  in the
                           Company's  1999  Proxy  Statement  pursuant  to  Rule
                           14a-8, must be delivered to the Company no later than
                           March 1, 1999 if the proposing shareholder wishes for
                           the Company to describe the nature of the proposal in
                           its 1999 Proxy Statement as a condition to exercising
                           its  discretionary  authority  to vote proxies on the
                           proposal.   Any  shareholder   proposals  or  notices
                           submitted to the Company in connection  with the 1999
                           Annual  Meeting of  Shareholders  should be addressed
                           to: Sarah Hass, Secretary,  Public Storage, Inc., 701
                           Western Avenue, Glendale, California 91201-2397.

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


                  (a)  The following Exhibits are included herein:

                         (2)     Agreement  and  Plan  of  Merger  by and  among
                                 Storage Trust Realty, Public Storage, Inc., and
                                 Newco  Merger  Subsidiary,  Inc.  dated  as  of
                                 November 12, 1998.  Filed with Storage  Trust's
                                 Current  Report on Form 8-K dated  November 12,
                                 1998 and incorporated herein by reference.

                         (11)    Statement re: Computation of Earnings per Share

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

                         (27)    Financial Data Schedule

                         (99)    Public   Storage,   Inc.'s  and  Storage  Trust
                                 Realty's joint press release dated November 12,
                                 1998. Filed with Storage Trust's Current Report
                                 on  Form  8-K  dated   November  12,  1998  and
                                 incorporated herein by reference.

                  (b)   Reports on Form 8-K

                         None.

                                       29

<PAGE>

                                   SIGNATURES




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



                                         DATED:  November 13, 1998

                                                PUBLIC STORAGE, INC.


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

                                       30