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, 2006

                                       or

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

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

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

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

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

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

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


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

                                 [X] Yes [ ] No

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

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


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

                                 [ ] Yes [X] No

Indicate the number of shares  outstanding of the registrant's  common stock, as
of November 7, 2006:

Common Stock, $.10 par value per share - 170,174,335 shares


<PAGE>


                              PUBLIC STORAGE, INC.

                                      INDEX


<TABLE>
<CAPTION>
                                                                                      Pages

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

<S>        <C>                                                                            <C>
Item 1.    Financial Statements (Unaudited)

           Condensed Consolidated Balance Sheets at
              September 30, 2006 and December 31, 2005                                    1

           Condensed Consolidated Statements of Income for the
              Three and Nine Months Ended September 30, 2006 and 2005                 2 - 3

           Condensed Consolidated Statement of Shareholders' Equity
              for the Nine Months Ended September 30, 2006                                4

           Condensed Consolidated Statements of Cash Flows
              for the Nine Months Ended September 30, 2006 and 2005                   5 - 6

           Notes to Condensed Consolidated Financial Statements                      7 - 41

Item 2.    Management's Discussion and Analysis of
              Financial Condition and Results of Operations                         42 - 80

Item 3.    Quantitative and Qualitative Disclosures about Market Risk               80 - 81

Item 4.    Controls and Procedures                                                       82

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

Item 1.    Legal Proceedings                                                             83

Item 1A.   Risk Factors                                                             83 - 89

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds                   89

Item 4.    Submission of Matters to a Vote of Security Holders                      89 - 90

Item 6.    Exhibits                                                                      90

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

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


                                                                                        September 30,        December 31,
                                                                                            2006                 2005
                                                                                      -----------------      ---------------
                                                                                         (Unaudited)
                                       ASSETS

<S>                                                                                    <C>                   <C>
Cash and cash equivalents....................................................          $      124,119        $     493,501
Real estate facilities, at cost:
   Land......................................................................               3,605,184            1,540,357
   Buildings.................................................................               7,570,507            4,390,127
                                                                                      -----------------      ---------------
                                                                                           11,175,691            5,930,484
   Accumulated depreciation..................................................              (1,655,737)          (1,500,128)
                                                                                      -----------------      ---------------
                                                                                            9,519,954            4,430,356
   Construction in process...................................................                 131,063               54,472
                                                                                      -----------------      ---------------
                                                                                            9,651,017            4,484,828

Investment in real estate entities...........................................                 301,868              328,555
Goodwill (Note 2)............................................................                 174,634              176,285
Intangible assets, net (Note 2)..............................................                 432,481                   -
Other assets.................................................................                 170,737               69,317
                                                                                      -----------------      ---------------
              Total assets...................................................          $   10,854,856        $   5,552,486
                                                                                      =================      ===============
                       LIABILITIES AND SHAREHOLDERS' EQUITY

Notes payable................................................................          $    1,426,533        $     113,950
Debt to joint venture partner................................................                  37,214               35,697
Preferred stock called for redemption........................................                 143,750              172,500
Accrued and other liabilities................................................                 344,168              159,360
                                                                                      -----------------      ---------------
         Total liabilities...................................................               1,951,665              481,507
Minority interest:
   Preferred partnership interests...........................................                 325,000              225,000
   Other partnership interests...............................................                 174,704               28,970
Commitments and contingencies (Note 16)
Shareholders' equity:
   Cumulative Preferred Stock, $0.01 par value, 50,000,000 shares authorized,
     1,715,486 shares issued (in series) and outstanding, (1,698,336 at
     December 31, 2005) at liquidation preference............................               2,927,150            2,498,400
   Common Stock, $0.10 par value, 200,000,000 shares authorized, 168,986,243
     shares issued and outstanding (128,089,563 at December 31, 2005)........                  16,899               12,809
   Equity Stock, Series A, $0.01 par value, 200,000,000 shares authorized,
     8,744.193 shares issued and outstanding.................................                      -                    -
   Paid-in capital...........................................................               5,659,924            2,430,671
   Cumulative net income.....................................................               3,513,525            3,189,266
   Cumulative distributions paid.............................................              (3,702,742)          (3,314,137)
   Accumulated other comprehensive loss......................................                 (11,269)                  -
                                                                                      -----------------      ---------------
         Total shareholders' equity..........................................               8,403,487            4,817,009
                                                                                      -----------------      ---------------
              Total liabilities and shareholders' equity.....................          $   10,854,856        $   5,552,486
                                                                                      =================      ===============
                             See accompanying notes.
                                        1
</TABLE>

<PAGE>


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

                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                Three Months Ended              Nine Months Ended
                                                                                  September 30,                   September 30,
                                                                            ---------------------------    ------------------------
                                                                               2006            2005             2006          2005
                                                                            ------------  -------------    ------------- -----------
Revenues:
   Rental income:
<S>                                                                          <C>           <C>             <C>           <C>
      Self-storage facilities...........................................     $ 328,841     $   243,702     $    842,751  $  706,303
      Commercial properties.............................................         3,408           2,918            9,413       8,693
      Containerized storage facilities..................................         4,353           4,480           12,483      12,305
   Ancillary operations.................................................        22,106          17,587           55,649      48,803
   Interest and other income............................................        12,651           4,717           27,773      11,004
                                                                            ------------  -------------    ------------- -----------
                                                                               371,359         273,404          948,069     787,108
                                                                            ------------  -------------    ------------- -----------
Expenses:
  Cost of operations (excluding depreciation and amortization below):
      Self-storage facilities...........................................       109,216          80,273          286,376     242,319
      Commercial properties.............................................         1,497           1,122            4,080       3,292
      Containerized storage facilities..................................         3,907           3,676           11,436       9,692
      Ancillary operations..............................................        13,447          11,613           35,759      32,170
  Depreciation and amortization.........................................       113,531          47,896          212,206     144,074
  General and administrative............................................        36,242           5,621           49,996      16,890
  Interest expense......................................................         9,323           2,471           12,752       5,928
                                                                            ------------  -------------    ------------- -----------
                                                                               287,163         152,672          612,605     454,365
                                                                            ------------  -------------    ------------- -----------
Income from continuing operations before asset impairment charge, gain
   (loss) on disposition of real estate assets, equity in earnings of
   real estate entities, foreign currency exchange loss, income from
   derivatives and minority interest in income..........................        84,196         120,732          335,464     332,743
Asset impairment charge due to casualty loss (Note 2)...................             -            (196)               -        (196)
Gain (loss) on disposition of real estate assets........................           756            (142)           1,222         (89)
Equity in earnings of real estate entities (Note 6).....................         2,618           9,853            9,208      20,382
Foreign currency exchange loss..........................................          (172)              -             (172)          -
Income from derivatives, net............................................            32               -               32           -
Minority interest in income:
  Preferred partnership interests:
     Based on ongoing distributions paid................................        (5,403)         (3,591)         (13,652)    (12,556)
     Allocation of redemption costs (Note 11)...........................             -               -                -        (874)
  Other partnership interests...........................................        (3,187)         (3,652)         (10,825)    (12,925)
                                                                            ------------  -------------    ------------- -----------
Income from continuing operations.......................................        78,840         123,004          321,277     326,485
Cumulative effect of change in accounting principle (Note 14)...........             -               -              578         -
Discontinued operations (Note 4)........................................         2,341           5,340            2,404       6,536
                                                                            ------------  -------------    ------------- -----------
Net income..............................................................     $  81,181       $ 128,344      $   324,259   $ 333,021
                                                                            ============  =============    ============= ===========
Net income allocation:
----------------------
   Allocable to preferred shareholders:
     Based on distributions paid........................................     $  60,265       $  43,726      $   159,256   $ 126,286
     Based on redemptions of preferred stock (Note 2)...................        21,643               -           21,643       1,904
   Allocable to Equity Stock, Series A..................................         5,356           5,356           16,068      16,087
   Allocable to common shareholders.....................................        (6,083)         79,262          127,292     188,744
                                                                            ------------  -------------    ------------- -----------
                                                                             $  81,181       $ 128,344      $   324,259   $ 333,021
                                                                            ============  =============    ============= ===========
Net income (loss) per common share - basic
   Continuing operations................................................     $  (0.06)       $    0.58      $      0.93   $    1.42
   Discontinued operations..............................................         0.02             0.04             0.02        0.05
                                                                            ------------  -------------    ------------- -----------
                                                                             $  (0.04)       $    0.62      $      0.95   $    1.47
                                                                            ============  =============    ============= ===========
Net income (loss) per common share - diluted
   Continuing operations................................................     $  (0.06)       $    0.58      $      0.92   $    1.41
   Discontinued operations..............................................         0.02             0.04             0.02        0.05
                                                                            ------------  -------------    ------------- -----------
                                                                             $  (0.04)       $    0.62      $      0.94   $    1.46
                                                                            ============  =============    ============= ===========

                             See accompanying notes.
                                        2
</TABLE>

<PAGE>



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

                                   (Unaudited)
<TABLE>
<CAPTION>

(Continued)

                                                                                Three Months Ended              Nine Months Ended
                                                                                  September 30,                   September 30,
                                                                            ---------------------------    ------------------------
                                                                               2006            2005             2006          2005
                                                                            ------------  -------------    ------------- -----------


Net income per depositary share of Equity Stock, Series A (basic and
<S>                                                                          <C>             <C>            <C>           <C>
   diluted).............................................................     $   0.61        $    0.61      $      1.84   $    1.84
                                                                            ============  =============    ============= ===========
Basic weighted average common shares outstanding........................       145,387         128,006          133,897     128,191
                                                                            ============  =============    ============= ===========
Diluted weighted average common shares outstanding......................       145,387         128,742          134,851     128,844
                                                                            ============  =============    ============= ===========
Weighted average shares of Equity Stock, Series A (basic and diluted)...         8,744           8,744            8,744       8,755
                                                                            ============  =============    ============= ===========

                             See accompanying notes.
                                        3
</TABLE>

<PAGE>
                              PUBLIC STORAGE, INC.
            CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                    (Amounts in thousands, except share data)
<TABLE>
<CAPTION>
                                   (Unaudited)


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

Issuance of cumulative preferred stock:
   Series H (4,200 shares)..............................             105,000                 -           (3,508)                -
   Series I (20,700 shares).............................             517,500                 -          (15,899)                -
   Series K (18,400 shares).............................             460,000                 -          (14,148)                -

Redemption of cumulative preferred stock:
   Series R (20,400 shares).............................            (510,000)                -                -                 -
   Series S (5,750 shares)..............................            (143,750)                -                -                 -

Issuance of common stock in connection with:
   Exercise of employee stock options (1,875,173 shares)..                 -               188           78,711                 -
   Vesting of restricted stock (102,364 shares) ..........                 -                10              (10)                -
   Merger with Shurgard Storage Centers, Inc. (38,913,187
     shares) .............................................                 -             3,891        3,182,255                 -
   Acquisition of minority interests (5,956 shares) ......                 -                 1              154                 -

Stock-based compensation expense (Note 14) ...............                 -                 -           1,698                  -

Net income................................................                 -                 -                -           324,259

Cash distributions:
   Cumulative preferred stock (Note 12)...................                 -                 -                -                 -
   Equity Stock, Series A ($1.845 per depositary share)...                 -                 -                -                 -
   Common Stock ($1.50 per share).........................                 -                 -                -                 -

Accumulated other comprehensive loss:
   Foreign currency translation adjustments...............                 -                 -                -                 -
                                                               ----------------- -------------   ----------------   --------------
Balance at September 30, 2006.............................      $  2,927,150      $     16,899     $  5,659,924      $  3,513,525
                                                               ================= =============   ================   ==============
</TABLE>

<TABLE>
<CAPTION>
                                                                                 Accumulated
                                                                                    Other             Total
                                                                Cumulative      Comprehensive     Shareholders'
                                                              Distributions          Loss            Equity
                                                             ---------------   ---------------   ---------------
<S>                                                           <C>               <C>               <C>
Balance at December 31, 2005..............................    $ (3,314,137)     $          -      $  4,817,009

Issuance of cumulative preferred stock:
   Series H (4,200 shares)..............................                 -                 -           101,492
   Series I (20,700 shares).............................                 -                 -           501,601
   Series K (18,400 shares).............................                 -                 -           445,852

Redemption of cumulative preferred stock:
   Series R (20,400 shares).............................                 -                 -          (510,000)
   Series S (5,750 shares)..............................                 -                 -          (143,750)

Issuance of common stock in connection with:
   Exercise of employee stock options (1,875,173 shares)..               -                 -            78,899
   Vesting of restricted stock (102,364 shares) ..........               -                 -                 -
   Acquisition of Shurgard Storage Centers (38,913,187
     shares) .............................................               -                 -         3,186,146
   Acquisition of minority interests (5,956 shares) ......               -                 -               155

Stock-based compensation expense (Note 14) ...............               -                 -             1,698

Net income................................................               -                 -           324,259

Cash distributions:
   Cumulative preferred stock (Note 12)...................        (159,256)                -          (159,256)
   Equity Stock, Series A ($1.845 per depositary share)...         (16,068)                -           (16,068)
   Common Stock ($1.50 per share).........................        (213,281)                -          (213,281)

Accumulated other comprehensive loss:
   Foreign currency translation adjustments...............               -            (11,269)         (11,269)
                                                             ---------------   ---------------   ---------------
Balance at September 30, 2006.............................    $ (3,702,742)     $     (11,269)     $  8,403,487
                                                             ===============   ===============   ===============
</TABLE>


                            See accompanying notes.
                                        4
<PAGE>

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

                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                      For the Nine Months Ended
                                                                                            September 30,
                                                                                     ---------------------------
                                                                                         2006            2005
                                                                                    ------------    -------------
Cash flows from operating activities:
<S>                                                                                  <C>             <C>
   Net income...............................................................         $  324,259      $  333,021
   Adjustments to reconcile net income to net cash provided by operating
     activities:
    Amortization of note premium (Note 8)...................................               (968)           (774)
    Excess of effective interest over cash interest paid on debt to joint
       venture partner (Note 9) ............................................                130             130
    Gain on sales of real estate facilities, net, including discontinued
       operations...........................................................             (3,592)         (6,296)
    Real estate impairment associated with casualty losses (Note 2).........                  -             196
    Depreciation and amortization, including discontinued operations........            212,256         144,286
    Expense of capitalized development project costs .......................              9,319               -
    Equity in earnings of real estate entities..............................             (9,208)        (20,382)
    Foreign currency exchange loss..........................................                172               -
    Income from derivatives, net............................................                (32)              -
    Distributions received from the real estate entities (Note 6)...........             15,049          17,015
    Minority interest in income.............................................             24,477          26,355
    Other operating activities..............................................             10,290          14,789
                                                                                    ------------    -------------
       Total adjustments....................................................            257,893         175,319
                                                                                    ------------    -------------
       Net cash provided by operating activities............................            582,152         508,340
                                                                                    ------------    -------------
Cash flows from investing activities:
    Capital improvements to real estate facilities .........................            (44,366)        (13,286)
    Construction in process.................................................            (70,903)        (46,039)
    Acquisition of minority interests (Note 11).............................            (60,799)        (92,815)
    Acquisition of real estate facilities...................................            (98,954)       (124,753)
    Consolidation of partnerships (Note 2)..................................              3,024               -
    Cash portion of the merger with Shurgard (Note 3).......................           (161,284)              -
    Proceeds from sales of real estate and real estate investments..........             11,281          10,864
    Proceeds from sales of held-to-maturity investments (Note 2)............              8,079           4,953
    Acquisition of held-to-maturity debt securities.........................                  -          (5,823)
                                                                                    ------------    -------------
       Net cash used in investing activities................................           (413,922)       (266,899)
                                                                                    ------------    -------------
Cash flows from financing activities:
    Principal payments on notes payable.....................................           (687,508)        (13,685)
    Proceeds from borrowings on European notes payable......................              8,544               -
    Contributions received from European minority interests.................              9,302               -
    Net proceeds from issuances of common stock.............................             78,899           6,624
    Net proceeds from issuances of cumulative preferred stock...............          1,048,945         460,648
    Repurchases of common stock.............................................                  -          (4,990)
    Redemption of cumulative preferred stock................................           (682,500)       (112,392)
    Redemption of preferred partnership interests...........................                  -         (85,000)
    Issuance of preferred partnership interests.............................            100,000               -
    Distributions paid to shareholders......................................           (388,605)       (322,195)
    Distributions paid to holders of preferred partnership interests (Note
       12)..................................................................            (13,652)        (12,556)
    Distributions paid to other minority interests..........................            (11,037)        (11,805)
    Net proceeds from financing through acquisition joint venture (Note 9)..                  -          19,429
                                                                                    ------------    -------------
       Net cash used in financing activities................................           (537,612)        (75,922)
                                                                                    ------------    -------------
Net (decrease) increase in cash and cash equivalents........................           (369,382)        165,519
Cash and cash equivalents at the beginning of the year......................            493,501         366,255
                                                                                    ------------    -------------
Cash and cash equivalents at the end of the period..........................         $  124,119      $  531,774
                                                                                    ============    =============
                            See accompanying notes.
                                        5
</TABLE>

<PAGE>


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


                                   (Unaudited)
<TABLE>
<CAPTION>

                                   (Continued)

                                                                                      For the Nine Months Ended
                                                                                            September 30,
                                                                                    ----------------------------
                                                                                         2006            2005
                                                                                    ------------    -------------
Supplemental schedule of non-cash investing and financing activities:
<S>                                                                                  <C>             <C>
    Real estate acquired in exchange for assumption of mortgage note........         $   (4,590)     $        -
    Mortgage note assumed in connection with acquisition of real estate.....              4,590               -
    Merger with Shurgard (Note 3):
       Real estate facilities...............................................         (5,070,528)              -
       Intangible assets....................................................           (483,107)              -
       Other Assets.........................................................           (100,411)              -
       Accrued and other liabilities........................................            162,730               -
       Minority interest....................................................            144,351               -
       Debt.................................................................          1,999,535               -
       Common Stock.........................................................              3,891               -
       Paid-in capital......................................................          3,182,255               -
    Consolidation of entities pursuant to Emerging Issues Task Force Topic 04-5
     (Note 2):
       Minority interest....................................................              3,963               -
       Real estate facilities...............................................            (22,459)              -
       Investments..........................................................             20,846               -
       Other Assets.........................................................               (167)              -
       Accrued and Other Liabilities........................................                841               -
    Retirement of common stock and Equity Stock, Series A, received as a
    distribution from affiliated entities (Note 2):
       Common stock.........................................................                  -             (64)
       Paid-in capital......................................................                  -         (11,125)
       Investment in real estate entities...................................                  -          11,189
    Acquisition of minority interests in Consolidated Joint Venture in exchange
    for debt (Note 11):
       Minority Interest - other partnership interests......................                  -         (62,643)
       Real estate facilities...............................................                  -         (43,290)
       Debt to related party................................................                  -          64,513
    Increase in debt to joint venture partner (Note 9)
       Debt to joint venture partner........................................              1,386               -
       Other assets.........................................................             (1,386)              -
    Foreign currency adjustment
       Real estate facilities...............................................             20,849               -
       Construction in process..............................................                643               -
       Notes payable........................................................            (10,223)              -
       Equity...............................................................            (11,269)              -


                            See accompanying notes.
                                        6
</TABLE>
<PAGE>


                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)


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

         Public Storage,  Inc. (referred to herein as "the Company",  "we", "us"
or "our") is a California  corporation,  which was  organized in 1980.  We are a
fully  integrated,  self-administered  and self-managed  real estate  investment
trust ("REIT") whose  principal  business  activities  include the  acquisition,
development,  ownership and  operation of  self-storage  facilities  which offer
storage spaces for lease,  generally on a month-to-month basis, for personal and
business  use. In  addition,  we have (i)  interests in  commercial  properties,
containing  commercial and industrial rental space, (ii) interests in facilities
that  lease  storage  containers,   and  (iii)  ancillary  operations  comprised
principally  of  reinsurance  of policies  against losses to goods stored by our
self-storage  tenants,  retail  sales  and  truck  rentals  at our  self-storage
locations.  As described more fully in Note 3, "Merger with Shurgard," on August
22, 2006, the Company merged with Shurgard Storage Centers, Inc., ("Shurgard").

         At September 30, 2006, we had direct and indirect  equity  interests in
2,003  self-storage  facilities located in 38 states operating under the "Public
Storage" name, and 160 self-storage facilities located in seven European nations
which operate under the "Shurgard Storage Centers" name. We also have direct and
indirect equity  interests in  approximately 19 million net rentable square feet
of commercial space located in 10 states in the U.S.

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
in the  United  States  ("GAAP")  for  interim  financial  information  and  the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include  all of the  information  and  footnotes  required by United  States
generally accepted accounting principles for complete financial  statements.  In
the opinion of management,  all adjustments  (consisting of normal and recurring
adjustments) considered necessary for a fair presentation have been reflected in
these unaudited condensed consolidated  financial statements.  Operating results
for the three and nine  months  ended  September  30,  2006 are not  necessarily
indicative  of the results that may be expected for the year ended  December 31,
2006. The accompanying  unaudited condensed  consolidated  financial  statements
should be read together with the consolidated  financial  statements and related
notes  included in the  Company's  Annual Report on Form 10-K for the year ended
December 31, 2005.

         Certain amounts  previously  reported have been reclassified to conform
to the September 30, 2006 presentation.  In previous  presentations,  intangible
assets were reported  separately  from  goodwill on the  Company's  consolidated
balance sheet. We have now reclassified  the intangible  assets to goodwill (see
"Goodwill and Intangible Assets" below). In previous  presentations,  net income
from our truck rental,  merchandise  sales, and property  management  operations
were included on a net basis in "Interest and other income" in our  consolidated
statements of income. In our current presentation, revenues with respect to each
of these operations, along with revenues from our tenant reinsurance operations,
are included under the caption "Revenues:  Ancillary operations" and the related
cost of  operations  are included in  "Expenses:  Cost of operations - Ancillary
operations" on our  accompanying  condensed  consolidated  statements of income.
Certain  reclassifications  have also been made from previous presentations as a
result of discontinued operations (See Note 4).

                                      7
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

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

         Entities in which we have an interest are first  evaluated to determine
whether, in accordance with the provisions of the Financial Accounting Standards
Board's  Interpretation No. 46R,  "Consolidation of Variable Interest Entities,"
they represent Variable Interest  Entities.  Variable Interest Entities in which
we are the primary beneficiary are consolidated.  Entities that are not Variable
Interest Entities that we control are consolidated.  For purposes of determining
control,  when we are the  general  partner,  we are  considered  to control the
partnership  unless the  limited  partners  possess  substantial  "kick-out"  or
"participative" rights as defined in Emerging Issues Task Force Statement 04-5 -
"Determining  whether a general  partner  or the  general  partners  as a group,
controls a limited  partnership or similar entity when the limited partners have
certain  rights"  ("EITF  04-5").  All  significant  intercompany  balances  and
transactions have been eliminated.

         In accordance with the guidance of EITF 04-5, effective January 1, 2006
we commenced consolidating the accounts of three partnerships that we previously
accounted for on the equity method.  Our  investment in these entities  totaling
$20,846,000  was allocated to the real estate  facilities,  cash,  other assets,
liabilities,  and minority interests of these entities as described in the table
below (amounts in thousands).

                                          Total
                                    -------------
    Real estate facilities.....      $   22,459
    Cash.......................           3,024
    Other assets...............             167
    Accrued and other liabilities          (841)
    Minority interest .........          (3,963)
                                    -------------
                                     $   20,846
                                    =============

         We have determined that we have variable  interest entities that we are
the primary  beneficiaries of that we acquired an interest in as a result of our
merger with Shurgard (see Note 3). The accounts of the entities we control along
with the  accounts of the  variable  interest  entities  that we are the primary
beneficiary of, (collectively,  the "Consolidated Entities") are included in our
consolidated financial statements along with those of the Company. Collectively,
the  Company  and the  Consolidated  Entities  own a total of 2,172 real  estate
facilities, consisting of 2,003 self-storage facilities in the United States (of
which 487 were acquired in the Shurgard merger),  160 facilities in Europe which
were acquired in the Shurgard merger,  three  industrial  facilities used by the
containerized storage operations and six commercial properties.

         At  September  30,  2006,  we had equity  investments  in five  limited
partnerships  in which  we do not have a  controlling  interest.  These  limited
partnerships  collectively own 22 self-storage facilities,  which are managed by
the Company. In addition, at September 30, 2006, we own approximately 44% of the
common  equity of PS  Business  Parks,  Inc.  ("PSB"),  which has  interests  in
approximately  18.2  million net  rentable  square feet of  commercial  space at
September  30,  2006.  Our  investment  in these  limited  partnerships  and PSB
(collectively, the "Unconsolidated Entities") are accounted for using the equity
method.

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

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

                                       8
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

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

         For all taxable  years  subsequent to 1980,  the Company  qualified and
intends  to  continue  to qualify  as a REIT,  as defined in Section  856 of the
Internal  Revenue  Code.  As a REIT,  we are not  taxed on that  portion  of our
taxable income which is distributed to our  shareholders,  provided that we meet
certain tests. We believe we will meet these tests during 2006 and, accordingly,
no  provision  for  income  taxes  has been made in the  accompanying  condensed
consolidated financial statements.

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

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

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

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

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

         Included  in  cash  and  cash  equivalents  at  September  30,  2006 is
$23,420,000  ($18,962,000  at December 31,  2005) held by our captive  insurance
entities.  Other  assets at  September  30, 2006  include  investments  totaling
$11,759,000  ($19,838,000  at December  31,  2005) in  held-to-maturity  Federal
government agency  securities stated at amortized cost, which  approximates fair
value.  Insurance and other regulations  place  significant  restrictions on our
ability to withdraw these funds for purposes  other than  insurance  activities.
Other assets at September 30, 2006 also include derivative financial instruments
totaling $4,796,000 (none at December 31, 2005) reported at fair value.  Accrued
and other  liabilities  at  September  30,  2006  include  derivative  financial
instruments  totaling  $9,818,000  (none at December 31, 2005)  reported at fair
value.  See  Note  10  for  further  discussion  of  our  derivative   financial
instruments.  The carrying  value of our notes  payable at September 30, 2006 is
$1,426,533,000 ($113,950,000 at December 31, 2005) which approximates fair value
at those dates.

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

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

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

         In January 2004, we entered into a joint  venture  partnership  with an
institutional  investor  for the  purpose of  acquiring  up to  $125,000,000  of
existing  self-storage  properties  in the United States from third parties (the
"Acquisition  Joint Venture").  The Acquisition Joint Venture is funded entirely
with equity  consisting  of 30% from the Company and 70% from the  institutional
investor.  For a six-month period  beginning 54 months after formation,  we have

                                       9
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

the right to acquire our partner's  interest  based upon the market value of the
properties.  If we do not exercise our option, our partner can elect to purchase
our  interest  in the  properties  during a  six-month  period  commencing  upon
expiration of our six-month option period.  If our partner fails to exercise its
option,  the Acquisition  Joint Venture will be liquidated and the proceeds will
be distributed to the partners according to the joint venture agreement.

         We have determined that the Acquisition Joint Venture is not a variable
interest  entity,  and we do  not  control  this  entity.  Therefore,  we do not
consolidate  the accounts of the Acquisition  Joint Venture on our  accompanying
condensed consolidated financial statements.

         During the year ended December 31, 2004, the Acquisition  Joint Venture
acquired two  facilities  directly  from third  parties at an aggregate  cost of
$9,086,000. We account for our investment with respect to these facilities using
the equity method,  with our pro rata share of the income from these  facilities
recorded as "Equity in earnings of real  estate  entities"  on our  accompanying
condensed  consolidated  statements of income. See Note 6 for further discussion
of these amounts.

         In December  2004, we sold seven  facilities to the  Acquisition  Joint
Venture for an aggregate of  $22,993,000.  During the first  quarter of 2005, we
sold an interest in three additional facilities to the Acquisition Joint Venture
for an aggregate of approximately $27,755,000. Due to our continuing interest in
these  facilities and the likelihood that we will exercise our option to acquire
our  partner's  interest,   we  have  accounted  for  our  partner's  investment
($37,214,000  and  $35,697,000  at  September  30, 2006 and  December  31, 2005,
respectively) in these facilities as, in substance, debt financing. Accordingly,
our partner's  investment  with respect to these ten facilities is accounted for
as a liability on our accompanying  condensed  consolidated balance sheets under
the  caption  "Debt to joint  venture  partner,"  with  our  partner's  share of
operations  with  respect  to these ten  facilities  accounted  for as  interest
expense on our accompanying  condensed  consolidated  statements of income. On a
quarterly  basis, we review the fair value of this liability,  and to the extent
fair value exceeds the carrying value of the liability, an adjustment is made to
increase the liability to fair value,  and to increase  other  assets,  with the
other assets amortized over the remaining  period term of the Acquisition  Joint
Venture. See Note 9 for a discussion of the results of this review.

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

         We evaluate impairment of goodwill annually through a two-step process.
In the first step, if the fair value of the reporting unit to which the goodwill
applies is equal to or  greater  than the  carrying  amount of the assets of the
reporting unit,  including the goodwill,  the goodwill is considered  unimpaired
and the second step is unnecessary. If, however, the fair value of the reporting
unit  including  goodwill is less than the carrying  amount,  the second step is
performed. In this test, we compute the implied fair value of the goodwill based
upon the  allocations  that  would be made to the  goodwill,  other  assets  and
liabilities of the reporting  unit if a business  combination  transaction  were
consummated  at the fair value of the  reporting  unit.  An  impairment  loss is
recorded to the extent that the implied  fair value of the goodwill is less than
the goodwill's  carrying amount.  No impairments of our goodwill were identified
in our annual evaluation at December 31, 2005.

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

                                       10
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

         Any long-lived  assets which we expect to sell or otherwise  dispose of
prior to their  previously  estimated useful life are stated at what we estimate
to be the lower of their  estimated net realizable  value (less cost to sell) or
their carrying value. No impairments  were identified from our evaluations as of
September 30, 2006.

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

         We utilize the Fair Value Method (as defined in Note 14) of  accounting
for our employee stock options.  Restricted  stock unit expense is recorded over
the relevant vesting period. See Note 14 for a discussion of our accounting with
respect to employee stock options and restricted stock units.

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

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

         Included in  depreciation  and  amortization  expense for the three and
nine  months  ended   September  30,  2006,  is   $1,304,000   and   $3,584,000,
respectively, compared to $1,376,000 and $5,159,000,  respectively, for the same
periods in 2005, related to depreciation of other assets.

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

         Accrued and other  liabilities  consist  primarily of real and personal
property  tax  accruals,  value-added  tax ("VAT")  with respect to our European
operations,  prepayments of rents,  trade  payables,  losses and loss adjustment
liabilities from our insurance programs (described below), and accrued interest.
Prepaid rent totaled  $57,591,000 at September 30, 2006 ($26,145,000 at December
31, 2005).

         STOR-Re  Mutual  Insurance   Company,   Inc.   ("STOR-Re"),   which  is
consolidated  with the  Company,  was formed in 1994 as an  association  captive
insurance  company owned by the Company and  affiliates of the Company.  STOR-Re
provides  limited  property  and  liability  insurance  to the  Company  and its
affiliates for losses incurred during policy periods prior to April 1, 2004, and
was succeeded by PS Insurance Company Hawaii,  Ltd.  ("PSIC-H"),  a wholly-owned
subsidiary of the Company with respect to these insurance  activities for policy
periods  following March 31, 2004. We also utilize other  insurance  carriers to
provide  property and  liability  insurance  coverage in excess of STOR-Re's and
PSIC-H's  limitations  which are described in Note 16. STOR-Re and PSIC-H accrue
liabilities for covered losses and loss adjustment  expense,  which at September
30, 2006 totaled $32,690,000  ($32,797,000 at December 31, 2005) with respect to
insurance provided to the Company and its affiliates.

         Liabilities for losses and loss adjustment  expenses  include an amount
we determine  from loss  reports and  individual  cases and an amount,  based on
recommendations  from an  independent  actuary  that is a member of the American
Academy of Actuaries using a frequency and severity method,  for losses incurred
but  not  reported.  Determining  the  liability  for  unpaid  losses  and  loss
adjustment expense is based upon estimates.  While we believe that the amount is
adequate,  the  ultimate  loss may be in  excess  of or less  than  the  amounts
provided. See Note 16 for a discussion of our maximum aggregate annual exposure,
assuming the occurrence of multiple  significant  events. The methods for making
such  estimates  and for  establishing  the  resulting  liability  are  reviewed
quarterly.

