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 June 30, 2005
                               -------------

                                       or

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

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

Commission File Number:  1-8389

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

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

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

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


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

                                 [X] Yes [ ] No


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

                                 [X] Yes [ ] No

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of August 5, 2005:

Common Stock, $.10 Par Value -  129,142,443 shares

Depositary Shares Each Representing  1/1,000 of a Share of Equity Stock,  Series
A, $.01 Par Value - 8,744,193 depositary shares  (representing  8,744.193 shares
of Equity Stock, Series A)

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


<PAGE>


                              PUBLIC STORAGE, INC.

                                      INDEX


                                                                          Pages

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

Item 1.    Financial Statements

           Condensed Consolidated Balance Sheets at
              June 30, 2005 and December 31, 2004                             1

           Condensed Consolidated Statements of Income for the
              Three and Six Months Ended June 30, 2005 and 2004               2

           Condensed Consolidated Statement of Shareholders' Equity
              for the Six Months Ended June 30, 2005                          3

           Condensed Consolidated Statements of Cash Flows
              for the Six Months Ended June 30, 2005 and 2004                 4

           Notes to Condensed Consolidated Financial Statements          5 - 34

Item 2.    Management's Discussion and Analysis of
              Financial Condition and Results of Operations             35 - 61

Item 2A.   Risk Factors                                                 61 - 66

Item 3.    Quantitative and Qualitative Disclosures about Market Risk        66

Item 4.    Controls and Procedures                                           67

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

Item 1.    Legal Proceedings                                                 68

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds       68

Item 4.    Submission of Matters to a Vote of Security Holders               69

Item 6.    Exhibits                                                          70




<PAGE>


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

<TABLE>
<CAPTION>

                                                                                          June 30,           December 31,
                                                                                            2005                 2004
                                                                                       ---------------     ---------------
                                                                                         (Unaudited)
                                       ASSETS

<S>                                                                                     <C>                <C>
Cash and cash equivalents....................................................           $     390,431      $    366,255
Real estate facilities, at cost:
   Land......................................................................               1,468,063         1,431,148
   Buildings.................................................................               4,179,369         4,079,602
                                                                                       ---------------     ---------------
                                                                                            5,647,432         5,510,750
   Accumulated depreciation..................................................              (1,406,564)       (1,320,200)
                                                                                       ---------------     ---------------
                                                                                            4,240,868         4,190,550
   Construction in process...................................................                  41,296            47,277
   Land held for development.................................................                   8,404             8,883
   Real estate assets held for disposition, net of accumulated depreciation..                   1,430                 -
                                                                                       ---------------     ---------------
                                                                                            4,291,998         4,246,710

Investment in real estate entities...........................................                 329,148           341,304
Goodwill.....................................................................                  78,204            78,204
Intangible assets, net.......................................................                 101,383           104,685
Other assets.................................................................                  65,479            67,632
                                                                                       ---------------     ---------------
              Total assets...................................................           $   5,256,643      $  5,204,790
                                                                                       ===============     ===============
                       LIABILITIES AND SHAREHOLDERS' EQUITY

Notes payable................................................................           $     116,147      $    129,519
Debt to joint venture partner................................................                  35,610            16,095
Preferred stock called for redemption........................................                       -            54,875
Accrued and other liabilities................................................                 152,163           145,431
                                                                                       ---------------     ---------------
         Total liabilities...................................................                 303,920           345,920
Minority interest:
   Preferred partnership interests...........................................                 225,000           310,000
   Other partnership interests...............................................                 100,756           118,903
Commitments and contingencies (Note 14)......................................                       -                 -
Shareholders' equity:
   Cumulative Preferred Stock, $0.01 par value, 50,000,000 shares authorized,
     1,691,236 shares issued (in series) and outstanding, (3,980,186 at
     December 31, 2004) at liquidation preference............................               2,320,900         2,102,150