                                       11
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

         PS Insurance Company,  Ltd ("PSIC"),  a wholly-owned  subsidiary of the
Company, reinsured policies against claims for losses to goods stored by tenants
in our  self-storage  facilities  for policy  periods  prior to March 31,  2004.
PSIC-H  succeeded  PSIC with  respect to these  tenant  re-insurance  activities
effective  April 1,  2004.  Prior to January  1,  2006,  both of these  entities
utilize third-party insurance coverage for losses from any individual event that
exceeds a loss of $500,000,  to a maximum of $10,000,000.  Commencing January 1,
2006,  PSIC-H covers losses up to $1,500,000 with third party insurers  covering
the next  $9,000,000  from any individual  event.  Losses below the  third-party
insurers'  deductible  amounts are accrued as cost of operations  for the tenant
re-insurance  operations.  Losses exceeding the third-party  insurers' limit are
the  responsibility  of PSIC-H.  See Note 16 for a discussion  of our  reinsured
policies outstanding at September 30, 2006.

         The  accrued  liability  for losses and loss  adjustment  expense  with
respect to tenant insurance  activities totaled $3,261,000 at September 30, 2006
($4,773,000 at December 31, 2005).

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

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

         In prior  periods,  intangible  assets  (original  acquisition  cost of
$165,000,000  and net book  value of  $98,081,000  at  December  31,  2005) were
presented on our consolidated  balance sheets. For all periods presented herein,
we have  reclassified  this  intangible  asset to goodwill  on our  accompanying
condensed  consolidated balance sheets and, in accordance with the provisions of
SFAS 142 as applied to the  reclassification  effective April 1, 2006, we ceased
amortization.

         Included in depreciation and  amortization  expense for the nine months
ended  September  30,  2006 is  $1,651,000  (none  for the  three  months  ended
September 30, 2006) related to the amortization of our intangibles and goodwill,
as compared to  $1,651,000  and  $4,953,000  for the three and nine months ended
September  30,  2005,  respectively.  Goodwill  is reported  net of  accumulated
amortization  of $85,085,000  and $83,434,000 at September 30, 2006 and December
31, 2005,  respectively,  on our  accompanying  condensed  consolidated  balance
sheets.

         As a  result  of  the  merger  with  Shurgard  (Note  3),  we  acquired
finite-lived  intangible  assets,  which were valued in our purchase  accounting
analysis,  represented  by  the  value  of  the  storage  tenants  in  place  of
$428,643,000  and by the land leases with rent  payments  that are below market,
valued at $35,639,000. The tenant intangible assets are being amortized relative
to the expected future benefit of the tenants in place to each period. Also as a
result of the merger  with  Shurgard,  we acquired  indefinite-lived  intangible
assets,  which were valued in our purchase accounting  analysis,  represented by
the value of the  Shurgard  tradename  of  $18,825,000.  We  continue to use the
Shurgard  tradename in Europe. In accordance with the provisions of SFAS 142, we
are not amortizing these  indefinite-lived  intangible  assets and are analyzing
them on an annual basis for recoverability.  Amortization expense of $50,626,000
was recorded for our finite-lived  intangible  assets for the three months ended
September  30,  2006.  The  estimated  annual   amortization   expense  for  our
finite-lived  intangible  assets for the current year and each of the next three
years ending December 31 is as follows:

   2006 (after September 30, 2006)                  $ 94,800,000
   2007                                              194,700,000
   2008                                               55,898,000
   2009                                               33,819,000

                                       12
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

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

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

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

         Cost  of  operations,  general  and  administrative  expense,  interest
expense, as well as television,  yellow page, and other advertising expenditures
are expensed as incurred. Accordingly, the amounts incurred in an interim period
may  not be  indicative  of the  amounts  to be  incurred  during  a full  year.
Television,  yellow page, and other advertising  expenses totaled $7,103,000 and
$24,726,000   for  the  three  and  nine  months  ended   September   30,  2006,
respectively, and $7,486,000 and $24,049,000, respectively, for the same periods
in 2005.  Television,  yellow  page,  and  other  advertising  expenses  totaled
$1,075,000  for the three  and nine  months  ended  September  30,  2006 for our
European operations.

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

         The  local  currency  is  the  functional  currency  for  our  European
subsidiaries. Assets and liabilities are translated at end-of-period rates while
revenues and  expenses  are  translated  at average  rates in effect  during the
period.  Equity is translated at historical  rates and the resulting  cumulative
translation  adjustments  are  included  as a  component  of  accumulated  other
comprehensive income (loss) until the translation adjustments are realized.

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

         In connection with the Company's merger with Shurgard, we have acquired
certain  preexisting  derivative  financial  instruments  held by Shurgard  (the
"Shurgard  Derivatives"),  including  interest  rate caps,  interest rate swaps,
cross-currency swaps and foreign currency forward contracts. We do not intend to
use derivative financial instruments for speculative or trading purposes.

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

         As of September 30, 2006, and for the three and nine month periods then
ended, none of the Shurgard Derivatives were considered effective hedges because
we believe  it is not highly  likely  that the debt and the  related  derivative
instruments  will  remain  outstanding  for  their  entire  contractual  period.
Accordingly, all changes in fair value are reflected in earnings, along with the
related cash flows from these  instruments,  under "net income from derivatives"
on our condensed consolidated statement of income. For the three and nine months
ended September 30, 2006, net income from  derivatives was comprised of a change
in  value of the  related  instruments  representing  a gain of  $913,000,  less
$881,000  in net  payments  incurred  during  the  period  under the  underlying
instruments.

                                       13
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

         Other Comprehensive Income (Loss)
         ---------------------------------
         Our comprehensive income (loss) is as follows:

<TABLE>
<CAPTION>

                                                   For the Three Months Ended            For the Nine Months Ended
                                                  --------------------------------     --------------------------------
                                                   September 30,    September 30,       September 30,     September 30,
                                                       2006              2005                2006             2005
                                                  --------------   --------------      --------------   -------------
<S>                                                <C>              <C>                 <C>              <C>
     Net income................................    $    81,181      $   128,344         $   324,259      $   333,021
     Accumulated other comprehensive loss:
        Foreign currency translation
     adjustments...............................        (11,269)               -             (11,269)               -
                                                  --------------   --------------      --------------   -------------
     Total comprehensive income................    $    69,912      $   128,344         $   312,990      $   333,021
                                                  ==============   ==============      ==============   =============
</TABLE>

         The foreign currency translation adjustment represents the net currency
translation  adjustment  gains and losses  related to our European  subsidiaries
acquired  in the  merger  with  Shurgard  measured  from the date of the  merger
through September 30, 2006. Amounts are presented net of minority interests.


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

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

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

         Distributions  paid to the holders of our  Cumulative  Preferred  Stock
totaling  $60,265,000  and  $43,726,000 for the three months ended September 30,
2006 and 2005, respectively, have been deducted from net income to arrive at net
income  allocable to our common  shareholders  (dividends paid to holders of our
Cumulative  Preferred Stock totaled  $159,256,000  and $126,286,000 for the nine
months ended September 30, 2006 and 2005, respectively).

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

         On September 28, 2006,  we redeemed our 8.00% Series R Preferred  Stock
for $510,000,000  plus accrued and unpaid dividends.  In addition,  on September
26,  2006,  we called for  redemption  our 7.875%  Series S Preferred  Stock for
$143,750,000  plus  accrued and unpaid  dividends.  The Series S was redeemed on
October 31,  2006.  As a result of these  redemptions,  there was an  additional
allocation to the preferred shareholders of approximately $21,643,000 ($0.16 per
common share,  based upon the weighted  average  diluted  shares during the nine
months  ended  September  30,  2006)  during  the  three and nine  months  ended
September 30, 2006 (none and  $1,904,000  for the same periods in 2005) from the
application  of EITF Topic D-42. It is our policy to record such  allocations at
the time the securities are called for redemption.

                                       14
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

         Net  income  allocated  to our  common  shareholders  has been  further
allocated  among our two classes of common stock;  our regular  common stock and
our Equity Stock,  Series A. The allocation  among each class was based upon the
two-class method. Under the two-class method,  earnings per share for each class
of common stock are determined  according to dividends declared (or accumulated)
and participation rights in undistributed earnings.  Under the two-class method,
the  Equity  Stock,  Series  A, was  allocated  net  income  of  $5,356,000  and
$5,356,000 for three months ended September 30, 2006 and 2005, respectively, and
$16,068,000  and  $16,087,000  for the nine months ended  September 30, 2006 and
2005, respectively. A loss of $6,083,000 and income of $79,262,000 for the three
months ended  September  30, 2006 and 2005,  respectively,  was allocated to the
regular common  shareholders  (income of $127,292,000  and  $188,744,000 for the
nine months ended September 30, 2006 and 2005, respectively).

         Basic net  income  per share is  computed  using the  weighted  average
common  shares  outstanding  (prior to the dilutive  impact of stock options and
restricted  stock units  outstanding).  Diluted  net income per common  share is
computed using the weighted average common shares outstanding  (adjusted for the
dilutive impact of stock options and restricted  stock units  outstanding).  The
stock options and restricted stock units were  anti-dilutive in the three months
ended September 30, 2006 and were not reflected in diluted net income per common
share for that period.  Weighted  average common shares excludes shares owned by
the Consolidated Entities as described in Note 12 for all periods presented,  as
these shares of common stock are eliminated in consolidation.

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

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

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

         On August 22,  2006,  the Company  merged with  Shurgard,  a REIT which
owned 487  self-storage  facilities  in the United  States and 160  self-storage
facilities in Europe.  We believe this merger will provide a number of strategic
and  financial  benefits  and growth  opportunities  for us by  solidifying  our
position as the largest  owner and operator of  self-storage  facilities  in the
U.S.,  enhancing  access  to  capital,   eliminating   duplicative  general  and
administrative  expenses and  improving  cost  efficiencies,  increasing  growth
opportunities  and providing greater  geographic and financial  diversification.
The operations of Shurgard reside primarily  within our existing  Self-storage -
Domestic segment, and have resulted in a new segment, Self-storage - Europe.

         Under the terms of the agreement,  Shurgard  shareholders received 0.82
shares of Public  Storage  common stock for each share of Shurgard  common stock
they owned.
                                       15
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

         Total  consideration  for  the  merger   approximated   $5,346,965,000,
comprised  of i) the issuance of 38.9 million  shares of Public  Storage  common
stock (valued at approximately  $3,116,850,000  based upon the average of Public
Storage's  share  closing  price for five days before,  the day of and five days
after the acquisition announcement date of March 7, 2006), ii) the assumption of
Shurgard's  domestic and European  notes payable and capital  leases with a fair
value of approximately  $1,395,763,000 of which $67,275,000 was repaid following
the  merger  iii)  the  assumption  of  Shurgard's   line  of  credit   totaling
$603,772,000,  which was repaid following the merger, iv) the issuance of vested
common stock options in exchange for Shurgard stock  options,  with an estimated
intrinsic  value of  approximately  $69,296,000,  and v)  $161,284,000  in cash,
comprised of $137,916,000 to redeem  Shurgard's  outstanding  preferred stock at
liquidation value, and approximately  $49,404,000 in direct costs of the merger,
less $20,036,000 in cash held by Shurgard at the date of the merger.

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

      Operating real estate facilities                         $  4,979,859
      Construction in process                                        90,669
      Intangible assets                                             483,107
      Other assets                                                  100,411
      Accrued and other liabilities                                (162,730)
      Minority interest                                            (144,351)
                                                            ---------------
       Total allocated Purchase Price to net assets acquired   $  5,346,965

         Intangible assets consist of the estimated value of Shurgard's existing
tenants in place,  the estimated value of Shurgard's  existing land leases,  and
the estimated value of Shurgard's tradename,  which we expect to continue to use
in Europe. Each intangible,  except the Shurgard  tradename,  have finite lives.
See Note 2 for further discussion of the amortization method with respect to the
intangible assets acquired in the merger with Shurgard.

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

                                       16
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

<TABLE>
<CAPTION>


                                       Three Months Ended            Nine Months Ended
                                           September 30,                September 30,
                                        2006         2005            2006         2005
                                      ----------- ------------    ------------ -----------
                                        (Amounts in thousands, except per share data)

<S>                                   <C>          <C>             <C>          <C>
Revenues..........................    $437,877     $396,386        $1,271,171   $1,139,762
Net income........................    $ 23,305     $ 27,120        $  153,501   $  106,731
Loss per common share:
  Basic...........................    $  (0.38)    $   (0.18)      $  (0.38)    $  (0.38)
  Diluted.........................    $  (0.38)    $   (0.18)      $  (0.38)    $  (0.38)

</TABLE>

4.       Discontinued Operations
         -----------------------

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

         Since  January 1, 2002, we closed a total of 43  containerized  storage
facilities that were determined to be non-strategic  (the "Closed  Facilities").
As the  decision  was made to close  each  facility,  the  related  assets  were
evaluated for  recoverability and asset impairment charges were recorded for the
excess of these  assets'  net book value over  their fair value  (less  costs to
sell),  determined based upon recent selling prices for similar assets. No asset
impairment  or lease  termination  charges were  recorded  for these  facilities
during the three or nine months ended September 30, 2006 and 2005.

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

         During  July  2005,  in  an  eminent  domain  proceeding,  one  of  our
self-storage facilities located in the Portland, Oregon market was condemned. We
received the proceeds,  totaling $6,590,000,  from the disposal of this facility
during the third quarter of 2005 and recorded a gain on sale of $5,180,000.

         During the first quarter of 2006, in an eminent domain proceeding,  one
of our self-storage  facilities  located in the Seattle,  Washington  market was
condemned.  We received  the proceeds  from the  condemnation  of  approximately
$4,257,000 in July 2006,  and recorded a gain on  disposition  of  approximately
$2,370,000 in the third quarter of 2006.

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

                                       17
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

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

Discontinued Operations:
------------------------
<TABLE>
<CAPTION>
                                       Three Months Ended            Nine Months Ended
                                           September 30,                September 30,
                                        2006         2005            2006         2005
                                     ------------ ---------       ----------   --------
                                                    (Amounts in thousands)
Rental income (a):
<S>                                   <C>          <C>             <C>          <C>
  Eminent Domain Facilities.......    $     1      $   281         $   193      $   792
  Closed Facilities...............          -            -               -           95
                                     ------------ ---------       ----------   --------
Total rental income...............          1          281             193          887
                                     ------------ ---------       ----------   --------
Cost of operations (a):
  Eminent Domain Facilities.......         21           80             109          330
  Closed Facilities...............          -            -               -          194
                                     ------------ ---------       ----------   --------
Total cost of operations..........         21           80             109          524
                                     ------------ ---------       ----------   --------
Depreciation expense (a):
  Eminent Domain Facilities.......          9           41              50          121
  Closed Facilities...............          -            -               -           29
                                     ------------ ---------       ----------   --------
Total depreciation ...............          9           41              50          150
Other items (b)...................      2,370        5,180           2,370        6,323
                                     ------------ ---------       ----------   --------
Net discontinued operations (c)...    $ 2,341      $ 5,340         $ 2,404      $ 6,536
                                     ============ =========       ==========   ========
</TABLE>

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

(b)      For the three and nine months  ended  September  30, 2006 and 2005,  we
         recorded gains totaling  $2,370,000 and  $5,180,000,  respectively,  in
         connection with the Eminent Domain Facilities (see Note 5). Also during
         the nine months ended September 30, 2005, non-real estate assets of the
         Closed   Facilities  were  sold,   resulting  in  a  gain  on  sale  of
         approximately $1,143,000.

(c)      Earnings per share were  increased by $0.02 and $0.04 per share for the
         three and nine months ended  September 30, 2006,  respectively,  ($0.02
         and $0.05 per share for the three and nine months ended  September  30,
         2005), due to the impact from discontinued operations.

                                       18
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)


5.       Real Estate Facilities

         Activity in real estate facilities is as follows:

                                                               Nine Months Ended
                                                              September 30, 2006
                                                            --------------------
                                                                   (Amounts in
                                                                    thousands)
Real estate facilities, at cost:
   Balance at December 31, 2005........................        $    5,930,484
   Facilities consolidated pursuant to EITF 04-5 (Note 2)              22,459
   Merger with Shurgard (Note 3).......................             4,979,859
   Newly developed facilities opened for operations....                70,049
   Acquisition of real estate facilities...............               103,544
   Disposition of real estate facilities...............                (3,505)
   Acquisition of minority interests...................                49,284
   Capital improvements................................                44,366
   Impact of foreign exchange rate changes.............               (20,849)
                                                            --------------------
   Balance at September 30, 2006.......................            11,175,691
                                                            --------------------
Accumulated depreciation:
   Balance at December 31, 2005........................            (1,500,128)
   Additions during the year...........................              (156,395)
   Dispositions during the year........................                   786
                                                            --------------------
   Balance at September 30, 2006.......................            (1,655,737)
                                                            --------------------
Construction in process:
   Balance at December 31, 2005........................                54,472
   Current development.................................                70,903
   Merger with Shurgard (Note 3).......................                90,669
   Expensing of development costs......................                (9,319)
   Dispositions........................................                (4,970)
   Newly developed facilities opened for operations....               (70,049)
   Impact of foreign exchange rate changes.............                  (643)
                                                            --------------------
   Balance at September 30, 2006.......................               131,063
                                                            --------------------
Total real estate facilities at September 30, 2006.....        $    9,651,017
                                                            ====================

         During the nine months ended  September 30, 2006, we opened three newly
developed  self-storage  facilities  (281,000 net  rentable  square feet) for an
aggregate cost of $49,519,000.  We also completed three projects which converted
space  previously  used by our  containerized  storage  business into 92,000 net
rentable square feet of self-storage  space for an aggregate cost of $7,243,000.
In  addition,  we completed  five  expansion  projects to existing  self-storage
facilities  adding  116,000 net rentable  square feet for an  aggregate  cost of
$9,556,000,   and  we  incurred  trailing  development  costs  with  respect  to
development  projects  completed  in prior years,  for an aggregate  net cost of
$3,731,000.

         During the nine months ended  September 30, 2006, we received  $466,000
of additional proceeds from a partial  condemnation that occurred in 2005. These
additional proceeds are reflected as a gain on disposition of real estate on our
condensed consolidated  statements of income for the three and nine months ended
September 30, 2006. During the nine months ended September 30, 2006, we disposed
of parcels of vacant land for an  aggregate of  $6,558,000,  recording a gain of
$756,000.  Also during the nine months ended September 30, 2006, we received the
proceeds,  totaling $4,257,000, from the condemnation of one of our self-storage
facilities located in Seattle Washington, and recorded a gain of $2,370,000.

                                       19
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

         Excluding self-storage  facilities acquired in the merger with Shurgard
(see Note 3),  during the nine months ended  September  30, 2006, we acquired 12
self-storage facilities (872,000 net rentable square feet) from third parties at
an aggregate cost of $103,544,000, consisting of $98,954,000 in cash and assumed
mortgage debt totaling $4,590,000.

         Construction in process at September 30, 2006 consists  primarily of 44
projects (2,322,000 net rentable square feet) which expand or enhance the visual
and  structural  appeal  of our  existing  self-storage  facilities  with  costs
incurred of  $71,707,000  at  September  30, 2006 and total  estimated  costs to
complete of $147,525,000,  and five projects  (428,000 net rentable square feet)
to convert space at former  containerized  storage  facilities into self-storage
space  with  costs  incurred  of  $4,872,000  at  September  30,  2006 and total
estimated costs to complete of  $14,011,000.  Also in connection with the merger
with  Shurgard,  we  acquired  a pipeline  of future  developments  in  existing
Shurgard  markets in Europe,  which at  September  30, 2006 was  comprised of 11
facilities   (541,000  net  rentable   square  feet)  with  costs   incurred  of
approximately $54,484,000 and total estimated costs to complete of approximately
$34,983,000.

         Our policy is to capitalize interest incurred on debt during the course
of construction of our  self-storage  facilities.  Interest  capitalized for the
three and nine months ended  September  30, 2006 was  $530,000  and  $1,599,000,
respectively. Interest capitalized for the three and nine months ended September
30, 2005 was $710,000 and $2,054,000, respectively.

6.       Investment in Real Estate Entities
         ----------------------------------

         At September 30, 2006, our investments in real estate entities  consist
of ownership  interests in the  Unconsolidated  Entities.  These  interests  are
non-controlling  interests  of less  than 50% and are  accounted  for  using the
equity method of accounting. Accordingly, earnings are recognized based upon our
ownership  interest in each of the entities.  The  accounting  policies of these
entities are similar to those of the Company.

         For the three and nine months ended  September  30, 2006, we recognized
earnings  from  our  investments  in real  estate  entities  of  $2,618,000  and
$9,208,000, respectively, as compared to $9,853,000 and $20,382,000 for the same
periods in 2005.

         Equity in earnings of real estate entities  includes our pro rata share
of the net  impact of  gains/losses  on sales of assets and  impairment  charges
relating to the  impending  sale of real  estate  assets as well as our pro rata
share of the impact of the  application  of EITF Topic  D-42 on  redemptions  of
preferred  securities  recorded by PSB.  Our net pro rata share from these items
resulted in a net  decrease of equity in earnings of $576,000  and  $282,000 for
the three and nine months ended September 30, 2006, respectively.  For the three
and nine months  ended  September  30,  2005,  our pro rata share of these items
resulted in net increases of $5,458,000 and  $7,033,000,  respectively.  See the
condensed   financial   information  with  respect  to  PSB  below  for  further
information regarding these items recorded by PSB.

         We received  cash  distributions  from our  investments  in real estate
entities for the nine months ended  September 30, 2006 and 2005, of  $15,049,000
and $17,015,000, respectively.

         The following  table sets forth our investments in real estate entities
at September 30, 2006 and December 31, 2005,  and our equity in earnings of real
estate  entities for the three and nine months ended September 30, 2006 and 2005
(amounts in thousands):

                                       20
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                     Equity in Earnings of Real         Equity in Earnings of Real
                                   Investments in Real Estate       Estate Entities for the Three      Estate Entities for the Nine
                                          Entities at                Months Ended September 30,         Months Ended  September 30,
                              -----------------------------------  -------------------------------    -----------------------------
                                September 30,       December 31,
                                     2006               2005              2006          2005            2006        2005
                              ----------------   ----------------  ---------------  ------------      -------------- --------------
<S>                             <C>               <C>              <C>            <C>                 <C>             <C>
PSB (a)......................   $   285,260       $     288,694    $     2,018    $     8,251         $     7,634     $    15,829
Acquisition Joint Venture....         2,018               2,865             38              7                  53             (13)
Other Investments (b)........        14,590              36,996            562          1,595               1,521           4,566
                              ----------------   ----------------  ---------------  ------------      -------------- --------------
  Total......................   $   301,868       $     328,555    $     2,618    $     9,853         $     9,208     $     20,382
                              ================   ================  ============== ==============     =============== ==============

</TABLE>


(a)      Equity in earnings of real estate entities  includes our pro rata share
         of the net  impact of  gains/losses  on sale of assets  and  impairment
         charges relating to the impending sale of real estate assets as well as
         our pro rata share of the impact of the  application of EITF Topic D-42
         on  redemptions  of preferred  securities  recorded by PSB. Our net pro
         rata share from these  items  resulted  in a net  decrease of equity in
         earnings  of  $576,000  and  $282,000  for the three and  months  ended
         September 30, 2006,  respectively.  For the three and nine months ended
         September 30, 2005,  our pro rata share of these items  resulted in net
         increases of $5,458,000 and $7,033,000, respectively.

(b)      As  described  in Note  2,  effective  January  1,  2006  we  commenced
         consolidating  the accounts of three  limited  partnerships  previously
         accounted for under the equity method of  accounting.  As a result,  we
         decreased  our  investment  in  these   partnerships  by  approximately
         $20,846,000 on January 1, 2006.

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

         PS  Business  Parks,  Inc.  is a  REIT  traded  on the  American  Stock
Exchange,  which controls an operating partnership  (collectively,  the REIT and
the operating partnership are referred to as "PSB"). We have a 44% common equity
interest  in PSB as of  September  30,  2006.  This  common  equity  interest is
comprised  of our  ownership  of  5,418,273  shares  of PSB's  common  stock and
7,305,355  limited  partnership  units  in the  operating  partnership  at  both
September 30, 2006 and December 31, 2005;  these limited  partnership  units are
convertible at our option, subject to certain conditions, on a one-for-one basis
into PSB common  stock.  Based upon the  closing  price at  September  30,  2006
($60.30 per share of PSB common stock),  the shares and units had a market value
of approximately $767.2 million as compared to a book value of $285.3 million.

         At  September  30,  2006,  PSB owned  approximately  18.2  million  net
rentable square feet of commercial  space. In addition,  PSB manages  commercial
space owned by the Company and the  Consolidated  Entities  pursuant to property
management agreements.

         The following  table sets forth the condensed  statements of operations
for the  nine  months  ended  September  30,  2006 and  2005  (as  restated  for
discontinued  operations),  and the condensed balance sheets of PSB at September
30, 2006 and  December  31,  2005.  The amounts  below  represent  100% of PSB's
balances and not our pro rata share.

<TABLE>
<CAPTION>

                                                          Nine Months Ended September 30,
                                                        -------------------------------------
                                                               2006               2005
                                                        ----------------    -----------------
                                                             (Amounts in thousands)
<S>                                                      <C>                 <C>
   Total revenue....................................     $      180,050      $      164,240
   Cost of operations and other operating expenses..            (60,618)            (52,938)
   Other income and expense, net....................              3,799               1,914
   Depreciation and amortization....................            (63,720)            (56,203)
   Discontinued operations (a)......................              1,643              14,549
   Minority interest................................            (13,450)            (12,445)
                                                        ------------------   ---------------
     Net income.....................................     $       47,704      $       59,117
                                                        ==================   ================
</TABLE>
                                       21
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                           September 30,       December 31,
                                                              2006                  2005
                                                        -----------------   ----------------
                                                             (Amounts in thousands)
<S>                                                      <C>                 <C>
   Total assets (primarily real estate).............     $    1,442,588      $    1,463,678
   Total debt.......................................             43,267              25,893
   Other liabilities................................             45,357              39,126
   Preferred equity and preferred minority interest.            705,250             729,100
   Common equity and common minority interest.......            648,714             669,559

</TABLE>

(a)      Included in discontinued operations for the nine months ended September
         30,  2006 is a net gain on  disposition  of real  estate of  $2,328,000
         ($16,529,000 for the same period in 2005).

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

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

         The following table sets forth certain condensed financial  information
(representing  100% of this  entity's  balances and not our pro rata share) with
respect to the two  self-storage  facilities  acquired by the Acquisition  Joint
Venture that we account for using the equity method of accounting:
<TABLE>
<CAPTION>

                                                                 Nine Months Ended September 30,
                                                             --------------------------------------
                                                                     2006                  2005
                                                             -----------------     ----------------
                                                                    (Amounts in thousands)
<S>                                                           <C>                   <C>
   Total revenue........................................      $        1,104        $          961
   Cost of operations and other expenses................                (407)                 (364)
   Depreciation and amortization........................                (207)                 (202)
                                                             -----------------     ----------------
     Net income.........................................      $          490        $          395
                                                             =================     =================
</TABLE>

<TABLE>
<CAPTION>

                                                                  September 30,          December 31,
                                                                       2006                  2005
                                                             -----------------     ----------------
                                                                    (Amounts in thousands)
<S>                                                           <C>                   <C>
   Total assets (primarily storage facilities)..........      $        8,350        $        8,974
   Liabilities..........................................                  82                    62
   Partners' equity.....................................               8,268                 8,912

</TABLE>

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

         Other  Investments  at  September  30, 2006  consist  primarily  of our
aggregate 23% ownership interest in four limited partnerships (collectively, the
"Other Investments") owning an aggregate of 20 storage facilities. The following
table sets forth certain condensed financial  information  (representing 100% of
these  entities'  balances  and not our pro rata  share)  with  respect to Other
Investments:

                                       22
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                               Nine Months Ended September 30,
                                                             --------------------------------------
                                                                    2006               2005
                                                             ------------------  ------------------
                                                                  (Amounts in thousands)
<S>                                                           <C>                 <C>
   Total revenue........................................      $       11,989      $       11,356
   Cost of operations and other expenses................              (4,512)             (4,344)
   Depreciation and amortization........................              (1,305)             (1,331)
                                                             ------------------  ------------------
     Net income.........................................      $        6,172      $       5,681
                                                             ==================  ==================
</TABLE>

<TABLE>
<CAPTION>

                                                                September 30,            December 31,
                                                                     2006                     2005
                                                             ------------------  ------------------
                                                                  (Amounts in thousands)
<S>                                                           <C>                 <C>
   Total assets (primarily storage facilities)..........      $       40,298      $       39,813
   Other liabilities....................................               1,280               1,178
   Partners' equity.....................................              39,018              38,635

</TABLE>

7.       Revolving Line of Credit
         ------------------------

         We have a revolving  line of credit (the  "Credit  Agreement")  with an
aggregate   limit  with  respect  to   borrowings   and  letters  of  credit  of
$200,000,000,  that has a  maturity  date of April 1,  2007 and  bears an annual
interest  rate ranging from the London  Interbank  Offered Rate  ("LIBOR")  plus
0.50% to LIBOR plus 1.20% depending on our credit ratings  (currently LIBOR plus
0.50%). In addition,  we are required to pay a quarterly  commitment fee ranging
from  0.15%  per  annum to 0.30%  per  annum  depending  on our  credit  ratings
(currently the fee is 0.15% per annum).

         The Credit Agreement includes various  covenants,  the more significant
of which require us to (i) maintain a balance sheet  leverage ratio of less than
0.55 to 1.00, (ii) maintain certain quarterly interest and fixed-charge coverage
ratios  (as  defined  therein)  of not  less  than  2.25  to 1.0 and 1.5 to 1.0,
respectively,  and (iii)  maintain  a minimum  total  shareholders'  equity  (as
defined therein). In addition, we are limited in our ability to incur additional
borrowings  (we are required to maintain  unencumbered  assets with an aggregate
book value equal to or greater than 1.5 times our unsecured  recourse  debt). We
were in compliance  with all covenants of the Credit  Agreement at September 30,
2006.  At  September  30,  2006 and  November  8,  2006,  we had no  outstanding
borrowings on our line of credit.

         At September 30, 2006 and November 8, 2006, excluding Shurgard,  we had
undrawn standby letters of credit totaling  $17,919,000.  The  beneficiaries  of
these standby letters of credit were certain insurance companies associated with
our captive insurance and tenant re-insurance activities.  At September 30, 2006
and  November  8,  2006,  we had  undrawn  standby  letters  of credit  totaling
$3,149,000  assumed in the merger  with  Shurgard.  The  beneficiaries  of these
standby  letters of credit were  certain  insurance  companies  associated  with
Shurgard's  workers'   compensation   program  and  as  collateral  for  certain
construction projects and a mortgage note.