   Common Stock, $0.10 par value, 200,000,000 shares authorized 127,975,653 shares
     issued and outstanding (128,526,450 at December 31, 2004)...............                  12,798            12,853
   Equity Stock, Series A, $0.01 par value, 200,000,000 shares authorized,
     8,744.193 shares issued and outstanding (8,776.102 at December 31, 2004)                       -                 -
   Paid-in capital...........................................................               2,440,152         2,457,568
   Cumulative net income.....................................................               2,937,550         2,732,873
   Cumulative distributions paid.............................................              (3,084,433)       (2,875,477)
                                                                                       ---------------     ---------------
         Total shareholders' equity..........................................               4,626,967         4,429,967
                                                                                       ---------------     ---------------
              Total liabilities and shareholders' equity.....................           $   5,256,643      $  5,204,790
                                                                                       ===============     ===============

</TABLE>

                            See accompanying notes.
                                       1

<PAGE>


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

                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                Three Months Ended              Six Months Ended
                                                                                     June 30,                       June 30,
                                                                           -----------------------------  --------------------------
                                                                               2005           2004           2005          2004
                                                                           -------------   -------------  ------------  ------------
Revenues:
     Rental income:
<S>                                                                         <C>            <C>            <C>           <C>
         Self-storage facilities.........................................   $   235,363    $   212,905    $   462,812   $   418,777
         Commercial properties...........................................         2,927          2,731          5,775         5,357
         Containerized storage facilities................................         3,988          5,245          7,825        10,051
     Tenant reinsurance premiums.........................................         6,251          6,093         12,167        12,056
     Interest and other income...........................................         5,767          2,583          9,322         3,940
                                                                           -------------   -------------  ------------  ------------
                                                                                254,296        229,557        497,901       450,181
                                                                           -------------   -------------  ------------  ------------
Expenses:
     Cost of operations:
         Self-storage facilities.........................................        80,438         74,437        162,121       149,951
         Commercial properties...........................................         1,043          1,041          2,170         2,169
         Containerized storage facilities................................         3,274          2,894          6,016         5,668
         Tenant reinsurance..............................................         1,566          3,750          4,543         6,885
     Depreciation and amortization.......................................        48,261         44,683         96,219        91,093
     General and administrative..........................................         6,128          4,572         11,269        10,456
     Interest expense....................................................         1,794              -          3,457           100
                                                                           -------------   -------------  ------------  ------------
                                                                                142,504        131,377        285,795       266,322
                                                                           -------------   -------------  ------------  ------------
Income from continuing operations before equity in earnings of real estate
   entities and minority interest in income..............................       111,792         98,180        212,106       183,859

Equity in earnings of real estate entities (Note 5)......................         4,851          4,405         10,529         8,462
Minority interest in income:
     Preferred partnership interests:
       Based on ongoing distributions....................................        (3,590)        (5,177)        (8,965)      (11,731)
       Special distribution and restructuring allocation (Note 9)........             -              -           (874)      (10,063)
     Other partnership interests.........................................        (4,878)        (4,580)        (9,273)       (8,583)
                                                                           -------------   -------------  ------------  ------------
Income from continuing operations........................................       108,175         92,828        203,523       161,944
Gain on disposition of real estate assets................................            53              -             53             -
Discontinued operations (Note 3).........................................            38           (468)         1,101          (517)
                                                                           -------------   -------------  ------------  ------------
Net income...............................................................   $   108,266    $    92,360    $   204,677   $   161,427
                                                                           =============   =============  ============  ============
Net income allocation:
---------------------
     Allocable to preferred shareholders:
        Based on distributions paid......................................   $    42,147    $    38,780    $    82,560   $    76,822
        Based on redemptions of preferred stock..........................             -              -          1,904         3,723
     Allocable to Equity Stock, Series A.................................         5,356          5,376         10,731        10,751
     Allocable to common shareholders....................................        60,763         48,204        109,482        70,131
                                                                           -------------   -------------  ------------  ------------
                                                                            $   108,266    $    92,360    $   204,677   $   161,427
                                                                           =============   =============  ============  ============
Net income per common share - basic
     Continuing operations...............................................   $      0.47    $     0.38     $      0.84   $     0.55
     Discontinued operations (Note 3)....................................             -             -            0.01            -
                                                                           -------------   -------------  ------------  ------------
                                                                            $      0.47    $     0.38     $      0.85   $     0.55
                                                                           =============   =============  ============  ============
Net income per common share - diluted
     Continuing operations...............................................   $      0.47    $     0.37     $      0.84   $     0.55
     Discontinued operations (Note 3)....................................             -             -            0.01            -
                                                                           -------------   -------------  ------------  ------------
                                                                            $      0.47    $     0.37     $      0.85   $     0.55
                                                                           =============   =============  ============  ============
 Net income per depositary share of Equity Stock, Series A (basic and
 diluted)................................................................   $      0.61    $     0.61     $      1.23   $     1.23
                                                                           =============   =============  ============  ============

Basic weighted average common shares outstanding.........................       127,986        127,632        128,284       127,407
                                                                           =============   =============  ============  ============
Diluted weighted average common shares outstanding.......................       128,618        128,548        128,895       128,375
                                                                           =============   =============  ============  ============
Weighted average shares of Equity Stock, Series A (basic and diluted)....         8,744          8,776          8,760         8,776
                                                                           =============   =============  ============  ============

</TABLE>

                            See accompanying notes.
                                       2

<PAGE>

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

                                   (Unaudited)

<TABLE>
<CAPTION>


                                                                 Cumulative
                                                              Preferred Stock    Common Stock    Paid-in Capital
                                                              ---------------    -------------   ---------------
<S>                                                            <C>               <C>              <C>
Balances at December 31, 2004.............................     $  2,102,150      $     12,853     $  2,457,568

Issuance of cumulative preferred stock:
   Series D (5,400 shares)..............................            135,000                 -           (4,453)
   Series E (5,650 shares)..............................            141,250                 -           (4,649)

Redemption of cumulative preferred stock, including
redemption costs:
   Series F (2,300,000 shares)............................          (57,500)                -              (17)

Impact of EITF Topic D-42 on redemption of Series N and
Series O preferred units (Note 9).......................                  -                 -              874

Issuance of common stock in connection with:
   Exercise of employee stock options (162,822 shares)....                -                16            5,427
   Vesting of restricted stock (6,266 shares) ............                -                 1               (1)

Stock based compensation expense ......... ...............                -                 -            1,510

Repurchase of common stock (84,000 shares)................                -                (8)          (4,982)

Stock distribution from unconsolidated real estate entities
(635,885 common shares and 31,909 Equity Stock, Series A,
depositary shares) (Note 5)...............................                -               (64)         (11,125)

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

Cash distributions:
   Cumulative preferred stock (Note 10)...................                -                 -                -
   Equity Stock, Series A ($1.23 per depositary share)....                -                 -                -
   Common Stock ($0.90 per share).........................                -                 -                -
                                                              ---------------    -------------   ---------------
Balances at June 30, 2005.................................     $  2,320,900      $     12,798     $  2,440,152
                                                              ===============    =============   ===============

</TABLE>

<TABLE>
<CAPTION>

                                                                                                         Total
                                                                 Cumulative Net      Cumulative      Shareholders'
                                                                     Income        Distributions         Equity
                                                                 ---------------   --------------    ---------------
<S>                                                               <C>              <C>               <C>
Balances at December 31, 2004.............................        $  2,732,873     $ (2,875,477)     $  4,429,967

Issuance of cumulative preferred stock:
   Series D (5,400 shares)..............................                     -                -           130,547
   Series E (5,650 shares)..............................                     -                -           136,601

Redemption of cumulative preferred stock, including
redemption costs:
   Series F (2,300,000 shares)............................                   -                -           (57,517)

Impact of EITF Topic D-42 on redemption of Series N and
Series O preferred units (Note 9).......................                     -                -               874

Issuance of common stock in connection with:
   Exercise of employee stock options (162,822 shares)....                   -                -             5,443
   Vesting of restricted stock (6,266 shares) ............                   -                -                 -

Stock based compensation expense (Note 12) ...............                   -                -             1,510