8.       Notes Payable
         -------------

         The carrying  amounts of our notes  payable at  September  30, 2006 and
December 31, 2005 consist of the following:

                                       23
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                      September 30,     December 31,
                                                                                          2006              2005
                                                                                     ---------------   ---------------
                                                                                             (Amounts in thousands)
DOMESTIC NOTES PAYABLE:

  5.875% effective and stated note rate, principal due in
<S>                                                                                    <C>              <C>
     March 2013 (a)......................................                              $    200,000     $          -

  5.73% effective rate, 7.75% stated note rate, principal due in
     February 2011(carrying amount includes $15,004 of unamortized
     premium at September 30, 2006) (a)......................                               215,004                -
  6.53% effective rate, 7.625% stated note rate, note principal
     due in April 2007 (carrying amount includes $304 of unamortized
     premium at September 30, 2006) (a).....................                                 50,304                -
  7.66% senior unsecured note due January 2007...............                                11,200           22,400

DOMESTIC MORTGAGE NOTES:

  Fixed rate mortgage notes payable, secured by 64 real estate
     facilities with a net book value of $802,100 at September 30, 2006,
     average effective interest rates of 5.59% and stated note rates
     between 4.95% and 8.78%, due between December 2006 and August 2015
     (carrying amount includes $4,683 of unamortized premium
     at September 30, 2006) (b)..............................                               169,751                -
  Variable rate mortgage notes payable, secured by seven real
     estate facilities with a net book value of $57,300 at
     September 30, 2006, (average interest rate of 7.29%
     at September 30, 2006), due between December 2007
     and August 2010 (b)......................................                               12,332                -

  Fixed rate mortgage notes payable,  secured by 35 real estate
     facilities with a net book value of $204,200 at September 30, 2006,
     stated note rates between 5.05% and 8.75%, principal and
     interest payable monthly, due at varying dates between October 2009
     and September 2028 (carrying amount includes $4,708 of unamortized
     premium  at September 30, 2006 ) (c)....................                                92,808           91,550

  EUROPEAN NOTES PAYABLE ASSUMED FROM SHURGARD:

  EUR 325 notes payable due in 2011, collateralized by 101 real estate
     facilities with a net book value of $784,871 at September 30, 2006
     (interest rate of EURIBOR + 0.51%, 3.578% average for quarter ended
     September 30, 2006,
     3.928% rate at September 30, 2006)......................                               412,280                -
  First and Second Shurgard credit  agreement,  due in 2008 and
     2009, secured by 53 real estate facilities with a net book value of
     $363,970 at September 30, 2006 (interest rate of EURIBOR + 2.25%,
     5.345% average for quarter ended September 30, 2006, 5.455% rate
     at September 30, 2006)..................................                               256,501                -
  Liability under Capital Leases.............................                                 6,353                -
                                                                                  -------------------    --------------
         Total notes payable.................................                           $ 1,426,533       $   113,950
                                                                                  ==================     ==============
</TABLE>


(a)      We assumed the 5.875%,  7.75%,  and 7.625% notes  payable in connection
         with the  merger  with  Shurgard.  The  notes  were  recorded  at their
         estimated  fair  value  based  upon  the  estimated  market  rate  upon
         assumption of approximately 5.875%, 5.73%, and 6.53%, respectively,  an
         aggregate  of  approximately  $465,692,000  as  compared  to the actual
         assumed balances of an aggregate $450,000,000.  This initial premium of
         $15,692,000 is amortized over the remaining term of the notes using the
         effective interest method.
                                       24
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

(b)      We assumed  additional  domestic  mortgage notes in connection with the
         merger  with  Shurgard.  The  mortgage  notes  were  recorded  at their
         estimated  fair  value  based  upon  the  estimated  market  rate  upon
         assumption  of  approximately  5.71%,  an  aggregate  of  approximately
         $184,592,000 as compared to the actual assumed balances of an aggregate
         $179,827,000.  This initial premium of $4,765,000 is amortized over the
         remaining  term of the  mortgage  notes  using the  effective  interest
         method.

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

         The domestic notes payable require  interest and principal  payments to
be paid semi-annually and have various restrictive covenants,  all of which have
been  met at  September  30,  2006.  Balances  at  September  30,  2006  include
$476,508,000  in domestic  notes payable  acquired in the merger with  Shurgard,
which includes $15,308,000 of unamortized premium.

         The domestic mortgage notes require interest and principal  payments to
be paid monthly and have various restrictive  covenants,  all of which have been
met at September 30, 2006.

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

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

         Balances  at  September  30,  2006  include  $182,083,000  in  domestic
mortgage  notes payable  acquired in the merger with  Shurgard,  which  includes
$4,683,000 of unamortized premium.

         First  Shurgard  and Second  Shurgard  have  senior  credit  agreements
denominated in euros to borrow,  in aggregate,  up to EUR 271.1 million  ($343.9
million as of September  30,  2006).  As of September  30, 2006,  the  available
amount under those credit facilities was, in aggregate,  EUR 68.9 million ($87.4
million).  Our  draws  under the  First  Shurgard  and  Second  Shurgard  credit
facilities are determined on a development  project basis,  or on an acquisition
project basis when  applicable  for Second  Shurgard,  and can be limited if the
completion of projects is not timely and if we have certain cost  overruns.  The
credit  facilities  also  require us to maintain a maximum  loan to value of the
collateral  ratio and a minimum debt service ratio. As of September 30, 2006, we
were in compliance with these financial covenants.

         At September 30, 2006,  approximate  principal  maturities of our notes
payable are as follows (amounts in thousands):
<TABLE>
<CAPTION>

                                                           Domestic
                                       Domestic         Mortgage Notes         European     Capital Leases
                                    Notes Payable           Payable         Notes Payable      - Europe          Total
                                   ---------------     ---------------     ---------------  ----------------  ------------
<C>                                  <C>                  <C>                  <C>               <C>            <C>
2006 (remainder of)..........        $        135         $    6,470           $    1,522        $  251         $   8,378
2007.........................              64,391             11,587                7,421           672            84,071
2008.........................               3,201             27,852              153,685           685           185,423
2009.........................               3,390              9,371               93,873           698           107,332
2010.........................               3,590             17,753                    -           648            21,991
Thereafter...................             401,801            201,858              412,280         3,399         1,019,338
                                   ---------------     ---------------     ---------------  ----------------  ------------
                                     $    476,508         $  274,891           $  668,781        $6,353         $1,426,533
                                   ==============      ===============      ==============  ================  ============
Weighted average rate........               5.9%               5.6%                4.4%            9.9%            5.2%
                                   ==============      ===============      ==============  ================  ============
</TABLE>

                                       25
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

         We  incurred  interest  expense  with  respect  to  our  notes  payable
aggregating  $12,075,000  and $5,800,000 for the nine months ended September 30,
2006 and 2005,  respectively.  These amounts were comprised of  $13,043,000  and
$6,574,000  in cash for the nine  months  ended  September  30,  2006 and  2005,
respectively,   less   $968,000  and  $774,000  in   amortization   of  premium,
respectively.

9.       Debt to Joint Venture Partner
         -----------------------------

         As described more fully in Note 2, our partner's  equity  contributions
with  respect  to certain  transactions  has been  classified  as debt under the
caption  "Debt to Joint  Venture  Partner."  The  balances  of  $37,214,000  and
$35,697,000 as of September 30, 2006 and December 31, 2005, approximate the fair
value of our partners'  interest in these facilities as of each respective date.
We increased the note balance by $1,386,000 at September 30, 2006 as a result of
our periodic review of fair value as described in Note 2.

         A total of $2,276,000 and  $2,182,000 was recorded as interest  expense
on our condensed  consolidated  statements of income with respect to our Debt to
Joint Venture  Partner during the nine months ended September 30, 2006 and 2005,
respectively,  representing  our  partner's  pro rata share of net earnings with
respect to the  properties  we sold to the  Acquisition  Joint  Venture (an 8.5%
return on their  investment).  This interest expense was comprised of a total of
$2,146,000  and  $2,052,000  paid to our joint  venture  partner (an 8.0% return
payable currently in accordance with the partnership  agreement) during the nine
months ended  September  30, 2006 and 2005,  respectively,  and increases in the
Debt to Joint  Venture  Partner of $130,000  for each of the nine month  periods
ended September 30, 2006 and 2005, respectively.

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

10.      Derivative Financial Instruments
         --------------------------------

         As  described in Note 2, under  Derivative  Financial  Instruments,  we
report these  derivative  financial  instruments  at fair value on our unaudited
condensed  consolidated  balance sheet at September 30, 2006 and changes in fair
values from the date of the Shurgard  merger  through  September 30, 2006,  have
been  recognized  in  earnings.  The  respective  balances  of  these  financial
instruments  are included in other assets and accrued and other  liabilities  as
follows:

                                                              September 30, 2006
                                                             -------------------
                                                                  (Amounts in
                                                                  thousands)
Assets:
   Debt-related contracts..............................        $        3,553
   Foreign currency exchange contracts.................                 1,243
                                                             ------------------
                                                                      $ 4,796
                                                             ==================
Liabilities:
   Debt-related contracts..............................        $       (5,097)
   Foreign currency exchange contracts.................                (4,721)
                                                             ------------------
                                                               $       (9,818)
                                                             ==================

11.      Minority Interest
         -----------------

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

                                       26
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

         Preferred Partnership Interests

         The  following  table  summarizes  the  preferred   partnership   units
outstanding at September 30, 2006 and December 31, 2005:
<TABLE>
<CAPTION>

                                                           September 30, 2006           December 31,2005
                                                        --------------------------  --------------------------
                    Earliest Redemption
                       Date or Dates      Distribution     Units       Carrying       Units        Carrying
      Series              Redeemed            Rate      Outstanding     Amount     Outstanding      Amount
------------------  --------------------  ------------  ------------  ----------  --------------  ------------
                                                                       (Amounts in thousands)
<S>                      <C>                   <C>           <C>      <C>               <C>       <C>
Series NN........        March 17, 2010        6.400%        8,000    $   200,000       8,000     $   200,000
Series Z.........      October 12, 2009        6.250%        1,000         25,000       1,000          25,000
Series J.........           May 9, 2011        7.250%        4,000        100,000           -               -
                                                          ----------  ----------- -------------- --------------
Total............                                           13,000    $   325,000       9,000     $   225,000
                                                          ==========  =========== ============== ==============
</TABLE>

         Income   allocated  to  the  preferred   minority   interests   totaled
$13,652,000  and  $13,430,000  for the nine months ended  September 30, 2006 and
2005, respectively, comprised of distributions paid and the allocation of income
resulting from the application of EITF Topic D-42 (see below).

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

         On May 9, 2006, one of the Consolidated Entities issued 4,000,000 units
of our  7.25%  Series  J  Preferred  Partnership  Units  for  cash  proceeds  of
$100,000,000.

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

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

         Income is allocated to the minority interests based upon their pro rata
interest in the operating  results of the Consolidated  Entities.  The following
tables set forth the minority  interests at September  30, 2006 and December 31,
2005 as well as the income  allocated  to minority  interests  for the three and
nine  months  ended  September  30,  2006 and 2005  with  respect  to the  other
partnership interests (amounts in thousands):

                                       27
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)


                                                 Minority Interest at
                                          --------------------------------
                                           September 30,     December 31,
               Description                     2006              2005
------------------------------------------ --------------  ---------------
Convertible Partnership Units...........     $     6,031      $     6,177
Newly Consolidated Partnerships..........          4,372                -
Shurgard domestic joint ventures.........          8,912                -
Shurgard European joint ventures.........        131,983                -
Other consolidated partnerships..........         23,406           22,793
                                            -------------   --------------
Total other partnership interests........    $   174,704      $    28,970
                                            =============   ==============

<TABLE>
<CAPTION>

                                             Minority Interests in Income (Loss)     Minority Interests in Income (Loss)
                                                  for the Three Months Ended             for the Nine Months Ended
                                             -----------------------------------     -----------------------------------
                                               September 30,     September 30,        September 30,     September 30,
                   Description                     2006               2005                 2006             2005
    -----------------------------------------  --------------   ---------------       --------------    --------------
<S>                                              <C>              <C>                   <C>              <C>
     Convertible Partnership Units..........     $       120      $       148           $       356      $       350
     Consolidated Development Joint Venture..              -              826                     -            4,229
     Newly Consolidated Partnerships.........          1,468                -                 3,641                -
     Shurgard domestic joint ventures........            192                -                   192                -
     Shurgard European joint ventures........         (1,279)               -                (1,279)               -
     Other consolidated partnerships.........          2,686            2,678                 7,915            8,346
                                                -------------    --------------       ---------------   --------------
    Total other partnership interests.......     $     3,187      $     3,652           $    10,825      $    12,925
                                                 =============   ===============       ===============   ==============
</TABLE>

         Distributions  paid to minority  interests  for the three  months ended
September 30, 2006 and 2005 were $3,570,000 and $2,607,000, respectively and for
the  nine  months  ended  September  30,  2006  and 2005  were  $11,037,000  and
$11,805,000, respectively.

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

         As of  September  30,  2006,  one  of  the  Consolidated  Entities  had
approximately  231,978  convertible  operating  partnership units  ("Convertible
Units")  outstanding  (237,934  at December  31,  2005)  representing  a limited
partnership  interest in the partnership.  The Convertible Units are convertible
on a one-for-one basis (subject to certain limitations) into our common stock at
the option of the unit-holder.  Minority  interest in income with respect to the
Convertible Units reflects the Convertible Units' share of our net income,  with
net income  allocated to minority  interests  with  respect to weighted  average
outstanding  Convertible Units on a per unit basis equal to diluted earnings per
common share. During the three months ended September 30, 2006, a total of 5,956
units were converted into common shares (none during 2005).  As a result of this
conversion, minority interest was reduced by $155,000.

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

         In  November   1999,  we  formed  a  development   joint  venture  (the
"Consolidated  Development  Joint  Venture") with a joint venture  partner (PSAC
Storage  Investors,  LLC, referred to as "PSAC") whose partners included a third
party institutional investor and B. Wayne Hughes ("Mr. Hughes"), the Chairman of
the Board of the Company, to develop approximately  $100,000,000 of self-storage
facilities and to purchase $100,000,000 of the our Equity Stock, Series AAA (see
Note 12). We owned a controlling interest in the Consolidated  Development Joint
Venture and  included  the  accounts  of this  partnership  in our  consolidated
financial  statements  since its inception.  PSAC's interest in the Consolidated
Development Joint Venture was accounted for as minority interest,  as denoted in
the above table.
                                       28
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

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

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

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

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

         Through  the  merger  with  Shurgard,  we  acquired  two joint  venture
entities: First Shurgard SPRI (First Shurgard) formed in January 2003 and Second
Shurgard SPRL (Second  Shurgard)  formed in May 2004.  Those joint ventures were
expected  to develop or acquire up to  approximately  75 storage  facilities  in
Europe.  Shurgard Europe has a 20% interest in each of these  ventures.  We have
determined  that First  Shurgard and Second  Shurgard are each VIEs, and that we
are the primary  beneficiary.  Accordingly,  First Shurgard and Second  Shurgard
have  been  consolidated  in  our  unaudited  condensed  consolidated  financial
statements.  At September  30,  2006,  First  Shurgard  and Second  Shurgard had
aggregate total assets of $449.3 million,  total  liabilities of $284.3 million,
and credit  facilities  collateralized  by assets  with net book value of $256.5
million.  As of  September  30, 2006,  First  Shurgard's  and Second  Shurgard's
creditors  had no recourse to the general  credit of Public  Storage or Shurgard
Europe other than a commitment,  previously made by Shurgard, to subscribe to up
to $20 million and an  additional  EUR 7.5 million ($9.5 million as of September
30,  2006) in  preferred  bonds in order  for  First  Shurgard  to  fulfill  its
obligations under its senior credit  agreement.  We have an option to put 80% of
the bonds issued by First  Shurgard to Crescent  Euro Self Storage  Investments,
Shurgard Europe's partner in the joint venture.

         On September 5, 2006, we informed the joint  venture  partners of First
Shurgard and second  Shurgard of our  intention to purchase  their  interests in
First  Shurgard and Second  Shurgard,  pursuant to an "exit  procedure"  that we
believe is provided for in the respective agreements. Our joint venture partners
currently  contest  whether we have the right to purchase their  interests under
this procedure and,  accordingly,  it is uncertain as to whether we will acquire
their interests pursuant to these provisions.

         On August 24,  2006,  we informed the joint  venture  partners of First
Shurgard and Second  Shurgard of our  intention to purchase  their  interests in
First  Shurgard and Second  Shurgard,  pursuant to an "exit  procedure"  that we
believe is provided for in the respective agreements. Our joint venture partners
currently  contest  whether we have the right to purchase their  interests under
this procedure and,  accordingly,  it is uncertain as to whether we will acquire
their interest pursuant to these provisions.

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

         Following the merger with Shurgard,  we acquired the minority interests
in certain of  Shurgard's  joint  ventures,  for an aggregate  of  approximately
$60,799,000  in  cash.  As a result  of  these  transactions,  we  obtained  the
remaining interest in a total of 67 facilities. This acquisition was recorded as
a reduction  in  minority  interest  totaling  $11,515,000,  with the  remainder
allocated to real estate ($49,284,000).

                                       29
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

         The  partnership   agreements  of  the  Shurgard  Joint  Ventures  have
termination dates that cannot be unilaterally  extended by the Company and, upon
termination  of each  partnership,  the net  assets of these  entities  would be
liquidated  and paid to the minority  interests and the Company based upon their
relative ownership interests.

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

         The  partnership  agreements  of the  Other  Consolidated  Partnerships
included in the table above have  termination  dates that cannot be unilaterally
extended by the Company  and,  upon  termination  of each  partnership,  the net
assets of these entities would be liquidated and paid to the minority  interests
and the Company based upon their relative ownership interests.

         At September  30, 2006,  the Other  Consolidated  Partnerships  reflect
common equity interests that we do not own in 22 entities owning an aggregate of
73 self-storage facilities.

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

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

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

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

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

                                       30

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

12.      Shareholders' Equity
         --------------------

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

         At  September  30, 2006 and December  31,  2005,  we had the  following
series of Cumulative Preferred Stock outstanding:
<TABLE>
<CAPTION>
                                                          At September 30, 2006             At December 31, 2005
                                                      ------------------------------    --------------------------
                         Earliest
                        Redemption       Dividend          Shares        Carrying         Shares         Carrying
   Series                 Date (a)         Rate          Outstanding      Amount        Outstanding       Amount
----------------      ---------------   ------------   --------------  -------------  --------------   ------------
                                                                      (Dollar amounts in thousands)
<S>                      <C>                  <C>                  <C>            <C>      <C>         <C>
Series R                 9/28/06              8.000%               -    $         -        20,400      $   510,000
Series S                 10/31/06             7.875%               -              -         5,750          143,750
Series T                 1/18/07              7.625%           6,086        152,150         6,086          152,150
Series U                 2/19/07              7.625%           6,000        150,000         6,000          150,000
Series V                 9/30/07              7.500%           6,900        172,500         6,900          172,500
Series W                 10/6/08              6.500%           5,300        132,500         5,300          132,500
Series X                 11/13/08             6.450%           4,800        120,000         4,800          120,000
Series Y                 1/2/09               6.850%       1,600,000         40,000     1,600,000           40,000
Series Z                 3/5/09               6.250%           4,500        112,500         4,500          112,500
Series A                 3/31/09              6.125%           4,600        115,000         4,600          115,000
Series B                 6/30/09              7.125%           4,350        108,750         4,350          108,750
Series C                 9/13/09              6.600%           4,600        115,000         4,600          115,000
Series D                 2/28/10              6.180%           5,400        135,000         5,400          135,000
Series E                 4/27/10              6.750%           5,650        141,250         5,650          141,250
Series F                 8/23/10              6.450%          10,000        250,000        10,000          250,000
Series G                 12/12/10             7.000%           4,000        100,000         4,000          100,000
Series H                 1/19/11              6.950%           4,200        105,000             -                -
Series I                 5/3/11               7.250%          20,700        517,500             -                -
Series K                 8/8/11               7.250%          18,400        460,000             -                -
                                                        -------------  --------------  -----------    -------------
      Total Cumulative Preferred Stock                     1,715,486    $ 2,927,150     1,698,336      $ 2,498,400
                                                        =============  ==============  ===========    =============
</TABLE>

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

         The holders of our Cumulative  Preferred Stock have general  preference
rights with respect to liquidation and quarterly  distributions.  Holders of the
preferred stock, except under certain conditions and as noted below, will not be
entitled to vote on most matters.  In the event of a cumulative  arrearage equal
to six  quarterly  dividends or failure to maintain a Debt Ratio (as defined) of
50% or less,  holders of all outstanding  series of preferred stock (voting as a
single  class  without  regard  to  series)  will  have the  right to elect  two
additional  members to serve on the Company's Board of Directors until events of
default  have been cured.  At  September  30,  2006,  there were no dividends in
arrears and the Debt Ratio was 12.8%.

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

                                       31
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

         On January 19, 2006, we issued 4,000,000  depositary shares,  with each
depositary  share  representing  1/1,000  of a  share  of our  6.95%  Cumulative
Preferred  Stock,  Series H. The  offering  resulted  in  $100,000,000  of gross
proceeds.  On January  27,  2006,  we issued an  additional  200,000  depository
shares, with each depositary share representing  1/1,000 of a share of our 6.95%
Cumulative  Preferred Stock, Series H resulting in $5,000,000 of gross proceeds.
On May 3, 2006, we issued  20,700,000  depositary  shares,  with each depositary
share representing  1/1,000 of a share of our 7.25% Cumulative  Preferred Stock,
Series I. The offering resulted in approximately $517,500,000 of gross proceeds.

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

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

         During  the third  quarter  of 2006,  we issued  18,400,000  depositary
shares  each  representing  1/1,000  of a share our 7.25%  Cumulative  Preferred
Stock, Series K, for gross proceeds of approximately $460 million (including the
underwriters' overallotment option, which was exercised).

         On  September  26,  2006,  we called  for  redemption  all  outstanding
depositary  shares  representing  interests in our 7.875%  Cumulative  Preferred
Stock  Series S. The  redemption  occurred on October 31,  2006.  The  aggregate
redemption amount paid to all holders of the depositary  shares,  before payment
of accrued dividends,  was approximately  $143,750,000.  The redemption value of
$143,750,000 is classified as a liability at September 30, 2006 on our unaudited
condensed consolidated balance sheet.

         On September 28, 2006, we redeemed all of our outstanding  8.00% Series
R Cumulative Preferred Stock for $510,000,000 plus accrued and unpaid dividends.

         Subsequent to September 30, 2006, we issued 9,200,000 depositary shares
each  representing  1/1,000  of a share our 6.75%  Cumulative  Preferred  Stock,
Series L, for gross proceeds of approximately $230,000,000.

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

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

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

         At  September  30,  2006  and  December  31,  2005,  we  had  8,744,193
depositary shares  outstanding,  each representing  1/1,000 of a share of Equity
Stock,  Series A ("Equity  Stock A").  The Equity  Stock A ranks on parity  with
common  stock and  junior to the  Cumulative  Preferred  Stock  with  respect to
general  preference  rights and has a  liquidation  amount which  cannot  exceed
$24.50 per share.  Distributions  with respect to each depositary share shall be
the lesser of: (i) five times the per share dividend on our common stock or (ii)
$2.45 per annum.  We have no obligation to pay  distributions  on the depositary
shares if no distributions are paid to common shareholders.

                                       32
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

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

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

         In November  1999, we sold  $100,000,000  (4,289,544  shares) of Equity
Stock,  Series AAA ("Equity Stock AAA") to the  Consolidated  Development  Joint
Venture.  On November 17, 2005, upon the acquisition of Mr. Hughes'  interest in
PSAC, we owned 100% of the partnership interest in the Consolidated  Development
Joint  Venture.  For all periods  presented,  the Equity  Stock,  Series AAA and
related dividends are eliminated in consolidation.

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

         During the nine months  ended  September  30, 2006,  we issued  168,575
shares of our Common Stock in connection with employee stock-based compensation.
On  August  22,  2006,  we  issued  38,913,187  shares  of our  Common  Stock in
connection  with our  merger  with  Shurgard  (see  Note 3).  Subsequent  to the
acquisition,  we also  issued  1,808,962  shares of our  Common  Stock to former
employees  of Shurgard in  connection  with  employee  stock-based  compensation
arrangements that existed at the time of the acquisition.

         At  September  30, 2006 and  December  31,  2005,  certain  entities we
consolidate owned 1,146,207 shares of our Common Stock. These shares continue to
be legally issued and outstanding.  In the consolidation  process,  these shares
and the related balance sheet amounts have been eliminated.  In addition,  these
shares  are  not  included  in  the  computation  of  weighted   average  shares
outstanding.

         The  following  chart  reconciles  our legally  issued and  outstanding
shares of Common  Stock and the reported  outstanding  shares of Common Stock at
September 30, 2006 and December 31, 2005:

<TABLE>
<CAPTION>

                                                    September 30,       December 31,
Reconciliation of Common Shares Outstanding              2006                2005
-----------------------------------------------    --------------     --------------
<S>                                                  <C>               <C>
Legally issued and outstanding shares.......         170,132,450       129,235,770
Less - Shares owned by entities we consolidate
    that are eliminated in consolidation....          (1,146,207)       (1,146,207)
                                                   --------------     --------------
Reported issued and outstanding shares......         168,986,243       128,089,563
                                                   ==============     ==============
</TABLE>

         Dividends
         ---------

         The following table summarizes  dividends  declared and paid during the
nine months ended September 30, 2006:

                                       33
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)


<TABLE>
<CAPTION>
                                       Distributions Per
                                      Share or Depositary Share    Total Distributions
                                     ---------------------------  --------------------
Preferred Stock:
----------------
<S>                                                <C>             <C>
Series Q..............................             $0.108          $    742,000
Series R..............................             $1.483            30,255,000
Series S..............................             $1.477             8,490,000
Series T..............................             $1.430             8,700,000
Series U..............................             $1.430             8,580,000
Series V..............................             $1.406             9,703,000
Series W..............................             $1.219             6,459,000
Series X..............................             $1.209             5,805,000
Series Y..............................             $1.284             2,055,000
Series Z..............................             $1.172             5,274,000
Series A..............................             $1.148             5,283,000
Series B..............................             $1.336             5,811,000
Series C..............................             $1.238             5,694,000
Series D..............................             $1.159             6,258,000
Series E..............................             $1.266             7,152,000
Series F..............................             $1.209            12,093,000
Series G..............................             $1.313             5,250,000
Series H..............................             $1.219             5,121,000
Series I..............................             $0.750            15,529,000
Series K..............................             $0.272             5,002,000
                                                                 --------------
                                                                    159,256,000
Common Stock:
Equity Stock, Series A................             $1.838            16,068,000
Common ...............................             $1.500           213,281,000
                                                                ---------------
   Total dividends....................                           $  388,605,000
                                                                ===============
</TABLE>

         The  dividend  rate on the common  stock was $0.50 per common share and
$1.50 per common share for the three and nine months ended  September  30, 2006,
respectively. The dividend rate on the Equity Stock A was $0.6125 per depositary
share and  $1.8375  per  depositary  share for the three and nine  months  ended
September 30, 2006, respectively.


13.      Segment Information
         -------------------

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

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

                                       34
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

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

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

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

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

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

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

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

         The  following  table  reconciles  the  revenues of each segment to our
total revenues (thousands):

RECONCILIATION OF REVENUES BY SEGMENT
<TABLE>
<CAPTION>
                                           Three Months Ended                   Nine Months Ended
                                              September 30,                       September 30,
                                     --------------------------------     ------------------------------
                                        2006               2005              2006               2005
                                    --------------     --------------     --------------   -------------
<S>                                  <C>                <C>                <C>              <C>
Self-Storage - Domestic......        $    311,493       $    243,702       $    825,403     $    706,303
Self-Storage - European......              17,348                  -             17,348                -
Commercial properties........               3,408              2,918              9,413            8,693
Containerized storage facilities            4,353              4,480             12,483           12,305
Ancillary operations.........              22,106             17,587             55,649           48,803
Interest  and other  income  not
allocated to segment.........              12,651              4,717             27,773           11,004
                                    --------------     --------------     --------------   -------------
   Total Revenues............        $    371,359       $    273,404       $    948,069     $    787,108
                                    ==============     ===============    ==============   ==============

</TABLE>

                                       35
<PAGE>


                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

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

<TABLE>
<CAPTION>
                                                                     Three Months Ended             Nine Months Ended
                                                                        September 30,                 September 30,
                                                                  ----------------------------  ---------------------------
                                                                     2006           2005          2006            2005
                                                                  -------------  ------------ -------------   -----------
                                                                                  (Amounts in thousands)
Reconciliation of Net Income by Segment:

Self-storage - Domestic
  Self-storage net operating income before depreciation
<S>                                                               <C>            <C>           <C>            <C>
      and amortization ....................................       $   210,801    $   163,429   $   547,551    $ 463,984
  Depreciation and amortization............................           (97,689)       (47,021)     (194,747)    (139,863)
  Equity in earnings - self-storage property operations....               621          1,649         1,721        4,725
  Discontinued operations (Note 4) ........................             2,341          5,340         2,404        5,521
                                                                  -------------  ------------ -------------   -----------
      Total self-storage - Domestic segment net income.....           116,074        123,397       356,929      334,367
                                                                  -------------  ------------ -------------   -----------
Self-storage - European
  Self-storage net operating income before depreciation
      and amortization ....................................             8,824              -         8,824            -
  Depreciation and amortization............................           (15,020)             -       (15,020)           -
                                                                  -------------  ------------ -------------   -----------
      Total self-storage - European segment net income.....            (6,196)             -        (6,196)           -
                                                                  -------------  ------------ -------------   -----------
  Commercial  properties
  Commercial properties net operating income before
     depreciation and amortization.........................             1,911          1,796         5,333        5,401
  Depreciation and amortization............................              (643)          (562)       (1,777)      (1,721)
  Equity in earnings - commercial property operations......             8,885          9,385        26,741       26,978
                                                                  -------------  ------------ -------------   -----------
      Total commercial property segment net income.........            10,153         10,619        30,297       30,658
                                                                  -------------  ------------ -------------   -----------
  Containerized storage
  Containerized storage net operating income before
  depreciation.............................................               446            804         1,047        2,613
  Containerized storage depreciation.......................              (179)          (313)         (662)      (2,490)
  Discontinued operations (Note 4) ........................                 -              -             -        1,015
                                                                  -------------  ------------ -------------   -----------
      Total containerized storage segment net income.......               267            491           385        1,138
                                                                  -------------  ------------ -------------   -----------
  Ancillary Operations
   Revenue less cost of operations.........................             8,659          5,974        19,890       16,633
                                                                  -------------  ------------ -------------   -----------
  Other items not allocated to segments
  General and administrative and other included in equity in
     earnings..............................................            (6,888)        (1,181)      (19,254)     (11,321)
  Cumulative effect of change in accounting principal......                 -              -           578            -
  Interest and other income................................            12,651          4,717        27,773       11,004
  General and administrative...............................           (36,242)        (5,621)      (49,996)     (16,890)
  Interest expense.........................................            (9,323)        (2,471)      (12,752)      (5,928)
  Casualty loss............................................                 -           (196)            -         (196)
  Gain (loss) on disposition of real estate assets.........               756           (142)        1,222          (89)
  Foreign currency exchange loss...........................              (172)             -          (172)           -
  Income from derivatives, net.............................                32              -            32            -
  Minority interest in income..............................            (8,590)        (7,243)      (24,477)     (26,355)
                                                                  -------------  ------------ -------------   -----------
      Total other items not allocated to segments                     (47,776)       (12,137)      (77,046)     (49,775)
                                                                  -------------  ------------ -------------   -----------
       Total consolidated net income.......................       $    81,181    $   128,344   $   324,259    $ 333,021
                                                                  =============  ============ =============   ===========
</TABLE>


14.      Stock-Based Compensation
         ------------------------

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

         We have a 1990 Stock Option Plan (the "1990 Plan"),  which provides for
the grant of non-qualified  stock options. We have a 1994 Stock Option Plan (the
"1994 Plan"),  a 1996 Stock Option and Incentive Plan (the "1996 Plan"),  a 2000

                                       36
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

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

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

         For the three and nine  months  ended  September  30,  2006 we recorded
$360,000  and  $958,000,  respectively,  in stock  option  compensation  expense
related to options  granted  after  January 1, 2002, as compared to $240,000 and
$667,000, respectively, for the same periods in 2005.

         A total of 157,500  stock  options were granted  during the nine months
ended September 30, 2006,  128,273 shares were exercised,  and 2,000 shares were
forfeited.  On August 22, 2006, in connection with our merger with Shurgard,  we
converted each outstanding  Shurgard stock option into 0.82 options  exercisable
for shares of the  Company's  Common  Stock.  This  conversion  resulted  in the
issuance of 1,912,828 stock options. As of September 30, 2006,  1,746,900 of the
1,912,828  stock  options  issued in this exchange  were  exercised.  A total of
1,616,301  stock options were  outstanding  at September 30, 2006  (1,423,146 at
December 31, 2005).