Repurchase of common stock (84,000 shares)................                   -                -            (4,990)

Stock distribution from unconsolidated real estate entities
(635,885 common shares and 31,909 Equity Stock, Series A,
depositary shares) (Note 5)...............................                   -                -           (11,189)

Net income................................................             204,677                -           204,677

Cash distributions:
   Cumulative preferred stock (Note 10)...................                   -          (82,560)          (82,560)
   Equity Stock, Series A ($1.23 per depositary share)....                   -          (10,731)          (10,731)
   Common Stock ($0.90 per share).........................                   -         (115,665)         (115,665)
                                                                 ---------------   --------------    ---------------
Balances at June 30, 2005.................................        $  2,937,550     $ (3,084,433)     $  4,626,967
                                                                 ===============   ==============    ===============

</TABLE>

                            See accompanying notes.
                                       3

<PAGE>

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

                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                            Six Months Ended
                                                                                                June 30,
                                                                                   -------------------------------------
                                                                                         2005                 2004
                                                                                   ----------------     ----------------
Cash flows from operating activities:
<S>                                                                                <C>                  <C>
  Net income..............................................................         $      204,677       $      161,427
   Adjustments to reconcile net income to net cash provided by operating
     activities:
     Gain on sale of real estate assets...................................                    (53)                   -
     (Gain)/Loss on sale of assets and impact of EITF Topic D-42 included in
       equity in earnings of real estate entities (Note 5) ...............                 (1,575)              1,017
     Depreciation and amortization........................................                 96,219               91,093
     Depreciation included in equity in earnings of real estate entities..                 17,443               16,534
     Minority interest in income..........................................                 19,112               30,377
     Depreciation and other adjustments associated with discontinued
       operations (Note 3) ...............................................                 (1,075)               1,406
     Other................................................................                 16,674               26,067
                                                                                   ----------------     ----------------
              Total adjustments...........................................                146,745              166,494
                                                                                   ----------------     ----------------
                  Net cash provided by operating activities...............                351,422              327,921
                                                                                   ----------------     ----------------
Cash flows from investing activities:
     Payment on note receivable due from PS Business Parks (Note 13)......                      -              100,000
     Capital improvements to real estate facilities.......................                 (9,370)              (9,644)
     Net acquisition of investments included in other assets (Note 2).....                 (7,960)              (1,665)
     Construction in process..............................................                (26,220)             (31,772)
     Acquisition of minority interests (Note 9)...........................                (36,798)             (24,000)
     Acquisition of real estate facilities................................                (82,456)                   -
     Acquisition of investments in real estate entities...................                (14,901)             (16,134)
     Proceeds from disposition of real estate assets......................                  2,214                    -
     Other investments....................................................                   (670)              (1,266)
                                                                                   ----------------     ----------------
                  Net cash (used in) provided by investing activities.....               (176,161)              15,519
                                                                                   ----------------     ----------------
Cash flows from financing activities:
     Principal payments on notes payable..................................                (13,372)             (40,733)
     Net proceeds from the issuance of common stock.......................                  5,443               29,178
     Net proceeds from the issuance of preferred stock....................                267,148              365,057
     Net proceeds from financing through joint venture (Note 8)...........                 19,197                    -
     Repurchase of common stock...........................................                 (4,990)             (18,234)
     Redemption of preferred units........................................                (85,000)                   -
     Redemption of preferred stock........................................               (112,392)            (230,021)
     Distributions paid to shareholders...................................               (208,956)            (202,328)
     Distributions paid to holders of preferred partnership interests.....                 (8,965)             (11,731)
     Special distribution paid to holders of preferred partnership interests
       (Note 9)...........................................................                      -               (8,000)
     Distributions paid to minority interests, net of reinvestment........                 (9,198)             (10,013)
                                                                                   ----------------     ----------------
                  Net cash used in financing activities...................               (151,085)            (126,825)
                                                                                   ----------------     ----------------
Net increase in cash and cash equivalents.................................                 24,176              216,615
Cash and cash equivalents at the beginning of the period..................                366,255              204,833
                                                                                   ----------------     ----------------
Cash and cash equivalents at the end of the period........................         $      390,431       $      421,448
                                                                                   ================     ================
Supplemental schedule of non-cash investing and financial activities: Retirement
     of common stock and Equity Stock, Series A, received as a distribution from
     affiliated entities (Note 5):
       Common stock.......................................................         $          (64)     $             -
       Additional paid-in capital.........................................                (11,125)                   -
       Investment in real estate entities.................................                 11,189                    -

</TABLE>

                            See accompanying notes.
                                       4

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

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

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

              We  invest  in real  estate  facilities  by  acquiring  facilities
     directly  or by  acquiring  interest  in  real  estate  entities  that  own
     facilities.  At June 30, 2005, we had direct and indirect equity  interests
     in 1,480 self-storage facilities with 90.6 million net rentable square feet
     located in 37 states  operating  under the "Public  Storage"  name. We also
     have direct and indirect equity interests in approximately 19.5 million net
     rentable  square feet of  commercial  and  industrial  space  located in 10
     states.

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

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

              The  accompanying   unaudited  condensed   consolidated  financial
     statements  have been prepared in accordance  with United States  generally
     accepted accounting  principles for interim financial  information and with
     instructions  to Form 10-Q and Article 10 of Regulation  S-X.  Accordingly,
     they do not include all of the information and footnotes required by United
     States  generally  accepted  accounting  principles for complete  financial
     statements.  In the opinion of management,  all adjustments  (consisting of
     normal  recurring  accruals)  necessary for a fair  presentation  have been
     included.  Operating  results  for the three and six months  ended June 30,
     2005 are not necessarily indicative of the results that may be expected for
     the year ended  December 31, 2005.  For further  information,  refer to the
     consolidated  financial  statements and footnotes  thereto  included in the
     Company's annual report on Form 10-K for the year ended December 31, 2004.

              The  condensed   consolidated  financial  statements  include  the
     accounts of the  Company  and 36  controlled  entities  (the  "Consolidated
     Entities").  Collectively,  the Company and the Consolidated Entities own a
     total of 1,449 real estate  facilities,  consisting  of 1,442  self-storage
     facilities,  three industrial  facilities used by the containerized storage
     operations and four commercial  properties.  All intercompany  transactions
     among  the  Company  and  the  Consolidated   Entities  are  eliminated  in
     consolidation.

              At June 30,  2005,  we had  equity  investments  in eight  limited
     partnerships in which we do not have a controlling interest.  These limited
     partnerships collectively own 38 self-storage facilities, which are managed
     by the Company. In addition,  at June 30, 2005, we own approximately 44% of
     the common equity of PS Business Parks, Inc.  ("PSB"),  which has interests
     in approximately  17.9 million net rentable square feet of commercial space
     at June 30,  2005.  We do not  control  these  entities;  accordingly,  our
     investment  in  these  limited  partnerships  and  PSB  (collectively,  the
     "Unconsolidated Entities") are accounted for using the equity method.

              Certain  amounts  previously  reported have been  reclassified  to
     conform  to  the  June  30,  2005  presentation,   including   discontinued
     operations (see Note 3).

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

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

                                       5

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (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 2005 and,
     accordingly,   no  provision   for  income  taxes  has  been  made  in  the
     accompanying financial statements.

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

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

              For purposes of financial statement presentation,  we consider all
     highly liquid financial  instruments 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  condensed  consolidated  balance  sheets are  reasonable
     estimates of fair value. The carrying amounts of notes payable  approximate
     fair value because the  aggregate  applicable  interest  rate  approximates
     current  market rates for similar  loans and because the  relatively  short
     time until maturity reduces the effect of differing interest rates.