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

         Outstanding  restricted  stock  units  vest  over a five or  eight-year
period from the date of grant at the rate of one-fifth or  one-eighth  per year,
respectively.  The  employee  receives  additional  compensation  equal  to  the
per-share  dividends received by common  shareholders with respect to restricted
stock units  outstanding.  Such compensation is accounted for as dividends paid.
Any dividends paid on units which are subsequently forfeited are expensed.  Upon
vesting,  the  employee  receives  common  shares  equal to the number of vested
restricted stock units in exchange for the units.

         The total value of each  restricted  stock unit  grant,  based upon the
market  price of our common stock at the date of grant,  is  amortized  over the
vesting period as compensation  expense. The related employer portion of payroll
taxes is expensed as incurred. Until December 31, 2005 (see below),  forfeitures
were recognized as experienced, reducing compensation expense.

         Effective  January 1, 2006, in accordance  with  Statement of Financial
Accounting  Standards  No.  123 -  revised  ("FAS  123R"),  we  began  recording
compensation  expense net of estimates for future  forfeitures  (the  "Estimated
Forfeiture  Method").  In addition,  we estimated  the  cumulative  compensation
expense that would have been recorded through December 31, 2005, had we used the
Estimated  Forfeiture Method,  would have been $578,000 lower.  Accordingly,  as
prescribed by FAS 123R, we recorded  this  adjustment as a cumulative  effect of
change  in  accounting  principal  on our  accompanying  condensed  consolidated
statement of income for the nine months ended September 30, 2006.

         Outstanding  restricted stock units are included on a one-for-one basis
in our diluted weighted average shares,  less a reduction for the treasury stock
method applied to the average cumulative measured but unrecognized  compensation
expense during the period.  For purposes of the disclosures  that follow,  "fair
value" on any  particular  date reflects the closing  market price of our common
stock on that date.
                                       37
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

         During the nine months ended  September  30, 2006,  387,420  restricted
stock units were granted,  20,960  restricted  stock units were  forfeited,  and
60,700  restricted stock units vested.  This vesting resulted in the issuance of
40,302 shares of the Company's Common Stock. In addition,  cash compensation was
paid to employees in lieu of 20,398 shares of Common Stock based upon the market
value of the stock at the date of vesting, and used to settle the employees' tax
liability generated by the vesting.

         At September 30, 2006,  approximately  605,590  restricted  stock units
were  outstanding  (299,830 at December 31,  2005).  A total of  $1,481,000  and
$3,910,000  in  restricted  stock  expense was  recorded  for the three and nine
months  ended  September  30,  2006,   respectively  ($956,000  and  $2,912,000,
respectively, for the same periods in 2005).

15.      Related Party Transactions
         --------------------------

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

         Mr.  Hughes  and  his  family  (the  "Hughes  Family")  have  ownership
interests in, and operate  approximately  44  self-storage  facilities in Canada
under the name "Public  Storage" ("PS Canada")  pursuant to a license  agreement
with the Company.  We currently do not own any interests in these facilities nor
do we own any facilities in Canada.  The Hughes Family owns approximately 27% of
our Common Stock  outstanding  at September  30, 2006.  We have a right of first
refusal to acquire the stock or assets of the  corporation  that  manages the 44
self-storage  facilities  in  Canada,  if the Hughes  Family or the  corporation
agrees to sell them.  However,  we have no  interest in the  operations  of this
corporation,  we have no right to acquire this stock or assets unless the Hughes
Family  decides  to  sell,  the  right of first  refusal  does not  apply to the
self-storage  facilities,  and we  receive  no  benefit  from  the  profits  and
increases in value of the Canadian self-storage facilities.

         Through PSIC and PSCI-H, we continue to reinsure risks relating to loss
of goods stored by tenants in the self-storage facilities in Canada. We acquired
the tenant  insurance  business on December 31, 2001 through its  acquisition of
PSIC.  During  each of the nine months  ended  September  30, 2006 and 2005,  we
received   $759,000  and  $795,000,   respectively,   in  reinsurance   premiums
attributable  to the  Canadian  Facilities.  Since our right to  provide  tenant
reinsurance to the Canadian  Facilities may be qualified,  there is no assurance
that these premiums will continue.

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

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

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

         Ronald L. Havner, Jr. is our vice-chairman and chief executive officer,
and he is chairman of the board of PSB.

         Dann V. Angeloff,  a director of the Company, is the general partner of
a limited partnership formed in June 1973 that owns a self-storage facility that
is managed by us. We  recorded  management  fees with  respect to this  facility

                                       38
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

amounting to $18,000 and $49,000 for the three and nine months  ended  September
30, 2006,  respectively,  compared to $11,000 and $33,000 for the three and nine
months ended, September 30, 2005, respectively.

         PSB manages  certain of the commercial  facilities that we own pursuant
to management agreements for a management fee equal to 5% of revenues. We paid a
total of $147,000, and $442,000 for the three and nine months ended September 30
2006,  respectively,  and  $145,000  and  $434,000,  respectively,  for the same
periods in 2005 in  management  fees with respect to PSB's  property  management
services.  At  September  30,  2006,  we have  recorded  amounts  owed to PSB of
$282,000  ($551,000 at December 31, 2005), for management fees and certain other
operating expenses related to the managed facilities, paid by PSB on our behalf.
These amounts are the result of a time lag between PSB paying such  expenditures
and being reimbursed by us.

         We manage the Company's wholly-owned self-storage facilities as well as
the  facilities  owned  by the  Unconsolidated  Entities  and  the  Consolidated
Entities  on a joint  basis,  in order to take  advantage  of  scale  and  other
efficiencies.  As a result,  significant  components of  self-storage  operating
costs, such as payroll costs,  advertising and promotion,  data processing,  and
insurance  expenses are shared and allocated  among the various  entities  using
methodologies  meant to  fairly  allocate  such  costs  based  upon the  related
activities.  The total of such expenses which were included in the operations of
the Unconsolidated  Entities were approximately $503,000, and $1,770,000 for the
three and nine  months  ended  September  30,  2006,  respectively,  compared to
$974,000 and $3,193,000 for the three and nine months ended  September 30, 2005,
respectively.

         Pursuant to a cost-sharing and administrative  services agreement,  PSB
reimburses us for certain  administrative  services.  PSB's share of these costs
totaled  approximately  $80,000 and $240,000 for the three and nine months ended
September 30, 2006, respectively,  and $85,000 and $255,000,  respectively,  for
the same periods in 2005.

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

16.      Commitments and Contingencies
         -----------------------------

         LEGAL MATTERS

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

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

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

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

                                       39
<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

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

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

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

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

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

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

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

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

         The  plaintiff  brings this  action  against the Company on behalf of a
purported class who bought insurance coverage at Company's  facilities  alleging
that the Company does not have a license to offer,  sell and/or transact storage
insurance. The action was brought under California Business and Professions Code
Section 17200 and seeks retention,  monetary damages and injunctive  relief. The
Company  filed a demurrer to the  complaint.  While the  demurrer  was  pending,
Plaintiff amended the complaint to allege a national class and claims for unfair
business practices, unjust enrichment, money had and received, and negligent and
intentional  misrepresentation.  We renewed our demurrer and moved to strike the
national  class  allegations.  The Court  dismissed all the claims with leave to
amend,  except for the claim for unjust  enrichment.  Based on this ruling,  the
Court held that the motion to strike was moot.  Plaintiff  elected  not to amend
her  complaint  and is  therefore  only  proceeding  with the claim  for  unjust
enrichment.  We are vigorously  contesting the claims upon which this lawsuit is
based, including any efforts for class certification.

                                       40

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)

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

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

         INSURANCE AND LOSS EXPOSURE

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

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

         Our tenant re-insurance  program,  operating through PSIC through March
31, 2004, and through PSIC-H beginning April 1, 2004, reinsures policies against
claims for losses to goods stored by tenants at our self-storage facilities. For
2005, we had outside  third-party  insurance  coverage for claims paid exceeding
$500,000  resulting  from  any  individual  event,  to a limit  of  $10,000,000.
Effective  January 1, 2006,  such  coverage  was  revised to cover  claims  paid
exceeding  $1,500,000  resulting  from  any  individual  event,  to a  limit  of
$9,000,000.  At  September  30, 2006,  we had  approximately  368,000  reinsured
policies  outstanding  representing  aggregate  coverage of  approximately  $877
million.

         DEVELOPMENT AND ACQUISITION OF REAL ESTATE FACILITIES

         We currently have 60 projects in our  development  pipeline,  including
expansions  and  enhancements  to existing  self-storage  facilities.  The total
estimated  cost of these  facilities  is  approximately  $327,582,000,  of which
$131,063,000 has been spent at September 30, 2006. These projects are subject to
contingencies.  See Note 5 for further discussion of our development projects as
of September 30, 2006.

         Subsequent  to  September  30,  2006,  we did not  acquire  and are not
currently under contract to acquire any additional  self-storage facilities from
third parties.

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

         On  October  17,  2006,  we issued  9,200,000  depositary  shares  each
representing  1/1,000 of a share our 6.75% Cumulative Preferred Stock, Series L,
for gross proceeds of approximately  $230 million  (including the  underwriters'
overallotment option, which was exercised).

                                       41
<PAGE>

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

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

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

         CRITICAL ACCOUNTING POLICIES

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

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

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

         We therefore do not estimate or accrue any federal  income tax expense.
This estimate could be incorrect,  because due to the complex nature of the REIT
qualification requirements, the ongoing importance of factual determinations and
the  possibility  of future changes in our  circumstances,  we cannot be assured
that we actually have satisfied or will satisfy the requirements for taxation as
a REIT for any  particular  taxable  year.  For any taxable year that we fail or
have failed to qualify as a REIT and applicable relief provisions did not apply,

                                       42
<PAGE>

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

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

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

         ESTIMATED  LEVEL OF RETAINED RISK AND UNPAID TENANT CLAIM  LIABILITIES:
As  described  in  Notes  2  and  16 to  our  condensed  consolidated  financial
statements,  we retain  certain  risks with  respect to property  perils,  legal
liability,  and other such risks. In addition, a wholly-owned  subsidiary of the
Company reinsures  policies against claims for losses to goods stored by tenants
in our self-storage facilities. In connection with these risks, we accrue losses
based  upon the  estimated  level of losses  incurred  using  certain  actuarial
assumptions followed in the insurance industry and based on recommendations from
an  independent  actuary that is a member of the American  Academy of Actuaries.
While we believe  that the  amounts of the  accrued  losses  are  adequate,  the
ultimate  liability  may be in excess of or less than the amounts  recorded.  At
September 30, 2006, we had approximately  368,000 reinsured policies outstanding
representing aggregate coverage of approximately $877 million.

         ACCRUALS  FOR  CONTINGENCIES:  We are  exposed  to  business  and legal
liability  risks with respect to events that have  occurred,  but in  accordance
with accounting  principles generally accepted in the United States, we have not
accrued for such potential  liabilities  because the loss is either not probable
or not estimable or because we are not aware of the event. Future events and the
result of pending  litigation  could result in such  potential  losses  becoming
probable  and  estimable,  which  could  have a material  adverse  impact on our
financial condition or results of operations. Some of these potential losses, of
which we are  aware,  are  described  in Note 16 to our  condensed  consolidated
financial statements.

         ACCRUALS FOR OPERATING EXPENSES: We accrue for property tax expense and
certain other  operating  expenses based upon estimates,  historical  trends and
current and anticipated  local and state government  rules and  regulations.  If
these estimates and assumptions are incorrect,  our expenses could be misstated.
Cost of operations,  interest expense,  general and administrative  expense,  as
well as television, yellow page, and other advertising expenditures are expensed
as incurred.

         VALUATION OF DERIVATIVES:  As described in our  Significant  Accounting
Policies  in Note 2 to our  condensed  consolidated  financial  statements,  our
derivative  instruments are not considered  effective hedges.  Accordingly,  any
changes in value of these  derivatives  are reflected as an increase or decrease
in net  income.  The  determination  of the value of  derivatives  is based upon
significant judgment and assumptions  including interest rates,  currency rates,
and expected  rates of return.  The actual value of  derivative  instruments  is
dependent upon many factors that our judgments and assumptions may not consider,
or may not consider effectively.
                                       43
<PAGE>

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

MERGER WITH SHURGARD

         As previously  announced,  on March 6, 2006, the boards of directors of
Public Storage and Shurgard  approved a definitive  merger agreement under which
Public Storage merged with Shurgard. The merger was approved by the shareholders
of both  companies and was completed on August 22, 2006.  Under the terms of the
merger agreement, Public Storage issued, in a taxable transaction, approximately
39 million  shares of common  stock to holders of  Shurgard's  common  stock and
assumed Shurgard's debt of approximately $2.0 billion. On the day of the merger,
we repaid  Shurgard's line of credit and certain  variable rate notes,  totaling
approximately  $671 million,  with the  remaining  $1.3 billion in Shurgard debt
remaining  outstanding.  In addition,  approximately  $138 million of Shurgard's
preferred  stock was redeemed on the day of the merger.  Shortly  following  the
merger,  we incurred an  additional  $49.4  million in cash costs  primarily for
attorneys, bankers, and severance payments to Shurgard employees.

         In  addition,  pursuant  to the merger we issued a total of 1.9 million
stock options to former  holders of Shurgard stock  options.  Approximately  1.7
million of these stock  options  were  exercised  through  September  30,  2006,
resulting in aggregate exercise proceeds totaling approximately $74.4 million.

         Included in general and  administrative  expense for the three and nine
months ended September 30, 2006, respectively,  are costs related to the merger,
as well as  expenditures  in planning and completing the  integration of the two
companies of approximately $18.1 million and $20.5 million, respectively.

         In the fourth quarter,  we expect to incur an additional $15 million to
$20 million of additional costs related to the integration of the two companies,
as well as costs associated with winding down Shurgard's business affairs.

RESULTS OF OPERATIONS
---------------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006:

         Net  income  for  the  three  months  ended   September  30,  2006  was
$81,181,000 compared to $128,344,000 for the same period in 2005, representing a
decrease of $47,163,000, or 36.7%. This decrease is primarily due to significant
increases in depreciation and amortization  expense,  general and administrative
expense  and  interest  expense.  Depreciation  and  amortization  increased  by
approximately  $65.6  million  due  primarily  to the  addition  of real  estate
facilities and intangible  assets  acquired in the merger with Shurgard  Storage

                                       44
<PAGE>

Centers, Inc.  ("Shurgard") and the corresponding  depreciation and amortization
related  to  such  assets.  General  and  administrative  expense  increased  by
approximately  $30.6 million  principally  as a result of  integration  expenses
related  to the  Shurgard  merger,  development  costs that were  expensed  with
respect to terminated  projects and contract  termination  fees;  these costs in
aggregate totaled $29.6 million.  In connection with the merger, we assumed $1.3
billion in debt, and, as a result,  interest expense  increased by approximately
$6.9 million.

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

         Our Same  Store net  operating  income,  before  depreciation  expense,
increased  by  approximately  $9,256,000,  or  6.6%,  as  a  result  of  a  6.1%
improvement  in  revenues  partially  offset  by a  5.0%  increase  in  cost  of
operations.  Aggregate net operating income for our newly developed and recently
expanded and acquired facilities (other than the Shurgard facilities)  increased
by  approximately  $8,815,000.  This  increase  was largely due to the impact of
facilities  acquired in 2005 and 2006,  combined with  continued  fill-up of our
newly  developed  and  expansion  facilities.  For  those  facilities  that were
acquired in the merger,  net  operating  income was  approximately  $35,363,000,
reflecting  the results from the date of the merger,  August 22,  2006,  through
September  30, 2006.  Interest  income  increased as a result of earning  higher
interest  rates on invested cash balances  combined  with  significantly  higher
average cash balances invested in  interest-bearing  accounts as compared to the
same period in 2005.  Higher  invested cash balances were primarily due to gross
proceeds received from the issuance of Preferred Stock and Preferred Partnership
Units in the second and third quarters of 2006.  Substantially  all of this cash
was subsequently used to fund the cash requirements with respect to the Shurgard
merger.

         We  had  a  net  loss  allocable  to  our  common  shareholders  (after
allocating net income to our preferred and equity shareholders) of $6,083,000 or
$0.04 per common share on a diluted  basis for the three months ended  September
30, 2006 compared to income  allocable to common  shareholders of $79,262,000 or
$0.62  per  common  share  on a  diluted  basis  for the  same  period  in 2005,
representing a decrease of  $85,345,000  or $0.66 per diluted common share.  The
decreases in net income  allocable to common  shareholders  on an aggregate  and
per-share basis are due primarily to the impact of the factors  described above,
combined  with an increase in income  allocated  to preferred  shareholders,  as
described below.

         For the three months ended  September  30, 2006 and 2005,  we allocated
$60,265,000  and $43,726,000 of our net income,  respectively,  to our preferred
shareholders based on distributions paid. The year-over-year  increase is due to
the  issuance  of  additional  preferred  securities,  partially  offset  by the
redemption of preferred securities that had higher dividend rates than the newly
issued  preferred  securities.  We also  recorded  allocations  of income to our
preferred  shareholders  with respect to the application of EITF Topic D-42, and
recorded our equity share of such charges,  totaling  $21,643,000  (or $0.15 per
diluted  common  share)  for  the  three  months  ended  September  30,  2006 in
connection with the redemption of preferred securities.

         Weighted average diluted shares increased to 145,387,000 for the three
months ended September 30, 2006 from 128,742,000 for the three months ended
September 30, 2005. The increase in weighted average diluted shares is due
primarily to the issuance of approximately 38.9 million shares in the merger
with Shurgard, which are included in our weighted average shares from August 22,
2006 through September 30, 2006.

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006:

         Net  income  for  the  nine  months  ended   September   30,  2006  was
$324,259,000 compared to $333,021,000 for the same period in 2005,  representing
a decrease of $8,762,000,  or 2.6%. This decrease is primarily reflective of the
third-quarter   impacts   described  above  with  respect  to  depreciation  and
amortization,  general and  administrative  expense and interest expense.  These
items were partially  offset by improved  operations from our Same Store,  newly
developed  and  acquired  self-storage   facilities  (including  the  facilities
acquired from Shurgard), reduced minority interest in income and higher interest
income.
                                       45
<PAGE>

         Same Store net operating income, before depreciation expense, increased
by $23,903,000, or 5.9%, as a result of a 5.6% improvement in revenues partially
offset by a 5.1% increase in cost of operations.  Aggregate net operating income
for  our  newly  developed,   acquired  and  expansion  self-storage  facilities
(excluding  the  Shurgard  facilities)  increased by  approximately  $24,895,000
largely due to the impact of facilities acquired in 2005 and 2006, combined with
continued fill-up of our newly developed and expansion facilities.  We earned an
aggregate  of  $35,363,000  in net  operating  income in the third  quarter with
respect to the facilities acquired in the merger with Shurgard, reflecting their
operating  results  from  the  date of the  merger,  August  22,  2006,  through
September 30, 2006.  Minority interest in income declined due to the acquisition
of minority  interests  that occurred in 2005.  Interest  income  increased as a
result of earning higher interest rates on invested cash balances, combined with
higher average cash balances invested in  interest-bearing  accounts as compared
to the same period in 2005.

         Net income allocable to our common  shareholders  (after allocating net
income to our preferred and equity  shareholders)  was $127,292,000 or $0.94 per
common  share on a diluted  basis for the nine months ended  September  30, 2006
compared to  $188,744,000  or $1.46 per common share on a diluted  basis for the
same period in 2005,  representing  a decrease of $0.52 per common  share,  or a
decrease of 36%. The  decreases in net income  allocable to common  shareholders
and earnings  per common  diluted  share are due  primarily to the impact of the
factors  described above, in addition to increased income allocated to preferred
shareholders, described below.

         For the nine months  ended  September  30, 2006 and 2005,  we allocated
$159,256,000 and $126,286,000 of our net income, respectively,  to our preferred
shareholders based on distributions paid. The year-over-year  increase is due to
the  issuance  of  additional  preferred  securities,  partially  offset  by the
redemption of preferred securities that had higher dividend rates than the newly
issued  preferred  securities.  We also  recorded  allocations  of income to our
preferred  shareholders  with  respect  to the  application  of EITF  Topic D-42
totaling  $21,643,000  (or $0.16 per diluted  common share) and  $1,904,000  (or
$0.01 per diluted  common share),  for the nine months ended  September 30, 2006
and 2005, respectively.

         Weighted  average diluted shares  increased to 134,851,000 for the nine
months  ended  September  30, 2006 from  128,844,000  for the nine months  ended
September  30, 2005.  The  increase in weighted  average  diluted  shares is due
primarily to the  issuance of  approximately  38.9 million  shares in the merger
with Shurgard,  which are included in our weighted  averages  shares from August
22, 2006 through September 30, 2006.

         In the ensuing discussions of our operations, we present "net operating
income  before  depreciation  and  amortization  and cost of  operations  before
depreciation  and  amortization",  which  excludes  the  impact of  depreciation
expense.  Although  depreciation is an operating expense,  we believe that these
operating metrics are meaningful measures of operating  performance,  because we
utilize these measures in making decisions with respect to capital  allocations,
in determining  current  property  values,  segment  performance,  and comparing
period to period and market to market property  operating  results.  Included in
Note 13 to our September 30, 2006 condensed  consolidated  financial statements,
"Segment  Information,"  is a  reconciliation  of net operating  income  (before
depreciation)  by each  respective  operating  segment to our  consolidated  net
income.

REAL ESTATE OPERATIONS
----------------------

         SELF-STORAGE  OPERATIONS:  Our  self-storage  operations are by far the
largest component of our operations, representing approximately 89% of our total
revenues   generated  for  the  nine  months  ended   September  30,  2006.  The
improvements  in  rental  income  for the  periods  presented  on our  condensed
consolidated  statements of income for the three and nine months ended September
30, 2006 are due to improvements in the performance of those  facilities that we
owned  prior to January 1,  2004,  and the  addition  of new  facilities  to our
portfolio, either through our acquisition or development activities.

         To enhance year-over-year comparisons,  the following table summarizes,
and the ensuing discussion describes, the self-storage operating results.

                                       46
<PAGE>

<TABLE>
<CAPTION>

Self - storage operations summary:
----------------------------------
                                                       Three Months Ended September 30,       Nine Months Ended September 30,
                                                     -------------------------------------   ------------------------------------
                                                        2006        2005        Percentage    2006        2005        Percentage
                                                                                  Change                                Change
                                                     ----------- ------------  ----------- ----------  ----------   --------------

                                                                            (Dollar amounts in thousands)
Rental income (a):
<S>                                                   <C>         <C>                <C>   <C>         <C>                   <C>
   Same Store Facilities (b)...................       $ 221,386   $  208,745         6.1%  $ 644,446   $  610,106            5.6%
   Shurgard U.S. Facilities (c)................          38,941            -         -        38,941            -            -
   Shurgard European Facilities (d)............          17,348            -         -        17,348            -            -
   Acquired Facilities (e).....................          17,454       10,674        63.5%     47,659       27,001           76.5%
   Expansion Facilities (f)....................          13,982       11,750        19.0%     39,778       34,501           15.3%
   Developed Facilities (g)....................          16,044       12,533        28.0%     43,705       34,695           26.0%
   Newly consolidated facilities (h)...........           3,686            -         -        10,874           -             -
                                                     ----------- ------------  ----------- ----------  ----------   --------------
     Total rental income.......................         328,841      243,702        34.9%    842,751      706,303           19.3%
                                                     ----------- ------------  ----------- ----------  ----------   --------------
Cost of operations before depreciation and
amortization (i):
   Same Store Facilities.......................          71,115       67,730         5.0%    215,894      205,457            5.1%
   Shurgard U.S. Facilities....................          12,402            -         -        12,402            -            -
   Shurgard European Facilities................           8,524            -         -         8,524            -            -
   Acquired Facilities.........................           6,605        4,200        57.3%     18,612       11,508           61.7%
   Expansion Facilities........................           4,220        4,033         4.6%     12,758       11,978            6.5%
   Developed Facilities........................           5,426        4,310        25.9%     15,542       13,376           16.2%
   Newly consolidated facilities...............             924            -         -         2,644            -            -
                                                     ----------- ------------  ----------- ----------  ----------   --------------
   Total cost of operations....................         109,216       80,273        36.1%    286,376      242,319           18.2%
                                                     ----------- ------------  ----------- ----------  ----------   --------------
Net operating income before depreciation and
amortization(j):
   Same Store Facilities.......................         150,271      141,015         6.6%    428,552      404,649            5.9%
   Shurgard U.S. Facilities....................          26,539            -         -        26,539            -            -
   Shurgard European Facilities................           8,824            -         -         8,824            -            -
   Acquired Facilities.........................          10,849        6,474        67.6%     29,047       15,493           87.5%
   Expansion Facilities........................           9,762        7,717        26.5%     27,020       22,523           20.0%
   Developed Facilities........................          10,618        8,223        29.1%     28,163       21,319           32.1%
   Newly consolidated facilities...............           2,762            -         -         8,230            -            -
                                                     ----------- ------------  ----------- ----------  ----------   --------------
   Total net operating income before depreciation
   and amortization (j)........................         219,625      163,429        34.4%    556,375      463,984           19.9%
                                                     ----------- ------------  ----------- ----------  ----------   --------------
Depreciation and amortization expense:
   Same Store Facilities.......................          (37,270)    (38,478)       (3.1)%  (112,290)     (115,710)          (3.0)%
   Shurgard U.S. Facilities....................          (48,032)          -         -       (48,032)            -            -
   Shurgard European Facilities................          (15,020)          -         -       (15,020)            -            -
   Acquired Facilities.........................           (4,649)     (2,508)       85.4%    (13,166)       (6,571)         100.4%
   Expansion Facilities........................           (3,765)     (2,739)       37.5%     (9,780)       (7,998)          22.3%
   Developed Facilities........................           (3,857)     (3,296)       17.0%    (10,975)       (9,584)          14.5%
   Newly consolidated facilities...............             (116)          -         -          (504)            -            -
                                                     ----------- ------------  ----------- ----------  ----------   --------------
   Total depreciation and amortization expense.         (112,709)    (47,021)      139.7%   (209,767)     (139,863)          50.0%
                                                     ----------- ------------  ----------- ----------  ----------   --------------
Net operating income:
   Same Store Facilities.......................          113,001     102,537        10.2%    316,262       288,939            9.5%
   Shurgard U.S. Facilities....................          (21,493)          -         -       (21,493)            -            -
   Shurgard European Facilities................           (6,196)          -         -        (6,196)            -            -
   Acquired Facilities.........................            6,200       3,966        56.3%     15,881         8,922           78.0%
   Expansion Facilities........................            5,997       4,978        20.5%     17,240        14,525           18.7%
   Developed Facilities........................            6,761       4,927        37.2%     17,188        11,735           46.5%
   Newly consolidated facilities...............            2,646           -         -         7,726             -            -
                                                     ----------- ------------  ----------- ----------  ----------   --------------
   Total net operating income..................         $106,916    $116,408        (8.2)%  $346,608      $324,121            6.9%
                                                     ===========  ===========  =========== ==========  ===========  ===============
Number of self-storage facilities (at end of
period)........................................                                                2,140        1,448           47.8%
Net rentable square feet (in thousands, at end of
   period) (k): ...............................                                              132,190       87,537           51.0%

</TABLE>
                                       47
<PAGE>

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


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

     (c) The  Shurgard  U.S.   Facilities  include  487  facilities   containing
         32,143,000  net rentable  square feet that were  acquired on August 22,
         2006.

     (d) The Shurgard  European  Facilities  include 160  facilities  containing
         8,385,000  net  rentable  square feet that were  acquired on August 22,
         2006.

     (e) The Acquired Facilities include 89 facilities  containing 6,383,000 net
         rentable square feet that were acquired after January 1, 2004.

     (f) The Expansion Facilities include 61 facilities containing 5,352,000 net
         rentable square feet of self-storage space; these facilities were owned
         since January 1, 2004,  however,  operating  results are not comparable
         throughout  the periods  presented due primarily to expansions in their
         net rentable square feet (described below).

     (g) The Developed Facilities include 61 facilities containing 5,102,000 net
         rentable  square feet of  self-storage  space.  These  facilities  were
         developed  and opened  since  January 1, 2002 at a total cost of $538.9
         million.

     (h) Effective  January 1, 2006, in connection  with our  implementation  of
         EITF 04-5, we commenced  consolidation of the accounts of three limited
         partnerships that we had previously  accounted for on the equity method
         of accounting. As a result, we began including the revenues and cost of
         operations of 16  facilities  with an aggregate of 879,000 net rentable
         square feet in the table above.

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

     (j) Total net operating income before depreciation and amortization,  which
         is a non-GAAP  measure,  for our  self-storage  segment is presented in
         Note 13 to our  September  30, 2006  condensed  consolidated  financial
         statements,  "Segment  Information," which includes a reconciliation of
         net operating  income before  depreciation  and  amortization  for this
         segment to our consolidated net income.

     (k) Square  footage does not include  424,000 net  rentable  square feet of
         industrial   space   initially   developed  for  pick-up  and  delivery
         activities.  This space is being converted into self-storage space; see
         "Development Pipeline Summary" below.

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

         SELF-STORAGE OPERATIONS - SAME STORE FACILITIES

         The Same  Store  Facilities  contain  approximately  73.9  million  net
rentable  square  feet,  representing  approximately  56% of the  aggregate  net
rentable square feet of our consolidated  self-storage  portfolio.  Revenues and
operating expenses with respect to this group of properties are set forth in the
above Self-Storage  Operations table under the caption, "Same Store Facilities."
These facilities are included in the Same Store Facilities  because they are all
stabilized  and owned since  January 1, 2004 and  therefore  provide  meaningful
comparative  data for 2004,  2005 and  2006.  The  following  table  sets  forth
additional operating data with respect to the Same Store Facilities:

                                       48
<PAGE>

<TABLE>
<CAPTION>

SAME STORE FACILITIES                                      Three Months Ended September 30,        Nine Months Ended September 30,
                                                         -----------------------------------     ----------------------------------
                                                                                   Percentage                             Percentage
                                                            2006         2005        Change        2006         2005        Change
                                                         ------------  ----------- ----------   ------------ ------------ ----------
                                                               (Dollar amounts in thousands, except weighted average amounts)
<S>                                                      <C>           <C>              <C>      <C>          <C>              <C>
Rental income......................................      $  211,252    $  199,139       6.1%     $  615,556   $  583,088       5.6%
Late charges and administrative fees collected.....          10,134         9,606       5.5%         28,890       27,018       6.9%
                                                         ------------  ----------- ----------   ------------ ------------ ----------
   Total rental income.............................         221,386       208,745       6.1%        644,446      610,106       5.6%
                                                         ------------  ----------- ----------   ------------ ------------ ----------
Cost of operations before depreciation and amortization:
     Payroll expense...............................          22,185        20,224       9.7%         65,924       62,275       5.9%
     Property taxes................................          20,376        19,573       4.1%         60,385       57,906       4.3%
     Repairs and maintenance.......................           6,925         6,294      10.0%         20,731       19,344       7.2%
     Advertising and promotion.....................           4,582         5,248     (12.7)%        17,977       18,032      (0.3)%
     Utilities.....................................           5,113         4,764       7.3%         14,275       13,137       8.7%
     Property insurance............................           2,860         1,932      48.0%          7,879        6,180      27.5%
     Telephone reservation center..................           2,055         2,239      (8.2)%         6,106        6,033       1.2%
     Other cost of management......................           7,019         7,456      (5.9)%        22,617       22,550       0.3%
                                                         ------------  ----------- ----------   ------------ ------------ ----------
   Total cost of operations........................          71,115        67,730       5.0%        215,894      205,457       5.1%
                                                         ------------  ----------- ----------   ------------ ------------ ----------
Net operating income before depreciation and
amortization (e)...................................         150,271       141,015       6.6%        428,552      404,649       5.9%
Depreciation and amortization......................         (37,270)      (38,478)     (3.1)%      (112,290)    (115,710)     (3.0)%
                                                         ------------  ----------- ----------   ------------ ------------ ----------
 Net operating income..............................      $  113,001    $  102,537      10.2%     $  316,262   $  288,939       9.5%
                                                         ============  =========== ===========  ============ ============ ==========
Gross margin (before depreciation and amortization)          67.9%         67.6%        0.4%         66.5%        66.3%        0.3%

Weighted average for the fiscal year:
   Square foot occupancy (a).......................          91.4%         91.7%       (0.3)%        91.2%        91.2%        0.0%
   Realized annual rent per occupied square foot (b)        $12.50        $11.75        6.4%        $12.17       $11.53        5.6%
   REVPAF (c)......................................         $11.43        $10.77        6.1%        $11.10       $10.51        5.6%

 Weighted average at September 30:
   Square foot occupancy...........................                                                  90.5%        91.6%       (1.2)%
   In place annual rent per occupied square foot (d)                                                 $13.51       $12.85       5.1%

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

</TABLE>

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

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

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

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

     (e) Total net operating income before depreciation and amortization,  which
         is a non-GAAP  measure,  for our same  store  facilities  represents  a
         portion of our total self-storage segment's net operating income before
         depreciation and  amortization,  and is reconciled to the segment total
         in the table "self-storage  operations summary" above. A reconciliation
         of  our  total  self-storage  segment's  net  operating  income  before
         depreciation and amortization to consolidated net income is included in
         Note 13 to our  September  30, 2006  condensed  consolidated  financial
         statements, "Segment Information."