              Financial assets that are exposed to credit risk consist primarily
     of cash  and  cash  equivalents  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  June  30,  2005 is
     $5,546,000  ($1,984,000 at December 31, 2004) in cash held by the Company's
     captive   insurance   programs.   Insurance  and  other  regulations  place
     significant  restrictions  on our  ability  to  withdraw  these  funds  for
     purposes other than insurance  activities.  Our captive insurance  programs
     are conducted by (i) STOR-Re Mutual Insurance Company, Inc. ("STOR-Re"), an
     association  captive  insurance  company  owned  by  the  Company  and  its
     affiliates,  which is  approximately  90.1%  owned by the  Company  and the
     Consolidated   Entities,   and  (ii)  PS  Insurance  Company  Hawaii,  Ltd.
     ("PSIC-H"),  a captive  insurer formed on December 31, 2003 which is wholly
     owned by a subsidiary of the Company. Other assets at June 30, 2005 include
     aggregate  investments  totaling  $28,889,000  ($20,929,000 at December 31,
     2004) in held to  maturity  debt  securities  owned by  STOR-Re  and PSIC-H
     stated at amortized cost, which approximates fair value.

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

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

                                       6

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

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

              In January 2004, we entered into a joint venture  partnership with
     an institutional investor for the purpose of acquiring up to $125.0 million
     of existing self-storage properties in the United States from third parties
     (the  "Acquisition  Joint  Venture").  The venture is funded  entirely with
     equity  consisting  of 30% from the Company and 70% from the  institutional
     investor.  For a six-month period  beginning 54 months after formation,  we
     have the right to acquire our joint venture  partner's  interest based upon
     the market value of the properties.  If we do not exercise our option,  our
     joint venture  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 joint venture  partner fails to exercise its option,
     the partnership  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
     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 income  statement.  See Note 5 for further  discussion  of
     these amounts.

              In December  2004, we sold seven  facilities  that we had recently
     acquired to the  Acquisition  Joint Venture for an aggregate of $22,993,000
     representing  our original cost.  During the first quarter of 2005, we sold
     an interest in three  additional  facilities that we had recently  acquired
     for aggregate  proceeds of $27,424,000,  representing the Acquisition Joint
     Venture's  acquired  share  of our  original  cost.  Due to our  continuing
     interest  in these  facilities  and our  option to  acquire  our  Partner's
     investment as described  above in year five we are precluded  from treating
     these  transactions as completed sales of facilities  pursuant to Statement
     of Financial  Accounting  Standards No. 66,  "Accounting  for Sales of Real
     Estate" ("SFAS 66"). Therefore, we continue to reflect these properties and
     associated operations on our condensed consolidated financial statements.

              We believe  that it is likely that we will  exercise our option to
     acquire our joint venture partner's interest and, accordingly,  we consider
     the  transactions to be, in substance,  debt  financing.  Our joint venture
     partner's 70% investment in the  Acquisition  Joint Venture with respect to
     the ten  properties is therefore  reflected as a liability on our condensed
     consolidated balance sheet, "Debt to Joint Venture Partner," with our joint
     venture  partner's share of operations (an 8.5% return on their investment)
     reflected  on our  condensed  consolidated  income  statement  as  interest
     expense.  The balance of the liability is adjusted each period to equal the
     current value to the extent fair value exceeds the original liability.  See
     Note 8 for a further discussion of these debt amounts.

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

              With respect to goodwill,  we evaluate impairment annually through
     a two-step  process.  In the first step, if the fair value of the reporting
     unit to which the goodwill applies is equal to or greater than the carrying

                                       7

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

     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, 2004.

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

              Any long-lived assets which we expect to sell or otherwise dispose
     of prior to their  previously  estimated  useful life are stated at what we
     estimate to be the lower of their estimated net realizable value (less cost
     to sell) or their carrying value. No additional impairments were identified
     from our evaluations as of June 30, 2005.

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

              We  utilize  the Fair  Value  Method  (as  defined  in Note 12) of
     accounting  for our employee  stock options issued after December 31, 2001,
     and utilize the APB 25 Method (as  defined in Note 12) for  employee  stock
     options issued prior to January 1, 2002.  Restricted  Stock Unit expense is
     recorded  over  the  relevant  vesting  period.  See  Note  12  for a  full
     discussion  of our  accounting  policies  with  respect to  employee  stock
     options and restricted stock units.