         Rental income increased  approximately  6.1% and 5.6% for the three and
nine months  ended  September  30, 2006,  respectively,  as compared to the same
periods in 2005.  These increases were primarily  attributable to higher average
realized annual rental rates per occupied square foot,  which were 6.4% and 5.6%
higher for the three and nine months ended September 30, 2006, respectively,  as
compared  to  the  same  periods  in  2005.   Our  occupancy   levels   remained
approximately flat for each of the periods.

                                       49
<PAGE>

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

         Demand  for  self-storage  space in each  market  is  affected  by many
factors  which are beyond our control.  Such factors  include  general  economic
conditions,  moving  activities,  changes in  demographic  trends and population
density, as well as the level of development of new self-storage facilities.  We
believe that our share of the overall storage demand in any particular market is
impacted  by our  and  our  competitors'  marketing,  pricing,  and  promotional
activities, as well as the quality of execution of our property personnel at the
facilities.

         We regularly evaluate the level of demand for our self-storage space by
monitoring reservation activity, move-ins, move-outs, and the level of telephone
and  internet  inquiries  as a primary  basis for our  marketing,  pricing,  and
promotional decisions,  as well as to identify localized execution issues. There
can be no assurance that we will achieve our goal of  sustainable  growth in our
rental income, while sustaining our occupancy levels.

         Due to the merger with  Shurgard,  we have acquired an  additional  487
self-storage facilities in the United States,  including 383 facilities we refer
to below as the Shurgard  domestic  same-store  facilities,  and 104  additional
facilities  which  are  referred  to as the  Shurgard  domestic  non-same  store
facilities.  These facilities have an aggregate occupancy of approximately 84.4%
at September  30, 2006, as compared to 91.4% for the Public  Storage  Same-Store
facilities.  It is our objective to close this occupancy gap, by raising average
occupancies of the acquired Shurgard  properties to levels experienced by Public
Storage's  Same Stores.  We believe,  at least in the short term,  this strategy
will put pressure on  occupancies  and rental rate growth on the  existing  Same
Store Facilities as demand may shift to the acquired  Shurgard  facilities as we
adjust the level of discounts  and monthly  rents.  In  attempting to accomplish
this  objective,   we  have   significantly   expanded  our  domestic   pricing,
promotional, and media programs, and aggregate media costs will more than double
in the fourth  quarter  versus the aggregate  level of spending  incurred in the
fourth  quarter of 2005.  These costs will be allocated  to all the  facilities,
including the same-store as well as the acquired Shurgard facilities.

         Cost of operations (excluding  depreciation and amortization) increased
by 5.0%  and 5.1% for the  three  and nine  months  ended  September  30,  2006,
respectively, as compared to the same periods in 2005.

         Payroll  expense  has  increased  9.7% and 5.9% for the  three and nine
months ended September 30, 2006,  respectively,  as compared to the same periods
in 2005,  due  principally  to higher  wage rates  required  for some of our job
classifications  because of a tight labor market in several market areas, higher
overtime  hours  required  due to  understaffing  issues,  and the  absence of a
workers  compensation  adjustment in the third  quarter of 2005 which  reflected
improving  trends.  We expect this trend to  continue  in the fourth  quarter of
2006.

         Repairs and  maintenance  expenditures  increased 10.0% and 7.2% during
the three and nine months ended  September 30, 2006.  During the second quarter,
we experienced  higher repair and maintenance  costs to address certain deferred
maintenance issues localized to a few markets.  We expect this trend to continue
in the fourth quarter of 2006.

         Advertising  and promotion costs decreased 12.7% and 0.3% for the three
and nine months ended  September  30, 2006,  respectively,  compared to the same
periods in 2005. The decreases in advertising  and promotion costs for the three
and nine months ended  September  30, 2006 are due  principally  to decreases in
internet and television  advertising expenses.  Television advertising decreased
from  $2,314,000 to  $1,082,000 in the three months ended  September 30, 2006 as
compared to the same period in 2005, and decreased from $8,857,000 to $7,671,000
for the nine months ended  September  30, 2006 as compared to the same period in
2005. We expect fourth quarter advertising and promotional  expenses to increase
significantly in the fourth quarter, as noted above.

         As described below under "Shurgard Same-Store Facilities," certain cost
savings in the area of yellow page  advertising  and call center  expenses  will
benefit the same-store  facilities as these benefits are allocated among all the
facilities in our portfolio.

                                       50
<PAGE>

         Utility  expenses  increased  7.3% and 8.7%  during  the three and nine
months ended September 30, 2006, due  principally to higher energy costs.  These
levels of increases are expected to persist during the remainder of 2006.

         Insurance  expense  increased  48.0%  and  27.5% for the three and nine
months ended September 30, 2006,  reflecting  significant  increases in property
insurance  resulting  primarily from the hurricanes  experienced in 2005.  These
rate increases  became effective with our policy year starting April 1, 2006. We
expect to  realize  certain  economies  due to the  merger  with  Shurgard  and,
accordingly,  expect the increases to moderate in the fourth quarter of 2006 and
the first quarter of 2007.

         Telephone  reservation center costs decreased 8.2% for the three months
ended  September 30, 2006 and increased 1.2% for the nine months ended September
30, 2006,  compared to the same periods in 2005. In preparation for our seasonal
rental  period,  we increased our staffing  levels earlier this year compared to
the same period in 2005,  resulting in higher payroll costs. We began to realize
certain benefits from the increased  staffing through better  conversion  ratios
and lower  temporary  staffing costs during the three months ended September 30,
2006.  We expect to continue to realize such  benefits  through the remainder of
2006.

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

<TABLE>
<CAPTION>

                                               For the Quarter Ended
                      ------------------------------------------------------------------------------------------
                        March 31            June 30          September 30        December 31        Entire Year
                      -------------      -------------      --------------      --------------     -------------
                                (Amounts in thousands, except for per square foot amounts)
Total rental income:
<S>                   <C>                <C>                 <C>                 <C>               <C>
     2006             $   208,228        $   214,832         $  221,386
     2005             $   198,059        $   203,302         $  208,745          $  208,272        $   818,378

Total cost of operations
(excluding depreciation
and amortization):
     2006             $    72,030        $    72,749         $   71,115
     2005             $    69,991        $    67,736         $   67,730          $   65,873        $   271,330

Property tax expense:
     2006             $    20,663        $    19,346         $   20,376
     2005             $    19,931        $    18,402         $   19,573          $   17,025        $    74,931

Media advertising
expense:
     2006             $     3,978        $     2,611         $    1,002
     2005             $     3,588        $     2,955         $    2,314          $    2,141        $    10,998

REVPAF:
     2006             $    10.77         $    11.10          $   11.43
     2005             $    10.25         $    10.52          $   10.77           $    10.76        $    10.58

Weighted average realized
annual rent per occupied
square foot:
     2006             $    11.94         $    12.05          $   12.50
     2005             $    11.41         $    11.42          $   11.75           $    11.89        $    11.61

Weighted average occupancy levels for the period:
     2006                 90.2%              92.1%               91.4%
     2005                 89.9%              92.1%               91.7%               90.5%              91.1%

</TABLE>

                                       51
<PAGE>

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

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

<TABLE>
<CAPTION>

                                           Three Months Ended September 30,        Nine Months Ended September 30,
                                         ------------------------------------  --------------------------------------
                                            2006         2005        Change         2006         2005        Change
                                         ------------ -----------  ----------  ------------  -------------  ---------
                                                  (Amounts in thousands, except for per square foot amounts)
SAME STORE FACILITIES OPERATING TRENDS
BY REGION
Rental income:
   Southern California  (126
<S>                                      <C>          <C>               <C>    <C>            <C>               <C>
   facilities)......................     $    35,871  $    34,066       5.3%   $   105,231    $  100,181        5.0%
   Northern California  (127
   facilities)......................          26,822       25,292       6.0%        77,983        73,801        5.7%
   Texas  (149 facilities)..........          19,625       18,287       7.3%        56,772        53,596        5.9%
   Florida  (130 facilities)........          22,793       21,057       8.2%        67,347        61,662        9.2%
   Illinois  (91 facilities)........          16,577       15,635       6.0%        47,556        45,680        4.1%
   Georgia  (58 facilities).........           7,671        7,013       9.4%        22,285        20,419        9.1%
   All other states  (585 facilities)         92,027       87,395       5.3%       267,272       254,767        4.9%
                                         ------------ -----------  ----------  ------------  -------------  ---------
Total rental income.................         221,386      208,745       6.1%       644,446       610,106        5.6%

Cost of operations before depreciation
 and amortization:
   Southern California..............           7,530        7,216       4.4%        23,905        22,133        8.0%
   Northern California..............           6,747        6,303       7.0%        20,485        19,060        7.5%
   Texas............................           8,519        8,091       5.3%        25,576        24,055        6.3%
   Florida..........................           7,818        7,199       8.6%        22,567        21,561        4.7%
   Illinois.........................           6,356        6,245       1.8%        20,892        19,447        7.4%
   Georgia..........................           2,452        2,315       5.9%         7,503         7,071        6.1%
   All other states.................          31,693       30,361       4.4%        94,966        92,130        3.1%
                                         ------------ -----------  ----------  ------------  -------------  ---------
Total cost of operations............          71,115       67,730       5.0%       215,894       205,457        5.1%

Net operating income before depreciation
 and amortization:
   Southern California..............          28,341       26,850       5.6%        81,326        78,048        4.2%
   Northern California..............          20,075       18,989       5.7%        57,498        54,741        5.0%
   Texas............................          11,106       10,196       8.9%        31,196        29,541        5.6%
   Florida..........................          14,975       13,858       8.1%        44,780        40,101       11.7%
   Illinois.........................          10,221        9,390       8.8%        26,664        26,233        1.6%
   Georgia..........................           5,219        4,698      11.1%        14,782        13,348       10.7%
   All other states.................          60,334       57,034       5.8%       172,306       162,637        5.9%
                                         ------------ -----------  ----------  ------------  -------------  ---------
Total net operating income before
   depreciation and amortization....     $   150,271  $   141,015       6.6    $   428,552    $  404,649        5.9%

Weighted average occupancy:
   Southern California..............          91.0%        92.2%       (1.3)%       91.4%         92.4%        (1.1)%
   Northern California..............          90.5%        91.0%       (0.5)%       90.6%         90.7%        (0.1)%
   Texas............................          91.4%        90.8%        0.7%        91.1%         90.1%         1.1%
   Florida..........................          92.7%        94.4%       (1.8)%       93.3%         93.3%         0.0%
   Illinois.........................          90.9%        90.8%        0.1%        89.8%         89.8%         0.0%
   Georgia..........................          92.5%        92.8%       (0.3)%       92.9%         92.3%         0.7%
   All other states.................          91.3%        91.5%       (0.2)%       90.9%         91.1%        (0.2)%
                                         ------------ -----------  ----------  ------------  -------------  ---------
Total weighted average occupancy....          91.4%        91.7%       (0.3)%       91.2%         91.2%         0.0%

REVPAF:
   Southern California..............     $     17.44  $    16.55        5.4%   $     17.06   $    16.24         5.0%
   Northern California..............           14.85       14.00        6.1%         14.40        13.63         5.6%
   Texas............................            8.06        7.53        7.0%          7.78         7.37         5.6%
   Florida..........................           11.66       10.76        8.3%         11.49        10.52         9.2%
   Illinois.........................           11.39       10.72        6.2%         10.90        10.48         4.0%
   Georgia..........................            8.61        7.91        9.0%          8.35         7.68         8.7%
   All other states.................           10.46        9.93        5.4%         10.14         9.67         4.9%
                                         ------------ -----------  ----------  ------------  -------------  ---------
Total REVPAF........................     $     11.43  $    10.77        6.1%   $     11.10   $    10.51         5.6%

</TABLE>

                                       52

<PAGE>

<TABLE>
<CAPTION>

SAME STORE FACILITIES OPERATING
TRENDS BY REGION (CONTINUED)
                                           Three Months Ended September 30,        Nine Months Ended September 30,
                                         ------------------------------------  --------------------------------------
                                            2006         2005        Change         2006         2005        Change
                                         ------------ -----------  ----------  ------------  -------------  ---------
Realized annual rent per occupied square foot:
<S>                                        <C>          <C>              <C>   <C>           <C>                <C>
   Southern California..............       $  19.16     $  17.95         6.7%  $     18.67   $    17.57         6.3%
   Northern California..............          16.41        15.38         6.7%        15.89        15.03         5.7%
   Texas............................           8.82         8.29         6.4%         8.54         8.18         4.4%
   Florida..........................          12.57        11.40        10.3%        12.31        11.27         9.2%
   Illinois.........................          12.53        11.81         6.1%        12.14        11.67         4.0%
   Georgia..........................           9.31         8.53         9.1%         8.99         8.32         8.1%
   All other states.................          11.45        10.85         5.5%        11.15        10.61         5.1%
                                         ------------ -----------  ----------  ------------  -------------  ---------
Total realized rent per square foot.       $  12.50     $  11.75         6.4%  $     12.17   $    11.53         5.6%

In place annual rent per occupied square foot at September 30:
   Southern California..............                                           $     20.54   $    19.42         5.8%
   Northern California..............                                                 17.61        16.71         5.4%
   Texas............................                                                  9.56         9.08         5.3%
   Florida..........................                                                 13.58        12.60         7.8%
   Illinois.........................                                                 13.61        12.97         4.9%
   Georgia..........................                                                 10.21         9.48         7.7%
   All other states.................                                                 12.38        11.88         4.2%
                                                                               ------------  -------------  ---------
Total in place rent per occupied
  square foot.......................                                           $     13.51   $    12.85         5.1%

</TABLE>

Shurgard Domestic Operating Data

         In the merger with Shurgard,  we acquired 487 facilities  located in 21
states with an aggregate of 32.1 million net rentable square feet. The following
chart sets forth the operations of the Shurgard  Facilities from August 22, 2006
through  September  30,  2006,  the period  operated  under  Public  Storage and
consolidated in our financial statements (amounts in thousands):

                                       53

<PAGE>

                                                       From August 22,
                                                        2006 through
                                                     September 30, 2006
                                                     ------------------
   Rental income:
      Same Store - 383 facilities...............      $        31,237
      Non-Same Store - 104 facilities...........                7,704
                                                     ------------------
   Total rental income..........................               38,941

   Cost of operations (excluding depreciation):
      Same Store................................                9,582
      Non-Same Store............................                2,820
                                                     ------------------
   Total cost of operations.....................               12,402

   Net operating income before depreciation (a):
      Same Store................................               21,655
      Non-Same Store............................                4,884
                                                     ------------------
   Total net operating income before                           26,539
   depreciation.................................

   Depreciation and amortization................              (48,032)
                                                     ------------------
      Net operating income......................      $       (21,493)
                                                     ==================
   Weighted average square foot occupancy
   during the period:...........................              84.4%

   Weighted average realized annual rent per
   occupied square foot for the period:.........      $       12.89

   In place annual rent per occupied square
   foot at September 30:........................      $       13.86

     (a) Total net  operating  income before  depreciation,  which is a non-GAAP
         measure, for our commercial property segment is presented in Note 13 to
         our condensed consolidated financial statements, "Segment Information,"
         which  includes  a  reconciliation   of  net  operating  income  before
         depreciation for this segment to our consolidated net income.

         As  noted  above,   our  Same-Store   facilities  had   occupancies  of
approximately 91.4% at September 30, 2006, as compared to 84.4% for the acquired
Shurgard Same Store  portfolio.  It is our objective to close this occupancy gap
in order to increase REVPAF. In attempting to accomplish this objective, we have
significantly  expanded our domestic pricing,  promotional,  and media programs,
and aggregate media costs will more than double in the fourth quarter versus the
aggregate level of spending incurred in the fourth quarter of 2005. There can be
no  assurance  that  we  will  meet  our  objectives  or that  any  increase  in
occupancies  will not be offset by lower realized rent per occupied  square foot
either  due to  promotional  discounts  or lower  monthly  rent in the  acquired
Shurgard facilities or the Same Store facilities.

         The operating data presented in the table below reflects the historical
data through August 22, 2006, the period for which the facilities  were operated
under Shurgard  combined with the  historical  data from August 22, 2006 through
September 30, 2006, the period operated under Public Storage.  Accordingly,  the
data  presented  below does not  reflect  the  actual  results  included  in our
operations  for the three and nine months ended  September 30, 2006 and 2005 and
does not purport to project results of operations for any future date or period.
We have  applied  our  definition  of what  qualifies  as a Same Store and, as a
result,  the number of properties  included in the Shurgard  Domestic Same Store
portfolio  has  decreased  from 462  facilities  (as reported by Shurgard in the
second quarter of 2006) to 383 facilities as is currently being reported.

                                       54

<PAGE>

Selected Operating Data for the 383 facilities
----------------------------------------------
operated by Shurgard on a stabilized basis since
------------------------------------------------
January 1, 2004 ("Shurgard Domestic Same Store
----------------------------------------------
Facilities"): (a)
-----------------
<TABLE>
<CAPTION>

                                                            Three Months Ended September 30,         Nine Months Ended September 30,
                                                       --------------------------------------  -------------------------------------
                                                                                   Percentage                             Percentage
                                                           2006          2005        Change        2006          2005      Change
                                                       ------------  ------------ -----------  ------------  ----------- -----------
                                                                (Dollar amounts in thousands, except weighted average data) (b)
Revenues:
<S>                                                    <C>           <C>             <C>        <C>           <C>              <C>
    Rental income.................................     $   70,625    $   68,232      3.5%       $  208,278    $ 197,930        5.2%
    Late charges and administrative fees collected          2,667         2,567      3.9%            7,417        7,147        3.8%
                                                       ------------  ------------ -----------  ------------  ----------- -----------
    Total revenues (b)............................         73,292        70,799      3.5%          215,695      205,077        5.2%

Cost of operations (excluding depreciation):
    Property taxes ...............................          7,107         6,489      9.5%           20,764       19,292        7.6%
    Payroll expense...............................         11,620        12,014     (3.3)%          36,303       35,730        1.6%
    Advertising and promotion.....................          2,045         1,975      3.5%            5,099        5,581       (8.6)%
    Utilities.....................................          2,215         2,108      5.1%            6,094        5,434       12.1%
    Repairs and maintenance.......................          1,505         1,733    (13.2)%           4,785        4,944       (3.2)%
    Property insurance............................            565           377     49.9%            1,354        1,247        8.6%
    Other costs of management.....................          2,559         2,579     (0.8)%           7,909        7,641        3.5%
                                                       ------------  ------------ -----------  ------------  ----------- -----------
  Total cost of operations (b)....................         27,616        27,275      1.3%           82,308       79,869        3.1%
                                                       ------------  ------------ -----------  ------------  ----------- -----------
   Net operating income (excluding depreciation) (c)   $   45,676     $  43,524      4.9%       $  133,387    $ 125,208        6.5%
                                                       ============  ============ ===========  ============  =========== ===========
Gross margin (before depreciation)................          62.3%         61.5%      1.3%            61.8%         61.1%       1.1%
Weighted average for the period:
  Square foot occupancy (d).......................          85.9%         88.1%     (2.5)%           85.6%         86.7%      (1.3)%
  Realized annual rent per occupied square foot (e)    $    13.28    $    12.51      6.2%       $    13.10    $    12.29       6.6%
  REVPAF (f) (g)..................................     $    11.41    $    11.02      3.5%       $    11.21    $    10.66       5.2%

Weighted average at September 30:
  Square foot occupancy...........................                                                   85.8%         87.7%      (2.2)%
Total net rentable square feet (in thousands).....                                                  24,765        24,765        -

</TABLE>

     (a) Operating  data  reflects the  operations of these  facilities  without
         regard to the time period in which Public Storage owned the facilities;
         only the amounts for the period  August 23, 2006 through  September 30,
         2006 are  included  in our  consolidated  operating  results,  totaling
         $31,237,000 in revenues and $9,582,000 in cost of operations.

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

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

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

                                       55
<PAGE>

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

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

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

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

         Beginning  January 2007,  all field  personnel  will be under a revised
Public Storage compensation and benefit plan. The cost savings from implementing
the new plan along with a more  efficient  staffing  mix are  expected  to be in
excess of $5 million per year.

         Marketing  costs,  exclusive  of  media,  will be lower as a result  of
combining Yellow Page advertising and terminating Shurgard's marketing programs.
There will be  approximately  $5 million in savings  that will phase in over the
next year over the level of yellow page expenses incurred by Shurgard, resulting
in lower  per-property  expenses for all of the  facilities  in our portfolio as
costs are spread over a larger base. We expect property tax expense to be higher
than that  experienced  by  Shurgard  due to higher  assessments  following  the
merger.

SHURGARD EUROPEAN OPERATING DATA

         In the merger with  Shurgard,  we acquired  160  facilities  located in
seven  European  countries  with an aggregate of 8,385,000  net rentable  square
feet. The following  chart sets forth the operations of the Shurgard  Facilities
from August 22, 2006 through  September  30,  2006,  the period  operated  under
Public  Storage  and  consolidated  in  our  financial  statements  (amounts  in
thousands):
                                                       From August 22,
                                                        2006 through
                                                     September 30, 2006
                                                     ------------------
   Rental income:
      Same Store - 96 facilities................      $        12,012
      Non-Same Store - 64 facilities............                5,336
                                                     ------------------
   Total rental income..........................               17,348

   Cost of operations (excluding depreciation):
      Same Store................................                5,048
      Non-Same Store............................                3,476
                                                     ------------------
   Total cost of operations.....................                8,524

   Net operating income before depreciation (a):
      Same Store................................                6,964
      Non-Same Store............................                1,860
                                                     ------------------
   Total net operating income before                            8,824
   depreciation.................................

   Depreciation and amortization................              (15,020)
                                                     ------------------
      Net operating loss........................      $        (6,196)
                                                     ==================
   Weighted average square foot occupancy
   during the period:...........................              81.9%
   Weighted average realized annual rent per
   occupied square foot for the period:.........      $       23.13
   In place annual rent per occupied square
   foot at September 30:........................      $       22.77

     (a) Total net  operating  income before  depreciation,  which is a non-GAAP
         measure, for our commercial property segment is presented in Note 13 to
         our condensed consolidated financial statements, "Segment Information,"
         which  includes  a  reconciliation   of  net  operating  income  before
         depreciation for this segment to our consolidated net income.

                                       56
<PAGE>

         The operating  data presented in the table below reflect the historical
data through August 22, 2006, the period for which the facilities  were operated
under Shurgard  combined with the  historical  data from August 22, 2006 through
September 30, 2006, the period operated under Public Storage.  Accordingly,  the
data  presented  below does not  reflect  the  actual  results  included  in our
operations  for the three and nine months ended  September 30, 2006 and 2005. We
have applied our definition of what qualifies as a Same Store. As a result,  the
number of properties  included in the Shurgard European Same Store portfolio has
decreased  from 123 facilities (as reported by Shurgard in the second quarter of
2006) to 96 facilities as is currently being reported.

Selected  Operating  Data  for  the  96  facilities
---------------------------------------------------
operated by Shurgard  Europe on a  stabilized  basis
----------------------------------------------------
since   January   1,  2004   ("Europe   Same  Store
---------------------------------------------------
Facilities"): (a)
----------------
<TABLE>
<CAPTION>

                                                           Three Months Ended September 30,        Nine Months Ended September 30,
                                                       --------------------------------------- -------------------------------------
                                                                                    Percentage                            Percentage
                                                           2006          2005         Change        2006          2005      Change
                                                       ------------- ------------ ------------ ------------- ----------- -----------
                                                        (Dollar amounts in thousands, except weighted average data, utilizing
                                                                            constant exchange rates) (b)
Revenues:
<S>                                                     <C>           <C>            <C>        <C>           <C>             <C>
    Rental income.................................      $   27,539    $   24,535     12.2%      $   77,737    $  68,546       13.4%
    Late charges and administrative fees collected             266           251      6.0%             757          610       24.1%
                                                       ------------- ------------ ------------ ------------- ----------- -----------
    Total revenues (c)............................          27,805        24,786     12.2%          78,494       69,156       13.5%

Cost of operations (excluding depreciation):
    Property taxes ...............................           1,261         1,174      7.4%           3,665        3,423        7.1%
    Payroll expense...............................           5,198         5,189      0.2%          15,858       16,084       (1.4)%
    Advertising and promotion.....................           1,179         1,689    (30.2)%          4,358        5,663      (23.0)%
    Utilities.....................................             695           565     23.0%           2,266        2,051       10.5%
    Repairs and maintenance.......................             898           807     11.3%           2,479        2,459        0.8%
    Property insurance............................             346           403    (14.1)%          1,028        1,150      (10.6)%
    Leasehold expense.............................             635           756    (16.0)%          1,815        1,723        5.3%
    Other costs of management.....................           2,396         2,615     (8.4)%          6,651        7,910      (15.9)%
                                                       ------------- ------------ ------------ ------------- ----------- -----------
  Total cost of operations (c)....................          12,608        13,198     (4.5)%         38,120       40,463       (5.8)%
                                                       ------------- ------------ ------------ ------------- ----------- -----------
   Net operating income (excluding depreciation) (d)    $  15,197     $  11,588      31.1%      $  40,374    $   28,693       40.7%
                                                       ============= ============ ============ ============= =========== ===========
Gross margin (before depreciation)................           54.7%         46.8%     16.9%           51.4%         41.5%      23.9%
Weighted average for the period:
  Square foot occupancy (e).......................           86.7%         81.3%      6.6%           84.0%         77.2%       8.8%
  Realized annual rent per occupied square foot (f)     $    24.01    $    22.81      5.3%      $    23.32    $    22.38       4.2%
  REVPAF (g) (h)..................................      $    20.82    $    18.54     12.3%      $    19.59    $    17.27      13.4%

Weighted average at September 30:
  Square foot occupancy...........................                                                   88.3%         82.5%       7.0%
  In place annual rent per occupied square foot (i)                                             $    23.42    $    22.51       4.0%
Total net rentable square feet (in thousands).....                                                   5,291         5,291        -

</TABLE>

     (a) Operating  data  reflects the  operations of these  facilities  without
         regard to the time period in which Public Storage owned the facilities;
         only the amounts for the period  August 23, 2006 through  September 30,
         2006 are included in our consolidated operating results.

     (b) Amounts for all periods have been translated  from local  currencies to
         U.S. dollars at a constant exchange rate of 1.25 US Dollars to Euros.

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

                                       57
<PAGE>

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

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

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

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

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

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

         The   European   Same  Store   properties'   NOI  growth  of  over  30%
significantly  exceeded  our  expectations.  The  European  team is  selectively
adapting  various  operating   strategies  we  use  in  the  United  States  and
incorporating them into their operating model.

         SELF-STORAGE OPERATIONS - ACQUIRED FACILITIES

         During  2004,  2005 and the first nine  months of 2006,  we  acquired a
total of 89  self-storage  facilities  containing  6,383,000 net rentable square
feet.  The  following  table  summarizes  operating  data with  respect to these
facilities.

ACQUIRED SELF-STORAGE FACILITIES
<TABLE>
<CAPTION>

                                                       Three Months Ended September 30,        Nine Months Ended September 30,
                                                      --------------------------------------- --------------------------------------
                                                            2006        2005         Change         2006       2005         Change
                                                      ------------  -----------  ------------ ------------  ----------   -----------
                                                                 (Dollar amounts in thousands, except square foot amounts)
Rental income:
<S>                                                     <C>          <C>           <C>          <C>          <C>          <C>
   Self-storage facilities acquired in 2006......       $  2,168     $      -      $  2,168     $  4,007     $      -     $  4,007
   Self-storage facilities acquired in 2005......          6,537        2,748         3,789       18,353        4,625       13,728
   Self-storage facilities acquired in 2004......          8,749        7,926           823       25,299       22,376        2,923
                                                      ------------  -----------  ------------ ------------  ----------   -----------
   Total rental income...........................         17,454       10,674         6,780       47,659       27,001       20,658
                                                      ------------  -----------  ------------ ------------  ----------   -----------
Cost of operations before depreciation and
amortization :
   Self-storage facilities acquired in 2006......          1,061            -         1,061        2,003            -        2,003
   Self-storage facilities acquired in 2005......          2,424        1,195         1,229        7,278        2,146        5,132
   Self-storage facilities acquired in 2004......          3,120        3,005           115        9,331        9,362          (31)
                                                      ------------  -----------  ------------ ------------  ----------   -----------
   Total cost of operations......................          6,605        4,200         2,405       18,612       11,508        7,104
                                                      ------------  -----------  ------------ ------------  ----------   -----------
Net operating income before depreciation and amortization:
   Self-storage facilities acquired in 2006......           1,107            -         1,107        2,004           -        2,004
   Self-storage facilities acquired in 2005......           4,113        1,553         2,560       11,075       2,479        8,596
   Self-storage facilities acquired in 2004......           5,629        4,921           708       15,968      13,014        2,954
                                                      ------------  -----------  ------------ ------------  ----------   -----------
   Total net operating income before depreciation and
   amortization (a)..............................          10,849        6,474         4,375       29,047      15,493       13,554
Depreciation and amortization....................          (4,649)      (2,508)       (2,141)     (13,166)     (6,571)      (6,595)
                                                      ------------  -----------  ------------ ------------  ----------   -----------
   Net operating income..........................       $   6,200    $   3,966     $   2,234    $  15,881    $   8,922    $  6,959
                                                      ============  ===========  ============ ============  ==========   ===========

</TABLE>
                                       58

<PAGE>

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

                                                       Three Months Ended  September 30,       Nine Months Ended September 30,
                                                      --------------------------------------- --------------------------------------
                                                            2006        2005         Change         2006       2005         Change
                                                      ------------  -----------  ------------ ------------  ----------   -----------
Weighted average square foot occupancy during the
period:
<S>                                                        <C>            <C>           <C>         <C>           <C>          <C>
   Self-storage facilities acquired in 2006......           73.3%         -             -           69.1%         -            -
   Self-storage facilities acquired in 2005......           86.3%        87.4%         (1.3)%       84.5%        70.8%        19.4%
   Self-storage facilities acquired in 2004......           89.6%        90.2%         (0.7)%       88.3%        85.3%         3.5%
                                                      ------------  -----------  ------------ ------------  ----------   -----------
                                                            86.1%        89.4%         (3.7)%       85.0%        82.5%         3.0%
                                                      ============  ===========  ============ ============  ==========   ===========
Weighted average realized annual rent per occupied
square foot for the period (b):
   Self-storage facilities acquired in 2006......       $   12.88    $      -             -     $   13.37    $      -            -
   Self-storage facilities acquired in 2005......           12.07        10.05         20.1%        11.57         9.55        21.2%
   Self-storage facilities acquired in 2004......           12.08        10.88         11.0%        11.78        10.60        11.1%
                                                      ------------  -----------  ------------ ------------  ----------   -----------
                                                        $   12.17    $   10.66         14.2%    $   11.79    $   10.42        13.1%
                                                      ============  ===========  ============ ============  ==========   ===========
In place annual rent per occupied square foot at
September 30 (c):
   Self-storage facilities acquired in 2006......                                              $    14.53    $       -           -
   Self-storage facilities acquired in 2005......                                                   13.28        11.50        15.5%
   Self-storage facilities acquired in 2004......                                                   13.01        11.99         8.5%
                                                                                              ------------  ----------   -----------
                                                                                                    13.29        11.85        12.2%
                                                                                              ============  ==========   ===========
Number of Facilities at September 30:
     2006........................................                                                       12           -            12
     2005........................................                                                       32          21            11
     2004........................................                                                       45          45             -
                                                                                              ------------  ----------   -----------
                                                                                                        89          66            23
                                                                                              ============  ==========   ===========
Net rentable square feet at September 30:
   Self-storage facilities acquired in 2006......                                                      872            -          872
   Self-storage facilities acquired in 2005......                                                    2,390        1,469          921
   Self-storage facilities acquired in 2004 (d)..                                                    3,121        3,105           16
                                                                                              ------------  ----------   -----------
                                                                                                     6,383        4,574        1,809
                                                                                              ============  ==========   ===========
Cumulative acquisition cost at September 30:
   Self-storage facilities acquired in 2006......                                               $  103,544   $       -    $  103,544
   Self-storage facilities acquired in 2005......                                                  254,549     124,753       129,796
   Self-storage facilities acquired in 2004 (d)..                                                  260,801     259,487         1,314
                                                                                              ------------  ----------   -----------
                                                                                                $  618,894   $ 384,240    $  234,654
                                                                                              ============  ==========   ===========
</TABLE>


     (a) Total net operating income before depreciation and amortization,  which
         is  a  non-GAAP  measure,  for  our  acquired  self-storage  facilities
         represents a portion of our total self-storage  segment's net operating
         income before  depreciation and amortization,  and is reconciled to the
         segment total in the table  "self-storage  operations summary" above. A
         reconciliation of our total self-storage segment's net operating income
         before  depreciation  and  amortization to  consolidated  net income is
         included in Note 13 to our  September 30, 2006  condensed  consolidated
         financial statements, "Segment Information."

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

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

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

                                       59
<PAGE>

         The  2005  and  2006   acquisitions  were  acquired  at  various  dates
throughout  each  period.  Accordingly,   rental  income,  cost  of  operations,
depreciation, net operating income, weighted average square foot occupancies and
realized rents per square foot  represent the operating  results for the partial
period that we owned the facilities  during the year acquired.  In addition,  in
place rents per occupied square foot at September 30, 2006 and 2005, reflect the
amounts for those facilities we owned at each of those respective dates.

         During 2004,  we acquired a total of 45  self-storage  facilities  with
cumulative  acquisition  costs  of  approximately  $260,801,000,  containing  an
aggregate of  approximately  3,121,000 net rentable  square feet and are located
principally  in  the  Buffalo,   Dallas,  Miami,   Milwaukee,   and  Minneapolis
metropolitan areas.

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

         For the nine months ended September 30, 2006, we acquired a total of 12
self-storage facilities,  each in a single-property  transaction,  containing an
aggregate of  approximately  872,000 net  rentable  square feet for an aggregate
cost of  $103,544,000  located  in  California,  Florida,  Illinois,  New  York,
Virginia, New Jersey, Delaware, Georgia and Colorado.

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

         We expect  that our  acquisitions  will  continue  to provide  earnings
growth  during the  remainder  of 2006 as these  facilities  continue to improve
their occupancy levels as well as realized rental rates.

         SELF-STORAGE OPERATIONS - EXPANSION FACILITIES

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

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

                                       60
<PAGE>

EXPANSION SELF-STORAGE FACILITIES
<TABLE>
<CAPTION>

                                                         Three Months Ended                         Nine Months Ended
                                                            September 30,                             September 30,
                                                     ---------------------------                --------------------------
                                                          2006          2005         Change          2006         2005       Change
                                                     -------------  ------------- ------------  ------------- ------------ ---------
Rental income:
--------------
<S>                                                   <C>            <C>           <C>           <C>           <C>         <C>
   New Orleans facilities (a) ...............         $    1,401     $    1,031    $      370    $    4,362    $    3,986  $   376
   Other expansion facilities................             12,581         10,719         1,862        35,416        30,515    4,901
                                                     -------------  ------------- ------------  ------------- ------------ ---------
     Total rental income.....................             13,982         11,750         2,232        39,778        34,501    5,277
                                                     -------------  ------------- ------------  ------------- ------------ ---------
Cost of operations before depreciation:
---------------------------------------
   New Orleans facilities....................                456            500           (44)        1,229         1,475     (246)
   Other expansion facilities................              3,764          3,533           231        11,529        10,503    1,026
                                                     -------------  ------------- ------------  ------------- ------------ ---------
     Total cost of operations................              4,220          4,033           187        12,758        11,978      780
                                                     -------------  ------------- ------------  ------------- ------------ ---------
Net operating income before depreciation:
-----------------------------------------
   New Orleans facilities....................                945            531           414         3,133         2,511      622
   Other expansion facilities................              8,817          7,186         1,631        23,887        20,012    3,875
                                                     -------------  ------------- ------------  ------------- ------------ ---------
   Total net operating income before depreciation          9,762          7,717         2,045        27,020        22,523    4,497
   (b)
 Depreciation................................             (3,765)        (2,739)       (1,026)       (9,780)       (7,998)  (1,782)
                                                     -------------  ------------- ------------  ------------- ------------ ---------
   Net operating income......................         $    5,997     $    4,978    $    1,019    $   17,240    $   14,525  $ 2,715
                                                     =============  ============= ============  ============= ============ =========
Weighted average square foot occupancy during the
-------------------------------------------------
period:
-------
   New Orleans facilities (c)................              82.1%          91.7%        (10.5)%        82.9%         90.6%     (8.5)%
   Other expansion facilities................              83.5%          87.7%         (4.8)%        81.0%         85.3%     (5.0)%
                                                     -------------  ------------- ------------  ------------- ------------ ---------
                                                           83.4%          87.4%         (4.6)%        81.2%         86.0%     (5.6)%
                                                     =============  ============= ============  ============= ============ =========
Weighted average realized rent per occupied square
--------------------------------------------------
foot during the period (d):
---------------------------
   New Orleans facilities (c) ...............         $     9.90     $    8.16           21.3%    $    8.68    $   10.59     (18.0)%
   Other expansion facilities................              12.84         11.87            8.2%        12.44        11.80       5.4%
                                                     -------------  ------------- ------------  ------------- ------------ ---------
                                                      $    12.62     $   11.56            9.2%    $   12.14    $   11.65       4.2%
                                                     =============  ============= ============  ============= ============ =========
In place annual rent per occupied square foot at
------------------------------------------------
September 30 (e):
   New Orleans facilities (c) ...............                                                     $   14.41    $   13.39       7.6%
   Other expansion facilities................                                                         13.93        13.26       5.1%
                                                                                                 ------------ ------------ ---------
                                                                                                  $   13.97    $   13.27       5.3%
                                                                                                 ============ ============ =========
Number of Facilities at September 30:
-------------------------------------
   New Orleans facilities....................                                                             8            8         -
   Other expansion facilities................                                                            53           53         -
                                                                                                 ------------ ------------ ---------
                                                                                                         61           61         -
                                                                                                 ============ ============ =========
Net rentable square feet (in thousands,
---------------------------------------
at end of period) (f):
----------------------
   New Orleans facilities....................                                                           524          524         -
   Other expansion facilities................                                                         4,828        4,123       705
                                                                                                 ------------ ------------ ---------
                                                                                                      5,352        4,647       705
                                                                                                 ============ ============ =========

</TABLE>

     (a) Rental  income for the New  Orleans  Facilities  for the three and nine
         months ended  September  30, 2006  includes  $277,000  and  $1,217,000,
         respectively,  in business  interruption  proceeds we expect to receive
         from our  insurers,  relative to losses  occurring  in each  respective
         period (none for the same periods in 2005).

                                       61
<PAGE>

     (b) Total net  operating  income before  depreciation,  which is a non-GAAP
         measure, for our expansion self-storage facilities represents a portion
         of  our  total  self-storage  segment's  net  operating  income  before
         depreciation,  and is  reconciled  to the  segment  total in the  table
         "self-storage  operations summary" above. A reconciliation of our total
         self-storage  segment's net operating  income  before  depreciation  to
         consolidated  net income is  included in Note 13 to our  September  30,
         2006   condensed    consolidated    financial   statements,    "Segment
         Information."

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

     (d) Realized  annual rent per occupied  square foot is computed by dividing
         rental income,  prior to late charges and  administrative  fees, by the
         weighted  average  occupied  square  footage for the  period.  Realized
         annual  rent  per  occupied   square  foot  takes  into   consideration
         promotional  discounts,  credit  card fees and other  costs that reduce
         rental  income from the  contractual  amounts  due.  Realized  rent per
         square foot excludes the impact of $277,000 and  $1,217,000 in business
         interruption  proceeds we expect to receive from our insurers  relative
         to the New  Orleans  facilities  for the  three and nine  months  ended
         September 30, 2006, respectively (none for the same periods in 2005).

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


     (f) Square  footage  excludes  299,000 net rentable  containerized  storage
         space initially  developed for the  containerized  storage  business at
         September 30, 2006,  but includes  square  footage taken offline due to
         hurricane damage.


         All of the New  Orleans  facilities  were  closed  for  operations  for
several weeks following the hurricane;  however, all but two of these facilities
have  since  reopened.  The six that are  operating  are not  operating  at full
capacity,  as many  units  are  unavailable  for lease  due to  damage.  The two
facilities  that  remain  closed  will  not be able  to  reopen  at all  without
substantial  restoration  and  repair  work.  Notwithstanding  that  six  of our
facilities in New Orleans are currently operating,  we believe that the indirect
economic  effects of the hurricane on the city may have a negative impact on our
facilities' operating results, and these effects are expected to continue for an
indeterminate  time  period.  Included in revenues for the three and nine months
ended September 30, 2006 are $277,000 and $1,217,000,  respectively, in expected
business  interruption  proceeds for these facilities,  representing the loss of
business for the nine months ended September 30, 2006.

         We expect  that the  Expansion  Facilities,  other than the New Orleans
facilities, will continue to provide growth to our earnings during the remainder
of 2006 as we  continue  to rent the newly  added  vacant  space.  The  weighted
average  occupancy level of these  facilities was 83.5%, and 81.0% for the three
and nine months ended September 30, 2006,  respectively.  For the three and nine
months ended September 30, 2005, the weighted  average  occupancy level of these
facilities was 87.7% and 85.3%, respectively.

         We expect that we will continue to redevelop additional facilities;  at
September 30, 2006, we have five projects with an aggregate  cost of $18,883,000
to convert the containerized  storage space into self-storage space and 44 other
expansion  and  repackaging  projects  to  enhance  the  visual  appeal  of  our
facilities  or  increase  their  net  rentable  space  at an  aggregate  cost of
$219,232,000.  These  activities  will  increase  our  self-storage  space by an
aggregate of 2,750,000  net rentable  square feet and will result in  short-term
dilution  to  earnings.  However,  we believe  that  expansion  of our  existing
self-storage facilities in markets that have unmet storage demand, and improving
our existing  facilities'  competitive  position through  enhancing their visual
appeal,  provide an important means to improve the Company's earnings.  Further,
the  construction  cost for these  expansions is generally lower on a per-square
foot basis than the  development of a new facility,  resulting in a higher yield
potential on invested capital.  There can be no assurance about the future level
of such expansion and enhancement opportunities,  and these projects are subject
to contingencies.

         SELF-STORAGE OPERATIONS - DEVELOPED FACILITIES

         We have 44 newly developed self-storage  facilities,  and 17 facilities
that were developed to contain both  self-storage and  containerized  storage at
the same location  ("Combination  Facilities") that have not been operating at a
stabilized  level of  operations  since  January 1, 2004. At September 30, 2006,
these newly  developed  facilities  have an aggregate of 5,102,000  net rentable

                                       62
<PAGE>

square  feet of  self-storage  space and  125,000  net  rentable  square feet of
industrial space developed  originally for our  containerized  storage business.
Aggregate   development   cost  for  these  61  facilities   was   approximately
$539,174,000  at September 30, 2006. The operating  results of the  self-storage
facilities  and  Combination   Facilities  are  reflected  in  the  Self-Storage
Operations table under the caption, "Developed Facilities." These facilities are
not included in the "Same Store"  portfolio  because their  operations  have not
been stabilized.

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

<TABLE>
<CAPTION>

DEVELOPED SELF-STORAGE FACILITIES                     Three Months Ended                       Nine Months Ended
                                                         September 30,                           September 30,
                                                   -------------------------               -------------------------
                                                       2006         2005        Change        2006          2005        Change
                                                   ------------- -----------  -----------  -----------  ------------  -----------
                                                     (Amounts in thousands, except per square foot amounts and facility count)
Rental income:
<S>                                                 <C>           <C>         <C>          <C>          <C>           <C>
  Self-storage facilities opened in 2006.......     $      375    $       -   $      375   $      431   $        -    $    431
  Self-storage facilities opened in 2005.......            784          154          630        1,737          204       1,533
  Self-storage facilities opened in 2004.......          2,047        1,505          542        5,407        3,759       1,648
  Self-storage facilities opened in 2003 and 2002        7,322        6,452          870       20,841       18,338       2,503
  Combination facilities.......................          5,516        4,422        1,094       15,289       12,394       2,895
                                                   ------------- -----------  -----------  -----------  ------------  -----------
     Total rental income.......................         16,044       12,533        3,511       43,705       34,695       9,010
                                                   ------------- -----------  -----------  -----------  ------------  -----------
Cost of operations before depreciation:
  Self-storage facilities opened in 2006.......            344            -          344          458            -         458
  Self-storage facilities opened in 2005.......            381          187          194        1,201          304         897
  Self-storage facilities opened in 2004.......            641          525          116        1,770        1,703          67
  Self-storage facilities opened in 2003 and 2002        2,161        2,096           65        6,556        6,362         194
  Combination facilities.......................          1,899        1,502          397        5,557        5,007         550
                                                   ------------- -----------  -----------  -----------  ------------  -----------
     Total cost of operations before depreciation        5,426        4,310        1,116       15,542       13,376       2,166
                                                   ------------- -----------  -----------  -----------  ------------  -----------
Net operating income before depreciation:
  Self-storage facilities opened in 2006.......             31            -           31          (27)           -         (27)
  Self-storage facilities opened in 2005.......            403          (33)         436          536         (100)        636
  Self-storage facilities opened in 2004.......          1,406          980          426        3,637        2,056       1,581
  Self-storage facilities opened in 2003 and 2002        5,161        4,356          805       14,285       11,976       2,309
  Combination facilities.......................          3,617        2,920          697        9,732        7,387       2,345
                                                   ------------- -----------  -----------  -----------  ------------  -----------
   Net operating income before depreciation (a)         10,618        8,223        2,395       28,163       21,319       6,844
 Depreciation..................................         (3,857)      (3,296)        (561)     (10,975)      (9,584)     (1,391)
                                                   ------------- -----------  -----------  -----------  ------------  -----------
   Net operating income........................     $    6,761    $   4,927   $    1,834   $   17,188   $   11,735    $  5,453
                                                   ============= ===========  ===========  ===========  ============  ===========
Weighted average square foot occupancy during
the period:
  Self-storage facilities opened in 2006.......          35.5%          -            -         26.0%           -            -
  Self-storage facilities opened in 2005.......          52.8%       29.1%        81.4%        42.6%        15.0%       184.0%
  Self-storage facilities opened in 2004.......          89.5%       82.0%         9.1%        87.0%        66.3%        31.2%
  Self-storage facilities opened in 2003 and 2002        91.9%       91.9%         0.0%        92.1%        90.2%         2.1%
  Combination facilities.......................          80.6%       82.1%        (1.8)%       77.8%        78.6%        (1.0)%
                                                   ------------- -----------  -----------  -----------  ------------  -----------
                                                         81.0%       82.3%        (1.6)%       79.2%        80.9%        (2.1)%
                                                   ============= ===========  ===========  ===========  ============  ===========
Weighted average realized rent per occupied
square foot during the period (b):
  Self-storage facilities opened in 2006.......     $   13.97$          -           -      $  11.2$            -            -
  Self-storage facilities opened in 2005.......         12.15        8.02        51.5%        11.07         6.95         59.3%
  Self-storage facilities opened in 2004.......         16.79       14.43        16.4%        16.03        13.74         16.7%
  Self-storage facilities opened in 2003 and 2002       15.69       13.88        13.0%        14.94        13.40         11.5%
  Combination facilities.......................         13.71       12.84         6.8%        13.36        12.70          5.2%
                                                   ------------- -----------  -----------  -----------  ------------  -----------
                                                    $   14.78     $ 13.42        10.1%     $  14.20     $  13.10          8.4%
                                                   ============= ===========  ===========  ===========  ============  ===========

</TABLE>

                                       63

<PAGE>

DEVELOPED SELF-STORAGE FACILITIES
(continued)
<TABLE>
<CAPTION>

                                                      Three Months Ended                       Nine Months Ended
                                                         September 30,                           September 30,
                                                   -------------------------               -------------------------
                                                       2006         2005        Change        2006          2005        Change
                                                   ------------- -----------  -----------  -----------  ------------  -----------
                                                   (Amounts in thousands, except per square foot amounts and facility count)
In place annual rent per occupied square foot at
-------------------------------------------------
September 30 (c):
<S>                                                                                         <C>         <C>                  <C>
  Self-storage facilities opened in 2006.......                                            $  23.2$     $      -             -
  Self-storage facilities opened in 2005.......                                               14.71        12.29         19.7%
  Self-storage facilities opened in 2004.......                                               17.88        16.57          7.9%
  Self-storage facilities opened in 2003 and 2002                                             16.54        15.09          9.6%
  Combination facilities.......................                                               14.97        14.02          6.8%
                                                                                           -----------  ------------  -----------
                                                                                           $  16.13     $  14.77          9.2%
                                                                                           ===========  ============  ===========
Number of facilities at September 30:
  Self-storage facilities opened in 2006.......                                                   3            -            3
  Self-storage facilities opened in 2005.......                                                   6            3            3
  Self-storage facilities opened in 2004.......                                                   7            7            -
  Self-storage facilities opened in 2003 and 2002                                                28           28            -
  Combination facilities.......................                                                  17           17            -
                                                                                           -----------  ------------  -----------
                                                                                                 61           55            6
                                                                                           ===========  ============  ===========
Square Footage at September 30:
  Self-storage facilities opened in 2006.......                                                   281            -         281
  Self-storage facilities opened in 2005.......                                                   463          259         204
  Self-storage facilities opened in 2004.......                                                   505          505           -
  Self-storage facilities opened in 2003 and 2002                                               1,937        1,937           -
  Combination facilities (d)...................                                                 1,916        1,669         247
                                                                                           -----------  ------------  -----------
                                                                                                5,102        4,370         732
                                                                                           ===========  ============  ===========
Cumulative development cost at September 30:
  Self-storage facilities opened in 2006.......                                              $ 49,519     $      -    $ 49,519
  Self-storage facilities opened in 2005.......                                                37,820       15,893      21,927
  Self-storage facilities opened in 2004.......                                                60,579       60,573           6
  Self-storage facilities opened in 2003 and 2002                                             211,621      204,473       7,148
  Combination facilities (d)...................                                               179,635      175,370       4,265
                                                                                           -----------  ------------  -----------
                                                                                             $539,174     $456,309    $ 82,865
                                                                                           ===========  ============  ===========

</TABLE>

     (a) Total net  operating  income before  depreciation,  which is a non-GAAP
         measure, for our developed self-storage facilities represents a portion
         of  our  total  self-storage  segment's  net  operating  income  before
         depreciation,  and is  denoted  in the table  "self-storage  operations
         summary" above. A reconciliation  of our total  self-storage  segment's
         net operating income before  depreciation to consolidated net income is
         included in Note 13 to our  September 30, 2006  condensed  consolidated
         financial statements, "Segment Information."

     (b) Realized  annual rent per occupied  square foot is computed by dividing
         rental income,  prior to late charges and  administrative  fees, by the
         weighted  average  occupied  square  footage for the  period.  Realized
         annual  rent  per  occupied   square  foot  takes  into   consideration
         promotional  discounts,  credit  card fees and other  costs that reduce
         rental income from the contractual  amounts due, and therefore  amounts
         for the three and nine months ended September 30, 2006 and 2005 may not
         be  comparable  to the same  periods  in prior  years for  self-storage
         facilities  opened in 2006 and 2005. We typically  provide  significant
         promotional  discounts to new tenants  when a facility  first opens for
         operations.  As  facilities  reach a stabilized  occupancy  level,  the
         amounts of discounts given will be reduced significantly.

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

     (d) Square footages exclude  industrial  space developed for  containerized
         storage  activities  totaling  125,000  net  rentable  square  feet  at
         September 30, 2006. Since January 1, 2003, we have converted industrial
         space no longer used by the discontinued containerized storage business
         into  1,553,000 net rentable  square feet of  traditional  self-storage
         space, at an aggregate cost of $25,964,000.

                                       64
<PAGE>

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

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

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

         The annualized  yield on costs for these facilities for the nine months
ended September 30, 2006, based on net operating income before depreciation, was
approximately  7.0%,  which is lower than our ultimate  yield  expectations.  We
expect these yields to increase as these facilities reach  stabilization of both
occupancy levels and realized rents.  Properties that were developed before 2005
have  contributed  greatly to our  earnings  growth.  The  growth in  properties
developed  in 2004 was  principally  due to  occupancy  growth,  and  growth for
properties developed in 2003 and 2002 were due principally to rate increases. We
expect that these facilities will continue to provide growth to our earnings.

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

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

         SELF-STORAGE OPERATIONS - NEWLY CONSOLIDATED FACILITIES

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

                                       65
<PAGE>

         The following chart sets forth the operations of the Newly Consolidated
Facilities (amounts in thousands):
<TABLE>
<CAPTION>

                                                   Three Months          Nine Months
                                                      Ended                 Ended
                                                 September 30, 2006    September 30, 2006
                                                 ------------------  --------------------
<S>                                              <C>                   <C>
   Rental income...............................  $      3,686          $     10,874
   Cost of operations (excluding depreciation).           924                 2,644
                                                 ------------------  --------------------
   Net operating income before depreciation (a)         2,762                 8,230
   Depreciation................................          (116)                 (504)
                                                 ------------------  --------------------
      Net operating income.....................  $      2,646          $      7,726
                                                 ==================  ====================
   Weighted average square foot occupancy
   during the period:..........................         89.6%                89.1%

   Weighted average realized annual rent per
   occupied square foot for the period:........  $        16.77        $      16.47

   In place annual rent per occupied square
   foot at September 30:.......................                        $      18.88

</TABLE>


     (a) Total net  operating  income before  depreciation,  which is a non-GAAP
         measure, for our commercial property segment is presented in Note 13 to
         our condensed consolidated financial statements, "Segment Information,"
         which  includes  a  reconciliation   of  net  operating  income  before
         depreciation for this segment to our consolidated net income.

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

         We  acquired  309,000  net  rentable  square  feet in the  merger  with
Shurgard.  As a result,  at September  30, 2006 total net  rentable  square feet
increased to 1,605,000 from 1,296,000 at June 30, 2006. Our commercial  space is
principally operated at certain of the self-storage facilities.

         The  results of our  commercial  operations  are  provided in the table
below (amounts in thousands):

Commercial Property Operations:
(excluding discontinued operations)
<TABLE>
<CAPTION>

                                             Three Months Ended September 30,        Nine Months Ended September 30,
                                           ------------------------------------   -------------------------------------
                                              2006         2005        Change        2006         2005        Change
                                           ------------ ----------- -----------   ------------ -----------  -----------
<S>                                         <C>         <C>           <C>          <C>         <C>          <C>
Rental income.........................      $   3,408   $   2,918     $    490     $   9,413   $   8,693    $     720
Cost of operations....................         (1,497)     (1,122)        (375)       (4,080)     (3,292)        (788)
                                           ------------ ----------- -----------   ------------ -----------  -----------
   Net operating income before
   depreciation (a)...................          1,911       1,796          115         5,333       5,401          (68)
 Depreciation.........................           (643)       (562)         (81)       (1,777)     (1,721)         (56)
                                           ------------ ----------- -----------   ------------ -----------  -----------
   Operating income...................      $   1,268    $  1,234     $     34     $   3,556    $  3,680    $    (124)
                                           ============ =========== ===========   ============ ===========  ===========
</TABLE>

     (a) Total net  operating  income before  depreciation,  which is a non-GAAP
         measure, for our commercial property segment is presented in Note 13 to
         our September 30, 2006  condensed  consolidated  financial  statements,
         "Segment Information," which includes a reconciliation of net operating
         income before  depreciation  for this segment to our  consolidated  net
         income.

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

                                       66
<PAGE>

         Containerized   Storage   Operations:   We  have  closed  many  of  our
containerized  storage  facilities  since 2002,  and have refined our market and
product focus to 12 facilities  located in eight densely  populated markets with
above-average  rent and income.  The  operations  with respect to the facilities
other than the 12 ongoing  facilities are included in "Discontinued  Operations"
on our income  statement.  The  operations  of the 12 remaining  facilities  are
included in PSPUD's continuing operations and are reflected on the table below:

Containerized Storage:
(excluding discontinued operations)
<TABLE>
<CAPTION>

                                                 Three Months Ended                  Nine Months Ended
                                                   September 30,                       September 30,
                                          --------------------------------- -----------------------------------
                                             2006       2005      Change       2006        2005       Change
                                          ----------- ---------- ---------- ----------  ----------  -----------
                                                                 (Amounts in thousands)
<S>                                        <C>         <C>        <C>         <C>        <C>          <C>
Rental and other income ............       $ 4,353     $ 4,480    $  (127)    $12,483    $12,305      $   178
Cost of operations:
    Direct operating costs..........         3,135       3,308       (173)      9,234      8,602          632
    Facility lease expense..........           772         368        404       2,202      1,090        1,112
                                          ----------- ---------- ---------- ----------  ----------  -----------
      Total cost of operations......         3,907       3,676        231      11,436      9,692        1,744
                                          ----------- ---------- ---------- ----------  ----------  -----------
Net operating (loss) income before
depreciation (a)....................           446         804       (358)      1,047      2,613       (1,566)
   Depreciation expense (b).........          (179)       (313)       134        (662)    (2,490)       1,828
                                          ----------- ---------- ---------- ----------  ----------  -----------
Operating (loss) income.............       $   267     $   491    $  (224)    $   385    $   123      $   262
                                          =========== ========== ========== ==========  ==========  ===========
</TABLE>


     (a) Total net  operating  income before  depreciation,  which is a non-GAAP
         measure  described  above,  for our  containerized  storage  segment is
         presented in Note 13 to our September 30, 2006  condensed  consolidated
         financial   statements,   "Segment   Information,"   which  includes  a
         reconciliation  of net operating  income before  depreciation  for this
         segment to our consolidated net income.

     (b) Depreciation   expense  principally  relates  to  the  depreciation  of
         containers; however, depreciation expense for the three and nine months
         ended September 30, 2006 includes $126,000 and $504,000,  respectively,
         related to real estate facilities compared to $262,000 and $786,000 for
         the same periods in 2005, respectively.

         Rental and other income  includes  monthly  rental charges to customers
for storage of the  containers,  service fees charged for pickup and delivery of
containers to customers'  homes and  businesses  and certain  non-core  services
which were eliminated,  such as handling and packing  customers' goods from city
to city.  At  September  30,  2006,  there were  approximately  21,065  occupied
containers in the continuing facilities.

         Direct operating costs principally  includes  payroll,  equipment lease
expense,  utilities and vehicle expenses (fuel and insurance).  Direct operating
costs for the three and nine  months  ended  September  30,  2006 also  includes
approximately   $337,000  and  $960,000  of  research  and  development   costs,
respectively.  Facility  lease  expense has increased  significantly  as we have
moved the operations from wholly-owned combination facilities to facilities that
we lease from third parties.

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

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

                                       67
<PAGE>

<TABLE>
<CAPTION>

                                             Three Months Ended                      Nine Months Ended
                                               September 30,                            September 30,
                                          ----------------------                ------------------------
                                             2006         2005       Change         2006         2005       Change
                                          ----------- ---------- ------------   ------------ -----------  ----------
                                                                     (Amounts in thousands)
Revenues:
<S>                                       <C>         <C>         <C>            <C>         <C>          <C>
    Tenant reinsurance premiums.....      $   9,790   $   6,332   $  3,458       $   24,379  $   18,499   $   5,880
    Merchandise sales...............          7,566       6,261      1,305           18,879      17,513      1,366
    Truck rentals...................          4,106       4,208       (102)          10,535      10,550        (15)
    Property management.............            644         786       (142)           1,856       2,241       (385)
                                          ----------- ---------- ------------   ------------ -----------  ----------
       Total revenues...............         22,106      17,587      4,519           55,649      48,803      6,846
                                          ----------- ---------- ------------   ------------ -----------  ----------
Cost of operations:
    Tenant reinsurance..............          3,714       3,017        697            9,929       7,560      2,369
    Merchandise sales...............          6,347       5,096      1,251           16,541      14,380      2,161
    Truck rentals...................          3,328       3,322          6            9,089       9,722       (633)
    Property management.............             58         178       (120)             200         508       (308)
                                          ----------- ---------- ------------   ------------ -----------  ----------
       Total cost of operations.....         13,447      11,613      1,834           35,759      32,170      3,589
                                          ----------- ---------- ------------   ------------ -----------  ----------
Net operating income:
    Tenant reinsurance..............          6,076       3,315      2,761           14,450      10,939      3,511
    Merchandise sales...............          1,219       1,165         54            2,338       3,133       (795)
    Truck rentals...................            778         886       (108)           1,446         828        618
    Property management.............            586         608        (22)           1,656       1,733        (77)
                                          ----------- ---------- ------------   ------------ -----------  ----------
       Total net operating income...      $   8,659   $   5,974   $  2,685       $   19,890  $   16,633   $  3,257
                                          =========== ========== ============   ============ ===========  ==========

</TABLE>

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

         PSIC  reinsures  policies  against losses to goods stored by tenants in
our self-storage  facilities.  Revenues are comprised of fees charged to tenants
electing such policies.  Cost of operations  primarily includes claims paid that
are not covered by our outside  third-party  insurers (described below), as well
as claims adjusting expenses.

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

         The future level of tenant  reinsurance  revenues is largely  dependent
upon the number of new tenants electing to purchase  policies,  premiums charged
for such insurance and existing tenant  retention to continue  participating  in
the insurance  program.  For the nine months ended  September 30, 2006 and 2005,
approximately 32.4% and 33.0%, respectively, of our self-storage tenant base had
such policies.  During 2005 and 2004, we experienced damage caused by hurricanes
to several of our facilities in our Florida and New Orleans markets. As a result
of such damage, we recorded estimated tenant claim expense during the quarter in
which the damage  occurred.  As time progressed,  the tenant claims  liabilities
were adjusted, either increasing or decreasing the liabilities,  based on actual
claims history.  As a result of these  adjustments,  we experienced  significant
volatility  in our reported  quarterly  cost of  operations,  particularly  with
respect to 2005.

         The future cost of  operations  will be  dependent  primarily  upon the
level of losses incurred,  including the level of catastrophic  events,  such as
hurricanes, that occur and affect our properties. The aforementioned increase in
the  deductible of  $1,500,000  per event could result in higher loss expense in
the remainder of 2006,  depending  upon the number of  catastrophic  losses that
occur.

         For the quarter ended September 30, 2006, tenant  reinsurance  revenues
and cost of  operations,  respectively,  included  $745,000  and  $291,000  with
respect  to the  Shurgard  facilities  we  acquired  in the United  States,  and
$784,000 and $260,000 for the Shurgard facilities in Europe.

                                       68
<PAGE>

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

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

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

         The revenues of these activities have remained relatively stable during
the periods  reflected in the table above.  Cost of  operations  with respect to
merchandise sales has increased approximately $1,251,000, or 24.5% for the three
months  ended  September  30, 2006 as compared to the same period in 2005.  This
increase has been caused  primarily by higher  payroll  costs,  as we have added
more retail store managers combined with higher cost of purchasing inventory for
sale. The primary factors impacting the levels of operations of these activities
are the levels of customer traffic at our self-storage facilities, including the
levels of move-ins.