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

              Other  assets  primarily   consist  of  containers  and  equipment
     associated with the  containerized  storage  operations,  assets associated
     with the truck rental business,  accounts receivable,  prepaid expenses and
     investments  held  by  STOR-Re  and  PSIC-H  (discussed  below).   Accounts
     receivable  from  customers  are net of allowances  for doubtful  accounts.
     Containers and equipment  utilized in our  containerized  storage  business
     totaled  $1,627,000 at June 30, 2005 ($4,395,000 at December 31, 2004). The
     carrying  amounts are net of accumulated  depreciation and asset impairment
     charges.  No impairment charges we recorded during the three and six months
     ended June 30, 2005 with respect to containers  and  equipment  utilized in
     the discontinued containerized storage operations.

              Included in depreciation  and  amortization  expense for the three
     and  six  months  ended  June  30,  2005  is  $1,851,000  and   $3,783,000,
     respectively,  related to other  assets,  as  compared  to  $1,846,000  and
     $3,681,000 for the same period in 2004. Included in discontinued operations
     for the three and six months ended June 30, 2004 is depreciation expense of
     $227,000 and $506,000,  respectively,  and $29,000 for the six months ended
     June 30, 2005 with respect to other assets (none for the three months ended
     June 30, 2005).

                                       8

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

              Other  assets  at June  30,  2005  include  aggregate  investments
     totaling $28,889,000 ($20,929,000 at December 31, 2004) in held to maturity
     securities  owned by STOR-Re and PSIC-H  stated at  amortized  cost,  which
     approximates fair market value.

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

              Accrued and other liabilities consist primarily of trade payables,
     real and personal  property tax  accruals,  prepayments  of rents,  accrued
     interest,  and losses and loss  adjustment  liabilities  from our insurance
     programs,   as  discussed  below.   Prepaid  rent  totals  $28,268,000  and
     $26,289,000 at June 30, 2005 and December 31, 2004, respectively.

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

              STOR-Re,  which is  consolidated  with the Company,  was formed in
     1994 as an association  captive  insurance company owned by the Company and
     affiliates of the Company.  STOR-Re provides limited property and liability
     insurance  to the Company and its  affiliates  for losses  incurred  during
     policy  periods  prior to April 1, 2004,  and was  succeeded by PSIC-H with
     respect to these insurance activities for policy periods following April 1,
     2004.  The  Company  also  utilizes  other  insurance  carriers  to provide
     property  and  liability  insurance  coverage  in excess of  STOR-Re's  and
     PSIC-H's  limitations  which are  described in Note 14.  STOR-Re and PSIC-H
     accrue  liabilities  for  estimated  covered  losses  and  loss  adjustment
     expense,  which  at June  30,  2005  totaled  $34,324,000  ($34,192,000  at
     December 31,  2004) with  respect to insurance  provided to the Company and
     its affiliates.

              PS Insurance Company, Ltd ("PSIC"),  a wholly-owned  subsidiary of
     the Company,  reinsured  policies against claims for losses to goods stored
     by tenants in our self-storage facilities for policy periods prior to April
     1, 2004.  PSIC-H  succeeded  PSIC with  respect to these  tenant  insurance
     activities  effective April 1, 2004, and these entities utilize third-party
     insurance coverage for losses from any individual event that exceeds a loss
     of $500,000,  to a maximum of  $10,000,000.  Losses  below the  third-party
     insurers'  deductible  amounts  are accrued as cost of  operations  for the
     tenant  insurance  operations.  We recorded  approximately  $1.5 million in
     accrued losses with respect to estimated  insured tenant claims as a result
     of damage  sustained as a result of hurricanes  which occurred in the third
     quarter  of 2004.  In the three and six  months  ended  June 30,  2005,  we
     reversed  approximately   $500,000  of  this  accrual,   reducing  cost  of
     operations - tenant re-insurance, based upon our current estimate of future
     unpaid claims. The accrued liability for losses and loss adjustment expense
     with respect to tenant insurance  activities totaled $4,133,000 at June 30,
     2005 ($4,898,000 at December 31, 2004), which includes the remaining future
     estimated  payments for tenant  claims  resulting  from the  aforementioned
     hurricanes.