         For the quarter ended September 30, 2006, merchandise revenues and cost
of operations,  respectively, included $929,000 and $481,000 with respect to the
Shurgard  facilities we acquired in the United States, and $778,000 and $376,000
for the Shurgard facilities in Europe.

         For the quarter ended  September 30, 2006,  truck  revenues and cost of
operations,  respectively,  included  $290,000 and $234,000  with respect to the
Shurgard facilities we acquired in the United States.

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

         We manage 34  self-storage  facilities on behalf of third-party  owners
and 22 self-storage  facilities that are owned by the  Unconsolidated  Entities.
Under the supervision of the property  owners,  we coordinate  rental  policies,
rent collections,  marketing activities, the purchase of equipment and supplies,
maintenance activities, and the selection and engagement of vendors,  suppliers,
and  independent  contractors.  We also assist and advise the property owners in
establishing policies for the hire, discharge,  and supervision of employees for
the operation of these facilities.

         Property  management  operations  declined  in the  nine  months  ended
September  30,  2006  as  compared  to  the  same  period  in  2005,  due to our
consolidation,  effective  January  1,  2006,  of three  partnerships  owning 16
self-storage  facilities  that we had previously  accounted for under the equity
method of  accounting.  This resulted in the  elimination  in  consolidation  of
management  fee  income  and cost of  operations  with  respect  to these  three
partnerships for periods after January 1, 2006.

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

         EQUITY  IN  EARNINGS  OF  REAL  ESTATE  ENTITIES:  In  addition  to our
ownership  of equity  interests  in PSB, we had general and limited  partnership
interests in eight  limited  partnerships  at September  30, 2006.  (PSB and the
limited  partnerships  are  collectively  referred  to  as  the  "Unconsolidated
Entities").  Due to our limited ownership  interest and limited control of these
entities,  we do not  consolidate  the accounts of these  entities for financial
reporting purposes. We account for such investments using the equity method.

         Equity  in  earnings  of real  estate  entities  for the three and nine
months ended  September 30, 2006 and 2005 consists of our pro-rata  share of the
Unconsolidated  Entities based upon our ownership  interest for the period.  The
following table sets forth the  significant  components of equity in earnings of
real estate entities:

                                       69
<PAGE>

<TABLE>
<CAPTION>

                                                 Three Months Ended                     Nine Months Ended
                                                   September 30,                           September 30,
                                             --------------------------              -------------------------
                                                  2006         2005        Change        2006         2005        Change
                                             ------------  ------------ ------------ ------------  ----------- ------------
                                                                         (Amounts in thousands)

Property operations:
<S>                                           <C>           <C>          <C>          <C>          <C>         <C>
  PSB....................................     $  18,664     $  17,737    $     927    $  54,775    $  51,865   $    2,910
  Acquisition Joint Venture..............           110            75           35          297          189          108
  Newly consolidated partnerships (1)....             -         1,322       (1,322)           -        3,912       (3,912)
  Other investments (2)..................           763           722           41        2,141        2,002          139
                                             ------------  ------------ ------------ ------------  ----------- ------------
                                                 19,537        19,856         (319)      57,213       57,968         (755)
                                             ------------  ------------ ------------ ------------  ----------- ------------
Depreciation:
  PSB....................................        (9,779)       (8,352)      (1,427)     (28,034)     (24,887)      (3,147)
  Acquisition Joint Venture..............           (70)          (68)          (2)        (207)        (202)          (5)
  Newly consolidated partnerships (1)....             -          (216)         216            -         (632)         632
  Other investments (2)..................          (182)         (186)           4         (510)        (544)          34
                                             ------------  ------------ ------------ ------------  ----------- ------------
                                                (10,031)       (8,822)      (1,209)     (28,751)     (26,265)      (2,486)
                                             ------------  ------------ ------------ ------------  ----------- ------------
Other: (3)
  PSB (4)................................        (6,867)       (1,134)      (5,733)     (19,107)     (11,149)      (7,958)
  Newly consolidated partnerships (1)....             -           (31)          31            -         (110)         110
  Other investments (2)..................           (21)          (16)          (5)        (147)         (62)         (85)
                                             ------------  ------------ ------------ ------------  ----------- ------------
                                                 (6,888)       (1,181)      (5,707)     (19,254)     (11,321)      (7,933)
                                             ------------  ------------ ------------ ------------  ----------- ------------
Total equity in earnings of real estate
entities..................................    $   2,618     $   9,853    $  (7,235)   $   9,208    $  20,382   $  (11,174)
                                             ============  ============ ============ ============  =========== ============

</TABLE>

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

     (2) Amounts  primarily  reflect equity in earnings recorded for investments
         that have been held consistently  throughout each of the three and nine
         months ended September 30, 2006 and 2005.

     (3) "Other"  reflects  our share of  general  and  administrative  expense,
         interest   expense,    interest   income,   and   other   non-property;
         non-depreciation  related  operating  results  of these  entities.  The
         amount of interest expense included in "other" is $271,000 and $729,000
         for the three and nine months ended  September 30, 2006,  respectively,
         as  compared  to  $131,000  and  $375,000,  respectively,  for the same
         periods in 2005.

     (4) "Other" with respect to PSB also  includes our pro-rata  share of gains
         on sale of real estate assets,  impairment  charges relating to pending
         sales of real estate and the impact of PSB's  application  of the SEC's
         clarification   of  EITF  Topic  D-42  on   redemptions   of  preferred
         securities.

         Equity in earnings of real estate entities  includes our pro rata share
of the net  impact of  gains/losses  on sales of assets and  impairment  charges
relating to the  impending  sale of real  estate  assets as well as our pro rata
share of the impact of the  application  of EITF Topic  D-42 on  redemptions  of
preferred  securities  recorded by PSB.  Our net pro rata share from these items
resulted in a net  decrease of equity in earnings of $576,000  and  $282,000 for
the three and nine months ended September 30, 2006, respectively.  For the three
and nine months  ended  September  30,  2005,  our pro rata share of these items
resulted in net increases of $5,458,000 and $7,033,000, respectively.

         The impact of the PSB items discussed above led to a decrease in equity
in  earnings  of  real  estate  entities  totaling  $6,034,000  and  $7,315,000,
respectively,  when  comparing the three and nine month periods ended  September
30, 2006 to the same  periods in 2005.  In  addition,  equity in  earnings  real
estate entities decreased due to our consolidation of three limited partnerships
effective  January 1, 2006 as described in Note 2 to our condensed  consolidated
financial statements.  As a result of this consolidation,  equity in income with
respect to these partnerships ceased effective January 1, 2006.

                                       70
<PAGE>

         Equity in earnings of PSB represents our pro rata share  (approximately
44% for the nine months  ended  September  30, 2006 and 2005) of the earnings of
PSB.  Throughout  2005 and the nine months ended  September  30, 2006,  we owned
5,418,273 common shares and 7,305,355  operating  partnership units (units which
are convertible into common shares on a one-for-one  basis) in PSB. At September
30,  2006,  PSB owned and  operated  18.2  million net  rentable  square feet of
commercial  space located in eight  states.  PSB also manages  commercial  space
owned by the Company and  affiliated  entities at September 30, 2006 pursuant to
property management agreements.

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

         In January 2004, we entered into a joint  venture  partnership  with an
institutional  investor  for the purpose of  acquiring  up to $125.0  million of
existing  self-storage  properties  in the United States from third parties (the
"Acquisition  Joint  Venture").  The  venture  is funded  entirely  with  equity
consisting of 30% from us and 70% from the institutional  investor. As described
more fully in Note 2 to our condensed  consolidated financial statements for the
nine months ended  September  30,  2006,  our  pro-rata  share of earnings  with
respect to two of the  facilities  acquired  directly  from third parties by the
Acquisition  Joint  Venture in 2004,  at an aggregate  cost of  $9,086,000,  are
reflected in Equity in Earnings in the table above.  Our initial  investment  in
the  Acquisition  Joint  Venture  with  respect  to  these  two  facilities  was
approximately  $2,930,000.  Our future  equity in earnings  with  respect to the
Acquisition Joint Venture will be dependent upon the level of earnings generated
by these two properties.

         The  "Other  Investments"  are  comprised  primarily  of our  equity in
earnings  from  four  limited  partnerships,  for  which we held an  approximate
consistent level of equity interest throughout 2005 and the first nine months of
2006. The Company formed these limited  partnerships  during the 1980's.  We are
the  general  partner in each  limited  partnership,  and  manage  each of these
facilities for a management fee that is included in "Ancillary  operations." The
limited  partners  consist  of  numerous  individual  investors,  including  the
Company,  which  throughout  the 1990's  acquired  units of limited  partnership
interests in these limited partnerships in various transactions.

         Our future  earnings  with respect to the "Other  Investments"  will be
dependent  upon the operating  results of the 20  self-storage  facilities  that
these  entities  own. The  operating  characteristics  of these  facilities  are
similar to those of the Company's  self-storage  facilities,  and are subject to
the same operational issues as the Same Store Facilities as discussed above. See
Note 6 to our  condensed  consolidated  financial  statements  for the operating
results of these entities for the nine months ended September 30, 2006 and 2005.

OTHER INCOME AND EXPENSE ITEMS

         INTEREST AND OTHER  INCOME:  Interest and other income was  $12,651,000
and  $27,773,000  for the  three  and nine  months  ended  September  30,  2006,
respectively, as compared to $4,717,000 and $11,004,000,  respectively,  for the
same periods in 2005.  This increase is due to earning higher  interest rates on
invested cash balances combined with significantly  higher average cash balances
invested in interest-bearing accounts as compared to the same periods in 2005.

         DEPRECIATION AND  AMORTIZATION:  Depreciation and amortization  expense
was  $113,531,000 and $212,206,000 for the three and nine months ended September
30, 2006,  respectively,  compared to $47,896,000 and  $144,074,000 for the same
periods in 2005.

                                       71
<PAGE>

         The increase in depreciation  and  amortization  for the three and nine
months ended  September  30, 2006, as compared to the same period in 2005 is due
primarily to  $50,626,000  in  amortization  expense  recorded  during the three
months ended  September 30, 2006 on the  intangible  assets for the value of the
storage  tenants  in place  which we  acquired  in the  Shurgard  merger.  These
intangible   assets  were  valued  in  our  purchase   accounting   analysis  at
$483,107,000 and are being amortized over a three year useful life. Amortization
is  expected  to be  approximately  $94,800,000  in the fourth  quarter of 2006,
$69,700,000 in the first quarter of 2007 and approximately  $125,000,000  during
the remainder of 2007.

         The remainder of the increase in depreciation  and amortization for the
three and nine months ended  September  30, 2006 as compared to the same periods
in 2005 is due  primarily to assets  acquired in the Shurgard  merger and to our
newly  developed  and acquired  facilities.  See Notes 2 and 3 to our  unaudited
condensed  consolidated  financial  statements  for  further  discussion  of the
Shurgard merger and the acquisition of tangible and intangible assets.

         Also included in  depreciation  and  amortization  expense for the nine
months ended  September 30, 2006 is $1,651,000  (none for the three months ended
September 30, 2006) related to the  amortization of intangibles,  as compared to
$1,651,000  and  $4,953,000  for the three and nine months ended  September  30,
2005,  respectively.  Amortization ceased as of April 1, 2006, as described more
fully in Note 2 to our unaudited condensed consolidated financial statements.

         GENERAL  AND  ADMINISTRATIVE:  General and  administrative  expense was
$36,242,000  and  $49,996,000  for the three and nine months ended September 30,
2006, as compared to $5,621,000  and  $16,890,000  for the same periods in 2005,
representing increases of $30,621,000 and $33,106,000, respectively. General and
administrative  expense  principally  consists of state income  taxes,  investor
relations expenses and corporate and executive  salaries.  In addition,  general
and  administrative  expenses  includes  expenses  that  vary  depending  on the
Company's activity levels in certain areas, such as overhead associated with the
acquisition and development of real estate  facilities,  employee  severance and
stock-based compensation, and product research and development expenditures.

         General and administrative expense for the three months ended September
30, 2006 include costs and expenses totaling  $18,086,000 incurred in connection
with the  integration  of  Shurgard  and  Public  Storage,  costs for  cancelled
development  projects in the U.S. and Europe  totaling  $9,319,000  and contract
termination fees of $2,233,000.  We expect to incur an additional $15 million to
$20 million in additional integration costs in the fourth quarter of 2006.

         Restricted  stock and stock option  expense  amounted to  approximately
$1,841,000  and  $4,868,000  for the three and nine months ended  September  30,
2006, respectively, as compared to $1,196,000 and $3,579,000,  respectively, for
the same periods in 2005.

         INTEREST  EXPENSE:  Interest expense was $9,323,000 and $12,752,000 for
the three and nine months ended  September 30, 2006,  respectively,  compared to
$2,471,000 and $5,928,000,  respectively, for the same periods in 2005. Interest
capitalized  during  the three and nine  months  ended  September  30,  2006 was
$530,000 and $1,599,000,  respectively,  as compared to $710,000 and $2,054,000,
respectively,  for the same periods in 2005. The increase in interest expense is
primarily  due to  $7,154,000  in  interest  incurred  on  the  debt  and  other
obligations we assumed in the Shurgard merger  partially offset by a decrease of
$669,000 in interest expense due to lower balances on our outstanding notes. See
also Notes 8 and 9 to our unaudited condensed  consolidated financial statements
for a schedule  of our debt  balances,  principal  repayment  requirements,  and
average  interest rates.  Based upon the level of debt  outstanding at September
30, 2006, and the interest rates in effect at that time on the various  variable
rate  components of our debt and the fixed rates of interest,  interest  expense
would be approximately $16,985,000 in the fourth quarter of 2006 with respect to
the debt we assumed from Shurgard.

                                       72
<PAGE>

         During the three months ended  September  30,  2006,  we paid  $881,000
related to interest rate and currency swaps acquired in the Shurgard merger.  We
have included this $881,000 as a reduction of income on derivatives,  net on our
unaudited condensed  consolidated statement of operations for the three and nine
months  ended  September  30,  2006.  See  discussion  below  under  Income from
Derivatives, Net.

         FOREIGN  EXCHANGE LOSS: We had foreign  exchange losses of $172,000 for
the three and nine months ended September 30, 2006.

         INCOME FROM DERIVATIVES,  NET: This represents a gain as recognized for
the changes in the fair market values of those derivative financial  instruments
that do not qualify for hedge accounting  treatment under SFAS No. 133 offset by
interest expense incurred on certain derivative instruments. The gain of $32,000
for the three and nine months  ended  September  30, 2006 is  primarily  the net
effect of gains of $913,000 in changes in value of our  interest  rate swaps and
currency forward contracts on the euro that do not qualify for hedge accounting,
partially  offset by payments of $881,000  incurred in  connection  with certain
interest rate swaps and foreign currency  exchange  derivatives  acquired in the
Shurgard  merger  as  described  under  Note  3 to  our  condensed  consolidated
financial statements.

         MINORITY INTEREST IN INCOME: Minority interest in income represents the
income  allocable to equity  interests in Consolidated  Entities,  which are not
owned by the Company. The following table summarizes minority interest in income
for the three and nine months ended September 30, 2006 and 2005:

                                       73
<PAGE>
<TABLE>
<CAPTION>

                                                       Three Months Ended                            Nine Months Ended
                                                         September 30,                                 September 30,
                                                 ---------------------------               ---------------------------
                                                   2006           2005          Change        2006           2005          Change
                                                 ------------ --------------  ----------   -----------    -----------    -----------
                                                                               (Amounts in thousands)
Preferred partnership interests:
<S>                                               <C>          <C>            <C>           <C>           <C>             <C>
   Ongoing distributions (a).................     $  5,403     $    3,591     $  1,812      $ 13,652      $   12,556      $  1,096
   Special Distribution and EITF Topic D-42 (b)          -              -            -             -             874          (874)
Acquired minority interests (c)..............            -          1,309       (1,309)            -           5,426        (5,426)
Newly consolidated partnerships (d)..........        1,468              -        1,468         3,641               -         3,641
Convertible Partnership Units (e)............          120            148          (28)          356             350             6
Shurgard U.S. minority interests (f)                   191              -          191           191               -           191
Shurgard U.S European minority interests (g).       (1,279)             -       (1,279)       (1,279)              -        (1,279)
Other minority interests (h).................        2,687          2,195          492         7,916           7,149           767
                                                 ------------ --------------  ----------   -----------    -----------    -----------
    Total minority interests in income.......    $   8,590     $    7,243     $  1,347      $ 24,477      $   26,355     $  (1,878)
                                                 ============ ==============  ==========   ===========    ===========    ===========

</TABLE>

     (a) The  increase  in  ongoing  distributions  is due to  the  issuance  of
         additional  preferred  partnership  units offset by the  redemption  of
         $40,000,000 of our 9.5% Series N Preferred  Units on March 17, 2005 and
         $45,000,000 of our 9.125% Series O Preferred units on March 29, 2005.

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

     (c) These amounts reflect income  allocated to minority  interests that the
         Company acquired in 2005 and are no longer outstanding at September 30,
         2006.

     (d) These amounts reflect income allocated to minority  interests for three
         entities  that we commenced  consolidating  the accounts for  effective
         January  1, 2006 (see Note 2 to our  condensed  consolidated  financial
         statements).  Included in minority interest in income for the three and
         nine  months  ended   September  30,  2006  was  $32,000  and  $98,000,
         respectively, in depreciation expense.

     (e) These  amounts  reflect  the  minority  interests  represented  by  the
         Convertible   Partnership   Units   (see  Note  11  to  our   condensed
         consolidated financial statements).

     (f) These  amounts  reflect  income  allocated  to  minority  interests  in
         entities we acquired in the merger with Shurgard,  and include  $55,000
         in depreciation in the three and nine months ended September 30, 2006.

     (g) These  amounts  reflect  income  allocated to minority  interests  from
         entities  we  acquired in the merger  with  Shurgard.  These  interests
         include the 80%  partner's  interests in the European  joint  ventures,
         First Shurgard and Second Shurgard,  as well as those in domestic joint
         ventures.  Included in minority  interest in income is $742,000 for the
         three and nine months ended  September  30, 2006 in  depreciation,  and
         $1,829,000 in interest expense.

     (h) These amounts reflect income allocated to minority  interests that were
         outstanding consistently throughout the nine months ended September 30,
         2006 and 2005.  Included in minority interest in income is $109,000 and
         $401,000 in  depreciation  expense for the three and nine months  ended
         September 30, 2006,  respectively,  as compared to $57,000 and $536,000
         for the same periods in 2005.

         Other minority interests reflect income allocated to minority interests
that have maintained a consistent level of interest throughout 2005 and the nine
months ended  September 30, 2006,  comprised of investments in the  Consolidated
Entities described in Note 9 to our condensed consolidated financial statements.
The level of income allocated to these interests in the future is dependent upon
the operating results of the storage facilities that these entities own, as well
as any minority interests that the Company acquires in the future.

         On May 9, 2006, one of our Consolidated Entities issued $100,000,000 of
its  7.25%  Series  J  Preferred   Partnership   Units.   Accordingly,   ongoing
distributions  with  respect to preferred  partnership  interest are expected to
increase.

                                       74
<PAGE>

         Discontinued  Operations:  As  described  more  fully  in Note 4 to our
condensed  consolidated  financial  statements,  during 2002,  2003 and 2004, we
implemented a business plan which included the closure of 43 of 55 containerized
storage  facilities  that were open at December 31, 2001.  The 43 facilities are
hereinafter referred to as the "Closed Facilities."

         During  July  2005,  in  an  eminent  domain  proceeding,  one  of  our
self-storage facilities located in the Portland,  Oregon market was condemned by
local  governmental  authorities.   Additionally,  in  July  2006,  one  of  our
self-storage facilities in our Seattle, Washington market was condemned by local
governmental  authorities in an eminent domain proceeding.  Collectively,  these
Portland  and  Seattle  facilities  are  referred  to  as  "the  Eminent  Domain
Facilities".

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

DISCONTINUED OPERATIONS:
------------------------
<TABLE>
<CAPTION>

                                              Three Months Ended                      Nine Months Ended
                                                September 30,                           September 30,
                                          --------------------------              ------------------------
                                             2006           2005        Change        2006         2005       Change
                                          ------------  ------------ -----------  ------------ ------------ ----------
                                                                     (Amounts in thousands)
<S>                                         <C>          <C>          <C>           <C>          <C>         <C>
Rental income.......................        $      1     $    281     $   (280)     $    193     $    887    $  (694)
Cost of operations...................            (21)         (80)          59          (109)        (524)       415
Depreciation and amortization ......              (9)         (41)          32           (50)        (150)       100
                                          ------------  ------------ -----------  ------------ ------------ ----------
Income before other items...........             (29)         160         (189)           34          213       (179)

Other items:
    Net gain on disposition of assets          2,370        5,180       (2,810)        2,370        6,323     (3,953)
                                          ------------  ------------ -----------  ------------ ------------ ----------
Net discontinued operations.........        $  2,341     $  5,340     $ (2,999)     $  2,404     $  6,536    $(4,132)
                                          ============  ============ ===========  ============ ============ ==========
</TABLE>

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

         We believe that our internally generated net cash provided by operating
activities  will  continue to be  sufficient  to enable us to meet our operating
expenses,  capital improvements,  debt service requirements and distributions to
shareholders  for the foreseeable  future.  In addition,  at September 30, 2006,
cash on hand totaled $124,119,000 and we had no outstanding borrowings under our
$200,000,000  bank line of credit.  We anticipate that a significant  portion of
the cash on-hand will be utilized in  connection  with the proposed  merger with
Shurgard, see below.

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

                                       75

<PAGE>

<TABLE>
<CAPTION>

                                                                          Nine Months Ended September 30,
                                                                       -------------------------------------
                                                                            2006               2005
                                                                       -----------------  ------------------
                                                                             (Amounts in thousands)
<S>                                                                      <C>                <C>
Net cash provided by operating activities.......................         $    582,152       $    508,340

Distributions to minority interest (Preferred Units)............              (13,652)           (12,556)
Distributions to minority interest (common equity)..............              (11,037)           (11,805)
                                                                       -----------------  ------------------
Cash from operations allocable to our shareholders..............              557,463            483,979

Capital improvements to maintain our facilities.................              (44,366)           (13,286)
                                                                       -----------------  ------------------
 Remaining operating cash flow available for distributions to our
    shareholders................................................              513,097            470,693

Distributions paid:
  Preferred stock dividends.....................................             (159,256)          (126,286)
  Equity Stock, Series A dividends..............................              (16,068)           (16,087)
  Distributions to Common shareholders..........................             (213,281)          (179,822)
                                                                       -----------------  ------------------
Cash available for principal payments on debt and reinvestment..         $    124,492       $    148,498
                                                                       =================  ==================
</TABLE>

         Our financial  profile is characterized by a low level of debt-to-total
capitalization  and a  conservative  dividend  payout  ratio with respect to the
common  stock.  We expect  to fund our  growth  strategies  with cash on hand at
September 30, 2006,  internally  generated retained cash flows and proceeds from
issuing equity  securities.  In general,  our current strategy is to continue to
finance our growth with permanent capital; either common or preferred equity. We
have in the past used our  $200,000,000  line of credit  as  temporary  "bridge"
financing  and repaid those  amounts with  internally  generated  cash flows and
proceeds from the placement of permanent capital.

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

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

         Our  portfolio  of  real  estate   facilities   remains   substantially
unencumbered.  At September 30, 2006, we have domestic mortgage debt outstanding
of $274,891,000, which encumbers 106 facilities with an aggregate net book value
of approximately  $1,063,558,000  and European  mortgage debt and capital leases
outstanding of  $675,134,000,  which  encumbers 154 facilities with an aggregate
net book value of approximately  $1,148,841,000.  At September 30, 2006, we also
have Debt to Joint Venture Partner  amounting to $37,214,000 with respect to ten
real  estate  facilities  with an  aggregate  net book  value  of  approximately
$47,951,000.  The remaining debt on our balance sheet totaling $476,508,000 does
not specifically encumber real estate facilities.

         For the nine months ended  September 30, 2006,  our cash  available for
principal  payments  on debt and  reinvestment  declined  from  $148,498,000  to
$124,492,000  due to the  impact of merger  integration  expenses  approximately
$20.1  million for the nine months  ended  September  30,  2006,  as well as the
impact of paying an entire  quarter's  distribution  on the 39.1 million  shares
issued to former  Shurgard  shareholders  while the  operating  cash  flows were
reflected only from August 22, 2006 through September 30, 2006.

                                       76
<PAGE>

         Recent  Issuance and  Redemption  of Preferred  Securities:  One of our
financing  objectives over the past several years has been to reduce our average
cost of capital with respect to our preferred securities.  Accordingly,  we have
redeemed  higher rate  preferred  securities  outstanding  and have financed the
redemption  with cash  on-hand or from the  proceeds  from the issuance of lower
rate preferred securities.

         On September 28, 2006, we redeemed our 8.000% Series R Preferred  Stock
for $510 million, plus accrued and unpaid dividends. The Series R was called for
redemption in August 2006. On September 26, 2006, we called for  redemption  our
7.875%  Series S Preferred  Stock for $143.75  million,  plus accrued and unpaid
dividends.  The Series S was redeemed on October 31, 2006.  As a result of these
redemptions,  there was an additional  allocation to the preferred  shareholders
during the three months ended  September 30, 2006 of  approximately  $21,643,000
($0.15 per common share,  based upon the weighted  average diluted shares during
the three months ended  September 30, 2006) from the  application  of EITF Topic
D-42.  We believe that our size and financial  flexibility  enables us to access
capital when appropriate.

         During the ten months  ended  October 31,  2006,  we have  received net
proceeds of approximately $1.3 billion from the issuance of cumulative Preferred
Stock and $100 million of our preferred partnership units. We used approximately
$826.3 million of these net proceeds in order to redeem higher-coupon  preferred
securities.

         REQUIREMENT  TO  PAY   DISTRIBUTIONS:   We  estimate  the  distribution
requirement  with respect to our Preferred  Stock  outstanding  at September 30,
2006 to be  approximately  $203.7  million per year. We estimate that the annual
distribution  requirement  with  respect  to  the  preferred  partnership  units
outstanding at September 30, 2006, to be approximately $21.6 million per year.

         During each of the nine months ended September 30, 2006 and 2005, we
paid cash dividends totaling $16,068,000 and $16,087,000, respectively, to the
holders of our Equity Stock, Series A. With respect to the depositary shares of
Equity Stock, Series A, we have no obligation to pay distributions if no
distributions are paid to the common shareholders. To the extent that we do pay
common distributions in any year, the holders of the depositary shares receive
annual distributions equal to the lesser of (i) five times the per share
dividend on the common stock or (ii) $2.45. The depositary shares are
non-cumulative, and have no preference over our common stock either as to
dividends or in liquidation. With respect to the Equity Stock, Series A
outstanding at September 30, 2006, we estimate the total regular distribution
for the fourth quarter of 2006 to be approximately $5.4 million.

         During the nine months  ended  September  30, 2006,  we paid  dividends
totaling  $213,281,000  ($1.50  per common  share) to the  holders of our common
stock.  Based  upon  shares  outstanding  at  November  2, 2006 and a  quarterly
distribution of $0.50 per share, which was declared by the Board of Directors on
November 2, 2006 and payable on December 28, 2006, to  shareholders of record as
of December 15, 2006, we estimate a dividend  payment with respect to our common
stock of approximately $84.5 million for the fourth quarter of 2006.

         CAPITAL  IMPROVEMENT  REQUIREMENTS:  For the fourth quarter of 2006, we
expect to spend  approximately $25 million for capital  improvements,  excluding
signage and other improvements to the Shurgard portfolio. During the nine months
ended  September 30, 2006, we incurred  capital  improvements  of  approximately
$44,366,000.  Capital  improvements include major repairs or replacements to the
facilities that maintain the facilities' existing operating condition and visual
appeal. Capital improvements do not include costs relating to the development or
expansion of facilities,  or  expenditures  associated with improving the visual
and structural appeal of our existing self-storage facilities. We also expect to
incur  approximately  $20  million of  capital  expenditures  to install  Public
Storage signage on the Shurgard facilities in the United States.

         DEBT SERVICE  REQUIREMENTS:  We do not believe we have any  significant
refinancing  risks with  respect to our debt,  all but  $12,332,000  of which is
fixed  rate.  At  September  30,  2006,  we  have  total   outstanding  debt  of
approximately  $1,463,747,000.  See Notes 8 and 9 to our condensed  consolidated
financial statements for approximate principal maturities of such borrowings.

                                       77
<PAGE>

         We anticipate that our retained operating cash flow will continue to be
sufficient to enable us to make scheduled principal payments.  It is our current
intention to fully amortize our domestic debt totaling  $788,613,000  as opposed
to refinance debt maturities  with additional  debt. Our European debt inclusive
of capital  leases  totals  $675,134,000  at September  30,  2006;  we expect to
refinance  approximately  $400  million  of this  debt in early  2007.

         ACQUISITION AND DEVELOPMENT OF REAL ESTATE FACILITIES:  During 2006, we
will continue to seek to acquire additional  self-storage  facilities from third
parties;  however,  it is  difficult  to  estimate  the  amount  of third  party
acquisitions we will undertake.

         At September 30, 2006, we have a development  "pipeline" of 49 projects
in the  U.S.  consisting  of  self-storage  facilities,  conversion  of space at
facilities that was previously used for containerized  storage and expansions to
existing  self-storage  facilities.  At September 30, 2006, we have acquired the
land for all of these projects.

         The development  and fill-up of these storage  facilities is subject to
significant  contingencies such as obtaining appropriate governmental approvals.
We estimate that the amount remaining to be spent to complete  development to be
approximately  $161.5 million and will be incurred over the next 24 months.  The
following table sets forth certain  information  with respect to our development
pipeline.


DEVELOPMENT PIPELINE SUMMARY - U.S.
as of September 30, 2006
<TABLE>
<CAPTION>

                                                                             Total
                                                    Number      Net        estimated     Costs incurred
                                                      of      rentable     development       through          Costs to
                                                   projects   sq. ft.         costs          09/30/06         complete
                                                   --------  ----------  -------------- ----------------     -----------
                                                                  (Amounts in thousands, except number of projects)
  Under construction:
<S>                                                    <C>        <C>      <C>              <C>              <C>
    PUD conversions                                    2          152      $    6,175       $    4,216       $    1,959
    Expand/repackage existing self-storage
     facilities                                        8          315          33,984            9,539           24,445
    Expand/repackage existing Shurgard
     self-storage facilities                          15          614          62,773           50,186           12,587
                                                   --------  ----------  -------------- ----------------     -----------
                                                      25        1,081         102,932           63,941           38,991
                                                   --------  ----------  -------------- ----------------     -----------
  In development, land acquired:
    PUD conversions                                    3          276          12,708              656           12,052
    Expand/repackage existing self-storage
     facilities                                       21        1,393         122,475           11,982          110,493
                                                   --------  ----------  -------------- ----------------     -----------
                                                      24        1,669         135,183           12,638          122,545
                                                   --------  ----------  -------------- ----------------     -----------
  Total Development Pipeline                          49        2,750      $  238,115       $   76,579       $  161,536
                                                   ========  ==========  ============== ================     ===========
</TABLE>

         At September 30, 2006, we have a development  "pipeline" of 11 projects
in Europe consisting of self-storage facilities.  At September 30, 2006, we have
acquired the land for all of these projects.

         The development  and fill-up of these storage  facilities is subject to
significant  contingencies such as obtaining appropriate governmental approvals.
We estimate that the amount remaining to be spent to complete  development to be
approximately  $35.0  million  and will be  incurred  over  the next 24  months.
Substantially  all of these future costs will be funded by the Shurgard European
Joint  Ventures,  in which we have a 20% interest,  and which have a substantial
degree of funding by debt.  The following  table sets forth certain  information
with respect to our development pipeline.

                                       78
<PAGE>

DEVELOPMENT PIPELINE SUMMARY - EUROPE
as of September 30, 2006
<TABLE>
<CAPTION>

                                                                             Total
                                                    Number      Net        estimated     Costs incurred
                                                      of      rentable     development       through          Costs to
                                                   projects   sq. ft.         costs          09/30/06         complete
                                                   --------  ----------  -------------- ----------------     -----------
                                                                  (Amounts in thousands, except number of projects)
  Under construction:
<S>                                                    <C>        <C>      <C>              <C>              <C>
    Self-storage facilities                            9          452      $   71,628       $   47,495       $   24,133

  In development, land acquired:
    Self-storage facilities                            2           89          17,839            6,989           10,850
                                                   --------  ----------  -------------- ----------------     -----------
  Total Development Pipeline                          11          541      $   89,467       $   54,484       $   34,983
                                                   ========  ==========  ============== ================     ===========
</TABLE>

CONTRACTUAL OBLIGATIONS

         Our significant contractual obligations at September 30, 2006 and their
impact on our cash flows and liquidity are summarized below for the years ending
December 31 (amounts in thousands):
<TABLE>
<CAPTION>

                                       Total          2006         2007          2008        2009          2010      Thereafter
                                    ------------   -----------   -----------  -----------  -----------   ----------- -----------
    Long-term debt:
<S>                                 <C>            <C>           <C>          <C>           <C>          <C>         <C>
      Public Storage (1) .........  $   132,756    $    2,613    $   20,869   $    9,596   $   9,514     $    9,281  $    80,883
      Shurgard U.S. (2)...........      830,585        10,329        95,221       58,973      39,138         47,077      579,847
      Shurgard Europe (2).........      698,144         1,607         7,829      162,138      99,036              -      427,534

    Capital leases (3)............       36,423           251           672          685         698            648       33,469

    Operating leases:
      Public Storage (4)..........       66,663         2,593        10,737        7,466       5,367          2,932       37,568
      Shurgard U.S. (5)...........       62,882         1,498         5,021        3,680       3,628          3,694       45,361
      Shurgard Europe (5).........      140,562         1,466         5,255        5,217       5,064          4,267      119,293

    Construction commitments:
      Public Storage (6)..........       26,404        14,145        12,259            -           -              -            -
      Shurgard U.S. (7)...........       12,583         2,601         9,982            -           -              -            -
      Shurgard Europe (7).........       24,133        23,952            83           98           -              -            -
                                    ============   ===========   ===========  ===========  ===========   =========== ===========
    Total.........................  $ 2,031,135    $   61,055    $  167,928   $  247,853   $ 162,445     $   67,899  $ 1,323,955
                                    ============   ===========   ===========  ===========  ===========   =========== ===========
</TABLE>

     (1) Amounts include  interest  payments on our notes payable based on their
         contractual terms. See Note 8 to our condensed  consolidated  financial
         statements  for additional  information  on our notes payable.  Debt to
         Joint Venture  Partner is not reflected since we have not exercised our
         option to acquire our partner's interest.

     (2) Amounts include  interest  payments on our notes payable based on their
         contractual terms that we assumed in the merger with Shurgard. See Note
         8 to our condensed  consolidated  financial  statements  for additional
         information on our notes payable.

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

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

     (5) Amounts  include  leases for land,  equipment  and office  space  under
         various  operating  lease that we assumed in the merger with  Shurgard.
         Certain leases are cancelable with substantial penalties.

                                       79
<PAGE>

     (6) Includes  obligations for facilities  currently  under  construction at
         September  30,  2006  as  described   above  under   "Acquisition   and
         Development of Real Estate Facilities."

     (7) Includes  obligations for facilities  currently  under  construction at
         September  30,  2006 that we  assumed in the merger  with  Shurgard  as
         described  above  under  "Acquisition  and  Development  of Real Estate
         Facilities."

         In January 2004, we entered into a joint  venture  partnership  with an
institutional  investor  for the  purpose of  acquiring  up to  $125,000,000  of
existing  self-storage  properties  in the United States from third parties (the
"Acquisition Joint Venture"). As described more fully in Note 2 to our September
30, 2006  condensed  consolidated  financial  statements,  our partner's  equity
contributions with respect to certain  transactions are classified as debt under
the  caption  "Debt to Joint  Venture  Partner"  in our  condensed  consolidated
balance  sheets.  At September 30, 2006,  our Debt to Joint Venture  Partner was
$37,214,000. For a six-month period beginning 54 months after formation, we have
the right to acquire our partner's  interest  based upon the market value of the
properties.  If we do not exercise our option, our partner can elect to purchase
our  interest  in the  properties  during a  six-month  period  commencing  upon
expiration of our six-month option period.  If our partner fails to exercise its
option,  the Acquisition  Joint Venture will be liquidated and the proceeds will
be distributed to the partners according to the joint venture agreement. We have
not included our Debt to Joint Venture  Partner as a  contractual  obligation in
the  table  above,  since we only  have the  right,  rather  than a  contractual
obligation, to acquire our partner's interest.

OFF-BALANCE SHEET ARRANGEMENTS

         At September  30, 2006, we had no  off-balance  sheet  arrangements  as
defined under Regulation S-K 303(a)(4) and the instructions thereto.

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

         To limit our  exposure  to market  risk,  we  principally  finance  our
operations and growth with permanent equity capital, consisting of either common
or preferred  stock.  At September  30, 2006,  our debt as a percentage of total
shareholders' equity (based on book values) was 19.1%.

         Our  preferred  stock is not  redeemable  at the option of the holders.
Except under certain  conditions  relating to the Company's  qualification  as a
REIT,  the  Preferred  Stock  is not  redeemable  by the  Company  prior  to the
following  dates:  Series T - January 18,  2007,  Series U - February  19, 2007,
Series V - September 30, 2007,  Series W - October 6, 2008,  Series X - November
13, 2008, Series Y - January 2, 2009, Series Z - March 5, 2009, Series A - March
31, 2009,  Series B - June 30, 2009,  Series C - September 13, 2009,  Series D -
February 28, 2010, Series E - April 27, 2010, Series F - August 23, 2010, Series
G - December  12,  2010,  Series H - January 19,  2011,  Series I - May 3, 2011,
Series K - August  8,  2011 and  Series L - October  20,  2011.  On or after the
respective  dates,  each of the series of Preferred  Stock will be redeemable at
the option of the Company,  in whole or in part, at $25 per depositary share (or
share in the case of the Series Y), plus  accrued and unpaid  dividends  through
the redemption date.

         Our market risk  sensitive  instruments  include notes  payable,  which
totaled  $1,426,533,000  at September 30, 2006.  The table below  summarizes the
annual debt  maturities and  weighted-average  interest rates on our outstanding
debt,  excluding  the debt acquired in the merger with  Shurgard,  at the end of
each year (dollar amounts in thousands):
<TABLE>
<CAPTION>

                             2006        2007        2008        2009        2010     Thereafter     Total      Fair Value
                           ----------  ----------  ----------  ----------  ---------- ----------   ----------- -----------
<S>                        <C>         <C>          <C>        <C>          <C>         <C>         <C>         <C>
  Fixed rate debt (a)...   $   1,186   $  16,098    $  5,155   $   5,358    $  5,404    $70,691     $ 103,892   $  103,892

</TABLE>

     (a) Average interest rate of 5.25%.

                                       80
<PAGE>

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

         We have foreign  currency  exposures  related to our  investment in the
construction, acquisition, and operation of storage centers in countries outside
the U.S. to the extent such  activities are financed with financial  instruments
or equity  denominated in non-functional  currencies.  Since all foreign debt is
denominated in the corresponding  functional currency,  our currency exposure is
limited to our equity investment in those countries. Countries in which Shurgard
had exposure to foreign  currency  fluctuations  include  Belgium,  France,  the
Netherlands, Sweden, Denmark, Germany and the United Kingdom.

         The table below summarizes annual debt maturities and  weighted-average
interest rates on outstanding  debt that we acquired in the merger with Shurgard
at the end of each year (based on  relevant  LIBOR 4.90% and a EURIBOR of 3.272%
at September 30, 2006 and a forward  yield curve for  following  years) and fair
values  required to evaluate our expected  cash-flows  under debt agreements and
our  sensitivity to interest rate changes at September 30, 2006 (dollar  amounts
in thousands).
<TABLE>
<CAPTION>

                              2006        2007        2008        2009        2010      Thereafter    Total      Fair Value
                           ----------  -----------  ---------- ----------  ----------  ------------  ---------  -------------
<S>                        <C>           <C>         <C>         <C>         <C>        <C>          <C>         <C>
  Fixed rate debt (1)....   $ 5,418      $ 59,880    $ 25,898    $  7,402  $ 15,939     $ 532,854    $ 647,391   $ 647,391
  Average interest rate..     6.71%         6.61%       6.60%       6.60%     6.61%         5.88%
  Variable rate EURIBOR
    debt (2).............   $ 1,522      $  7,421    $153,685    $ 93,873  $      -     $ 412,280    $ 668,781   $ 668,781
  Average interest rate..     4.50%         4.86%       4.75%       4.23%                   4.32%
  Interest rate swaps
  Swap on EURIBOR........  $     -       $     -     $  (418)    $  (213)  $      -     $  (703)     $  (1,334)  $  (1,334)

</TABLE>

     (1) The fair value of our fixed rate debt  decreased by $24  million,  from
         $649  million at December  31,  2005,  due  primarily to an increase in
         market interest rates.

     (2) First  Shurgard  and Second  Shurgard  have  senior  credit  agreements
         denominated in euros to borrow,  in aggregate,  up to EUR 271.1 million
         ($343.9  million as of September 30,  2006).  As of September 30, 2006,
         the  available  amount under those credit  facilities  was in aggregate
         EUR 68.9 million ($87.4 million).

         At September 30, 2006, through our merger with Shurgard,  we were party
to pay-fixed,  receive-variable  interest rate swaps. The notional amounts,  the
weighted-average  pay rates and the terms of these  agreements are summarized as
follows:

<TABLE>
<CAPTION>

                                      2006        2007        2008        2009        2010      Thereafter
                                    ----------- ---------- ----------  ----------   ---------   -----------
<S>                                 <C>         <C>          <C>        <C>          <C>         <C>
  Notional amounts (in millions).   $   702.1   $  719.4     $ 628.3    $  500.2     $ 412.3     $  412.3
  Weighted average interest rate.       4.97%      4.99%       4.83%       4.54%       4.23%        4.23%

</TABLE>

         Based on our outstanding  variable-rate  EURIBOR debt and interest rate
swaps at September 30, 2006, a  hypothetical  increase in the interest  rates of
100 basis points would cause the value of our derivative  financial  instruments
to  increase  by EUR 20  million.  Conversely,  a  hypothetical  decrease in the
interest  rates of 100 basis  points  would  cause  the value of our  derivative
financial instruments to decrease by EUR 20 million.

                                       81
<PAGE>

ITEM 4.  CONTROLS AND PROCEDURES

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

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

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

                                       82

<PAGE>

PART II.   OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

         The  information set forth under the heading "Legal Matters" in Note 16
to the  Consolidated  Financial  Statements in this Form 10-Q is incorporated by
reference in this Item 1.

ITEM 1A.  RISK FACTORS

         In addition to the other information in our Form 10-Q and our Form 10-K
for the year ended December 31, 2005, you should consider the following  factors
in evaluating the Company:

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

         In addition to the general risks related to real estate described below
which may also adversely impact  Shurgard's  operations,  we are also subject to
the  following  risks in  connection  with the Shurgard  merger and  integrating
Shurgard into our operations, including without limitation the following:

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

      o    inability to realize or delays in realizing  expected  synergies  and
           results;

      o    unanticipated operating costs;

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

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

      o    risks  related to real  estate  markets  in the United  States and in
           Europe which are new markets for us or in which our  operations  will
           be more concentrated as a result of the merger;

      o    potential underinsured losses on Shurgard properties; and

      o    risk of failure to mitigate any weaknesses in internal control at the
           operations  we acquired  from  Shurgard to the extent that it affects
           our internal controls.

         We have never undertaken to integrate a company as large as Shurgard or
one with overseas operations. The success of the merger will depend, in part, on
our  ability  to  realize  the  anticipated  cost  savings  from  combining  the
businesses of Public Storage and Shurgard.  However,  to realize the anticipated
benefits from the merger, we must successfully  combine the businesses of Public
Storage and Shurgard in a manner that permits those cost savings to be realized.
If we are not able to  successfully  achieve these  objectives,  the anticipated
benefits of the merger may not be realized fully or at all or may take longer or
cost more to realize than expected.  It is possible that the integration process
could result in the loss of valuable  employees,  a decline in occupancy  and/or
rental  rates,   the  disruption  of  each  company's   ongoing   businesses  or
inconsistencies  in standards,  controls,  procedures,  practices,  policies and
compensation   arrangements  that  adversely  affect  our  ability  to  maintain
relationships with tenants and employees or to achieve the anticipated  benefits
of the merger.  Further,  the size of the  transaction  may make  integration of
Public  Storage and Shurgard  difficult,  expensive  and  disruptive,  adversely
affecting the combined  company's  revenues and earnings,  and implementation of
merger  integration  efforts  may  divert  management's   attention  from  other
strategic priorities.  In addition,  the merger was structured so that it should
have been a taxable  transaction  for U.S.  Federal  income tax  purposes.  As a
result,  the combined  company should have the benefit of a step-up in tax basis
in Shurgard's  assets.  It is possible that the IRS may challenge the step-up in
basis.  If such  challenge  were  sustained,  we would not achieve this benefit,
which would reduce our  depreciation  deductions  and our ability to retain cash
flow.

         We also acquired Shurgard's  international  operations in Europe, which
consist principally of facilities that have been completed in the last few years
and are in various stages of fill-up.  Shurgard's  international operations have
not  been  profitable,  and  there  is no  assurance  they  will  ultimately  be
profitable.  Also,  Shurgard  had a  number  of  non-stabilized  properties  and
construction  activity,  and delays in construction  and fill-up could result in
additional  costs.  We have no  experience  in  European  operations,  which may
adversely impact our ability to operate profitably in Europe. In addition, these
operations  have specific  inherent  risks,  including  without  limitation  the
following:

                                       83
<PAGE>

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

      o    unexpected changes in legislative and regulatory requirements;

      o    potentially adverse tax burdens;

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

      o    obstacles to the repatriation of earnings and cash;

      o    regional, national and local political uncertainty;

      o    economic slowdown and/or downturn in foreign markets;

      o    difficulties in staffing and managing international operations;

      o    reduced protection for intellectual property in some countries; and

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

         Shurgard also held many of its  properties  through  interests in joint
ventures  that we acquired  and which have  additional  risks,  including  risks
related to the financial  strength,  common  business  goals and  strategies and
cooperation  of the  venture  partner,  as well as the  inability  to take  some
actions that may require approval by the venture partner. In addition,  Shurgard
held  substantially  all of its real  estate  investments  in Europe  indirectly
through  partnerships  and  joint  venture  arrangements.  If we are  unable  to
effectively  control  these  indirect  investments,  there  is a risk  that  our
ownership of the joint  ventures  could cause us to lose our REIT status.  These
investments  also carry the risks that we may not control the legal  entity that
has title to the real estate,  that the enterprise in which we invested may have
liabilities that weren't  disclosed at the time of the investment,  and the risk
that these  investments may not be easily sold or readily accepted as collateral
by our lenders.

         As a share of total  operations,  particularly in Europe,  Shurgard had
more recently developed properties whose occupancies have not stabilized and had
more construction activity than Public Storage,  which increase costs. Delays in
construction and fill-up could result in additional cost.

         Some of the  facilities  we  acquired  in the  Shurgard  merger will be
subject to property tax reappraisal that could increase property tax expense and
adversely  affect our  profitability.  Up to 17% of the domestic  properties  we
acquired  in the  merger are  located  in  jurisdictions  that may  provide  for
property  tax  reappraisal  upon a change  of  ownership  and so may face such a
reassessment.  We are not currently  able to quantify the possible  increases in
property tax expense.

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

         We are also subject to  additional  financing  risks as a result of the
Shurgard merger. Shurgard had a significantly greater level of debt than we did,
with more fixed and floating rate debt as well as derivative  instruments,  that
we assumed as a result of the  merger.  At  September  30,  2006,  our debt,  of
$1,463,747,000  was 13.5% of our  total  assets as  compared  to our  pre-merger
indebtedness at June 30, 2006 of $141 million, which was 2.3% of our assets. The
larger  indebtedness  increases our interest expense,  exposes us to the risk of
increases in interest rates,  and subjects us to greater  refinancing  risks. We
may  look to  obtain  a  larger  line  of  credit,  bridge  financing  or  other
indebtedness,  or  issue  additional  preferred  or  common  equity  to  provide
liquidity as Shurgard's borrowings come due.

                                       84
<PAGE>

         The Shurgard debt  agreements we assumed also have covenants that could
limit our  activities.  Failure  to comply  with such  covenants  could  cause a
default under the applicable  debt  agreement,  which could allow the lenders or
other debt holders to declare all borrowings outstanding to be due and payable.

PUBLIC STORAGE SHAREHOLDERS INCURRED IMMEDIATE DILUTION FOLLOWING COMPLETION OF
THE SHURGARD MERGER.

         Public Storage  shareholders  incurred immediate dilution in connection
with the merger.  During 2005, Public Storage shareholders would have incurred a
loss of $0.45 per share  (diluted) on a pro forma basis  compared to earnings of
$1.93 per share  (diluted)  on a  historical  basis  primarily as a result of an
increase in depreciation and amortization expense. No adjustments have been made
to the pro forma financial  information to reflect certain expected self-storage
operating cost savings or increases in property taxes  resulting from the merger
because they have not been quantified.

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

         At September 30, 2006,  B. Wayne Hughes,  Chairman of the Board and his
family  (the  "Hughes  family")  owned  approximately  26.7%  of  our  aggregate
outstanding  shares of common  stock.  Consequently,  the  Hughes  family  could
control  matters  submitted to a vote of our  shareholders,  including  electing
directors, amending our organizational documents, dissolving and approving other
extraordinary transactions, such as a takeover attempt, even though such actions
may not be favorable to the other common shareholders.

PROVISIONS IN OUR ORGANIZATIONAL DOCUMENTS MAY PREVENT CHANGES IN CONTROL.

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

WE WOULD INCUR ADVERSE TAX CONSEQUENCES IF WE OR SHURGARD FAILED TO QUALIFY AS A
REIT.

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

         Investors  are also  subject  to the risk that we may not  qualify as a
REIT.  REITs are subject to a range of complex  organizational  and  operational
requirements.  As a REIT, we must  distribute with respect to each year at least
90% of our REIT taxable income to our shareholders.  Other restrictions apply to
our  income and  assets.  Our REIT  status is also  dependent  upon the  ongoing
qualification of our affiliate,  PS Business Parks, Inc., as a REIT, as a result
of our substantial ownership interest in that company.

         For any  taxable  year that we fail to qualify as a REIT and are unable
to avail  ourselves  of certain  savings  provisions  set forth in the  Internal
Revenue Code of 1986,  we would be subject to federal  income tax at the regular

                                       85
<PAGE>

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

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

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

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

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

CERTAIN SECURITIES HAVE A LIQUIDATION PREFERENCE OVER OUR COMMON STOCK AND
EQUITY STOCK, SERIES A.

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

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

         The value of our  investments  may be reduced by general  risks of real
estate  ownership.  Since we derive  substantially  all of our income  from real
estate  operations,  we  are  subject  to  the  general  risks  of  owning  real
estate-related assets, including: o lack of demand for rental spaces or units in
a locale;

      o    changes in general economic or local conditions;

      o    natural disasters, such as earthquakes;

      o    potential terrorist attacks;

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

      o    the impact of environmental protection laws;

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

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

      o    tenant claims.

         In addition,  we self-insure  certain of our property loss,  liability,
and workers  compensation  risks for which other real estate  companies  may use
third-party  insurers.  This  results  in a higher  risk of losses  that are not
covered  by  third-party  insurance  contracts,  as  described  in Note 16 under
"Insurance and Loss Exposure" to our consolidated  financial statements included
in this quarterly report on Form 10-Q for the quarter ended September 30, 2006.

                                       86
<PAGE>

         There is significant competition among self-storage facilities and from
other storage alternatives.  Most of our properties are self-storage facilities,
which  generated  most of our revenue for the nine months  ended  September  30,
2006.  Local market  conditions will play a significant  part in how competition
will affect us.  Competition in the market areas in which many of our properties
are located from other self-storage facilities and other storage alternatives is
significant  and has affected the occupancy  levels,  rental rates and operating
expenses of some of our  properties.  Any increase in  availability of funds for
investment in real estate may  accelerate  competition.  Further  development of
self-storage   facilities   may  intensify   competition   among   operators  of
self-storage facilities in the market areas in which we operate.

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

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

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

         Delays in development  and fill-up of our  properties  would reduce our
profitability. Since January 1, 2002, through September 30, 2006, we have opened
44 newly  developed  self-storage  facilities  and 17  facilities  that  combine
self-storage  and  containerized  storage  space  at  the  same  location,  with
aggregate  development costs of approximately  $538.9 million. In addition,  our
development  efforts in the  United  States and  Europe at  September  30,  2006
consist of 60 projects with total estimated costs of $328 million. We anticipate
the  development  of these 60  projects to be  completed  in the next two years.
Construction  delays  due to  weather,  unforeseen  site  conditions,  personnel
problems,  and other factors,  as well as cost overruns,  would adversely affect
our  profitability.  Delays in the rent-up of newly  developed  facilities  as a
result  of  competition  or  other  factors  would  also  adversely  impact  our
profitability.

                                       87
<PAGE>

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

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

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

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

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

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

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

         Through our  subsidiaries,  we continue to reinsure  risks  relating to
loss of goods stored by tenants in the  self-storage  facilities  in Canada.  We
acquired  the tenant  insurance  business  on  December  31,  2001  through  our
acquisition of PSIC. For each of the nine-month periods ended September 30, 2006
and 2005,  PSIC received  $759,000 and $795,000,  respectively,  in  reinsurance
premiums attributable to the Canadian Facilities.  Since PSIC's right to provide
tenant  reinsurance  to the Canadian  Facilities  may be qualified,  there is no
assurance that these premiums will continue.

OUR CONTAINERIZED STORAGE BUSINESS HAS INCURRED OPERATING LOSSES.

         Public  Storage  Pickup & Delivery  ("PSPUD")  was organized in 1996 to
operate a containerized storage business. We own all of the economic interest of
PSPUD.  Since  PSPUD  will  operate  profitably  only if it can  succeed  in the
relatively new field of containerized  storage,  we cannot provide any assurance
as to its  profitability.  PSPUD  incurred an operating  loss of  $10,058,000 in
2002, and generated  operating profits of $2,543,000 in 2003,  $684,000 in 2004,
$1,818,000  for 2005 and $385,000 for the nine months ended  September 30, 2006.
Since  2002,  PSPUD  closed or  consolidated  facilities  that were  deemed  not
strategic to its business  plan,  and had 12  facilities  open at September  30,
2006.

                                       88
<PAGE>

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

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

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

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

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

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

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

         On June 12,  1998,  we  announced  that the  Board  of  Directors  (the
"Directors")  authorized  the  repurchase  from time to time of up to 10,000,000
shares  of the  Company's  common  stock  on the  open  market  or in  privately
negotiated  transactions.  On  subsequent  dates  the  Directors  increased  the
repurchase  authorization,  the last  being  April 13,  2001,  when the Board of
Directors  increased the  repurchase  authorization  to 25,000,000  shares.  The
Company has repurchased a total of 22,201,720  shares of Common Stock under this
authorization.  The Company did not repurchase any shares of Common Stock during
the nine months ended September 30, 2006.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
           ---------------------------------------------------

         The Company held its annual meeting of shareholders on August 22, 2006,
and the following matters were voted on at the meeting:

1.   The election of the following  directors for the  succeeding  year or until
     their successors are duly qualified and elected:

                                       89

<PAGE>

                                         Total Votes
                            ----------------------------------------
          Name              Total Votes For     Total Votes Withheld
-----------------------     ------------------- --------------------
B. Wayne Hughes                   81,995,900            32,355,081
Ronald L. Havner, Jr.            112,061,211             2,289,770
Robert J. Abernethy              102,833,568            11,517,413
Dann V. Angeloff                 109,438,064             4,912,918
William C. Baker                 111,647,148             2,703,834
John T. Evans                    103,509,361            10,841,621
Uri P. Harkham                   112,426,967             1,924,014
B. Wayne Hughes, Jr.              82,165,618            32,185,364
Harvey Lenkin                    112,011,694             2,339,288
Daniel C. Staton                 103,522,945            10,828,036

2.   The shareholders approved the merger agreement dated as of March 6, 2006 by
     and among Public Storage,  Inc.,  Shurgard Storage Centers,  Inc., and ASKL
     Sub LLC and the transactions  contemplated thereby,  including the issuance
     of Public Storage common stock.  Of the shares of common stock voted at the
     meeting,  104,832,667  votes  were cast in favor of the  merger  agreement;
     255,745 shares voted against;  645,790 shares abstained; and 8,034,510 were
     broker  non-votes.  Of the Company's  shares of Equity Stock,  Series A and
     Equity Stock,  Series AAA voting together as a class,  4,524,362 votes were
     cast in favor of the merger  agreement,  8,614 shares voted against;  3,187
     shares abstained; and 335,650 were broker non-votes.

3.   The shareholders  approved ratification of the appointment of Ernst & Young
     LLP as the  Company's  independent  auditors  for  the  fiscal  year  ended
     December  31, 2006.  There were  100,506,454  votes cast for  ratification;
     12,899,735 votes cast against ratification; and 944,792 votes abstained.

ITEM 6.    EXHIBITS

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

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<PAGE>


                                   SIGNATURES

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

                                        DATED: November 9, 2006

                                        PUBLIC STORAGE, INC.

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


                                       91


<PAGE>

Exhibit No.                    Exhibit Index
-----------  -------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       92
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

                                       93
<PAGE>

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

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

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

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

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

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

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

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

3.37         Certificate of  Determination  of Preferences of 8.600%  Cumulative
             Preferred  Stock,  Series Q of  Public  Storage,  Inc.  Filed  with
             Registrant's  Registration  Statement on Form 8-A/A (No. 001-08389)
             relating to the Depositary  Shares Each  Representing  1/1,000 of a
             Share  of  8.600%   Cumulative   Preferred  Stock,   Series  Q  and
             incorporated herein by reference.

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

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

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

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

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

                                       94
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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<PAGE>

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

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

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

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

3.60         Certificate of  Determination  of  Preferences of 7.25%  Cumulative
             Preferred  Stock,  Series J of  Public  Storage,  Inc.  Filed  with
             Registrant's  Current Report on Form 8-K filed May 9, 2006 relating
             to the Depositary  Shares Each  Representing  1/1,000 of a Share of
             7.25% Cumulative  Preferred Stock, Series J and incorporated herein
             by reference.

3.61         Certificate of  Determination  of  Preferences of 7.25%  Cumulative
             Preferred  Stock,  Series K of  Public  Storage,  Inc.  Filed  with
             Registrant's  Current  Report  on Form 8-K  filed  August  4,  2006
             relating to the Depositary  Shares Each  Representing  1/1,000 of a
             Share  of  7.25%   Cumulative   Preferred   Stock,   Series  K  and
             incorporated herein by reference.

3.62         Certificate of  Determination  of  Preferences of 6.75%  Cumulative
             Preferred  Stock,  Series L of  Public  Storage,  Inc.  Filed  with
             Registrant's  Current  Report on Form 8-K filed  October  18,  2006
             relating to the Depositary  Shares Each  Representing  1/1,000 of a
             Share  of  6.75%   Cumulative   Preferred   Stock,   Series  L  and
             incorporated herein by reference.

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

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

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

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

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

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

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

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

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

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

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

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

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

4.1          Registration  Rights  Agreement dated as of May 9, 2006 relating to
             7.25% Series J Cumulative Preferred Stock of the Registrant.  Filed
             with Registrant's  Current Report on Form 8-K dated May 9, 2006 and
             incorporated herein by reference.

4.2          Indenture dated April 25, 1997,  between  Shurgard  Storage Centers
             Inc.   ("Shurgard")   and  LaSalle   National   Bank,  as  Trustee.
             Incorporated by reference to Exhibit 10 to the Quarterly  Report on
             Form 10-Q for the  quarter  ended  March 31, 1997 filed by Shurgard
             (SEC File No. 0-11455).

4.3          Supplemental  Indenture  dated  July  11,  1997.   Incorporated  by
             reference to Exhibit 4.4 to the Annual  Report on Form 10-K for the
             year ended December 31, 1997 filed by Shurgard

4.4          Form of  7(5)/8%  Notes  due 2007.  Incorporated  by  reference  to
             Exhibit 4.2 to the Current  Report on Form 8-K dated April 22, 1997
             filed by Shurgard

4.5          Form of  7(3)/4%  Notes  due 2011.  Incorporated  by  reference  to
             Exhibit 4.4 to the Registration Statement on Form S-4 filed on June
             20, 2001 filed by Shurgard

4.6          Form of 5.875% Notes due 2013. Incorporated by reference to Exhibit
             4.1 to the Current Report on Form 8-K dated March 20, 2003 filed by
             Shurgard.

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

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

10.3.        Senior Credit  Agreement daed May 26, 2003, as amended by Amendment
             Agreements  dated July 11, 2003 and December 2, 2003,  by and among
             First Shurgard Sprl,  First Shurgard  Finance Sarl,  First Shurgard
             Deutschland  GmbH,  Societe  Generale and others.  Incorporated  by
             reference to Exhibit 10.1 filed with the Current Report on Form 8-K
             dated  February 21, 2005 filed by Shurgard  Storage  Centers,  Inc.
             ("Shurgard")(SEC File No. 0-11455).


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

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

10.6.        Subscription  Agreement dated October 11, 2004, among  Self-Storage
             Securitization B.V., Shurgard Self Storage SCA, et al and Citigroup
             Global Markets Ltd. Incorporated by reference to Exhibit 10.1 filed
             with the Current Report on Form 8-K dated October 15, 2004 filed by
             Shurgard.

10.7.        Trust  Deed  as  of  October   15,   2004,   between   Self-Storage
             Securitisation   B.V.  and  Citicorp   Trustee   Company   Limited.
             Incorporated  by  reference  to Exhibit 10.1 filed with the Current
             Report on Form 8-K dated October 21, 2004 filed by Shurgard.

10.8.        Master  Framework  Agreement  dated as of  October  15,  2004 among
             Self-Storage   Securitisation  B.V.,  Shurgard  Self  Storage  SCA,
             Citicorp Trustee Company Limited,  Citibank, N.A., Citigroup Global
             Markets Limited,  Citibank International plc, Barclays Bank PLC and
             the other  parties  named  therein.  Incorporated  by  reference to
             Exhibit  10.2  filed  with the  Current  Report  on Form 8-K  dated
             October 21, 2004 filed by Shurgard.

10.9.        Agency Agreement dated as of October 15, 2004,  among  Self-Storage
             Securitisation  B.V.,  Citicorp Trustee Company Limited,  Citibank,
             N.A. and Citibank  International PLC.  Incorporated by reference to
             Exhibit  10.3  filed  with the  Current  Report  on Form 8-K  dated
             October 21, 2004 filed by Shurgard.

10.10.       Issuer/Borrower  Facility  Agreement  dated as of October 15, 2004,
             among Shurgard Self Storage SCA, Self Storage  Securitisation B.V.,
             Citicorp  Trustee  Company  Limited  and the  other  parties  named
             therein.  Incorporated  by reference to Exhibit 10.4 filed with the
             Current  Report  on Form  8-K  dated  October  21,  2004  filed  by
             Shurgard.

10.11.       Liquidity  Facility  Agreement dated as of October 15, 2004,  among
             Self-Storage  Securitisation  B.V.,  Barclays  Bank  PLC,  Citicorp
             Trustee Company Limited and Shurgard Self Storage SCA. Incorporated
             by reference to Exhibit 10.5 filed with the Current  Report on Form
             8-K dated October 21, 2004 filed by Shurgard.

10.12.       Tax Deed of  Covenant  dated as of  October  15,  2004,  among Self
             -Storage  Securitisation B.V., Shurgard Self Storage SCA, Citigroup
             Global Markets  Limited,  Citicorp  Trustee Company Limited and the
             other parties named therein.  Incorporated  by reference to Exhibit
             10.6 filed with the  Current  Report on Form 8-K dated  October 21,
             2004 filed by Shurgard.

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

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

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

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

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

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