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

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

                                       9

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

              Goodwill is net of accumulated amortization of $16,515,000 at June
     30, 2005 and  December  31, 2004.  At June 30,  2005,  property  management
     contracts are net of accumulated  amortization of $63,617,000  ($60,315,000
     at December 31, 2004).  Included in depreciation and  amortization  expense
     for each of the three and six month periods ended June 30, 2005 and 2004 is
     $1,651,000 and $3,302,000,  respectively,  with respect to the amortization
     of property management contracts.

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

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

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

              Cost of operations,  general and administrative expense,  interest
     expense,  as  well  as  television,  yellow  page,  and  other  advertising
     expenditures are expensed as incurred. Accordingly, the amounts incurred in
     an  interim  period may not be  indicative  of the  amounts to be  incurred
     during a full year. Television,  yellow page, and other advertising expense
     totaled  $8,992,000 and $16,563,000 for the three and six months ended June
     30,  2005 and  $6,764,000  and  $13,608,000  for the same  periods in 2004,
     respectively.

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

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

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

              Distributions  paid to the  holders  of our  Cumulative  Preferred
     Stock totaling  $42,147,000 and $38,780,000 for the three months ended June
     30,  2005 and 2004,  respectively,  have been  deducted  from net income to
     arrive at net income  allocable to our common  shareholders  (dividends  to
     Preferred  Stock were  $82,560,000 and $76,822,000 for the six months ended
     June 30, 2005 and 2004, 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  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.

                                       10

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

              In conformity with the SEC Observer's clarification, an additional
     $1,904,000 and $3,723,000 was allocated to preferred  stockholders  for the
     six months  ended June 30, 2005 and 2004,  respectively,  for the excess of
     the redemption amount over the carrying amount of our Cumulative  Preferred
     Stock (none for the three  months  ended June 30, 2005 or 2004).  It is our
     policy to record such allocations at the time the securities are called for
     redemption.

              Net income  allocated to our common  shareholders has been further
     allocated  among our two classes of common stock;  our regular common stock
     and our Equity Stock,  Series A. The allocation  among each class was based
     upon the two-class method.  Under the two-class method,  earnings per share
     for each  class of  common  stock are  determined  according  to  dividends
     declared  (or  accumulated)  and  participation   rights  in  undistributed
     earnings.  Under the  two-class  method,  the Equity  Stock,  Series A, was
     allocated  net income of  $5,356,000  and  $5,376,000  for the three months
     ended June 30, 2005 and 2004, respectively, and $10,731,000 and $10,751,000
     for the six  months  ended  June  30,  2005  and  2004,  respectively.  The
     remaining  $60,763,000  and $48,204,000 for the three months ended June 30,
     2005  and  2004,   respectively,   was  allocated  to  the  regular  common
     shareholders  ($109,482,000  and  $70,131,000,  respectively,  for  the six
     months ended June 30, 2005 and 2004).

              Basic net income per share is computed using the weighted  average
     common shares  outstanding  (prior to the dilutive  impact of stock options
     and  restricted  stock  units  outstanding).  Diluted net income per common
     share is computed  using the weighted  average  common  shares  outstanding
     (adjusted  for the dilutive  impact of stock options and  restricted  stock
     units outstanding). Weighted average common shares excludes shares owned by
     the  Consolidated  Entities  as  described  in  Note  10  for  all  periods
     presented, as these shares of common stock are eliminated in consolidation.

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

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

              During 2002, 2003, and 2004, 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.  An asset  impairment  charge of $169,000 was recorded with
     respect to one facility closed during the three months ended March 31, 2004
     and expenses  associated with lease  terminations  were recorded during the
     three  months  ended  June 30,  2004 in the  amount of  $416,000  (no asset
     impairment or lease  termination  charges were recorded in the three or six
     month periods in 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  (the  "Eminent  Domain  Facility").  We  expect to  receive  the
     proceeds  from the disposal of this  facility  during the third  quarter of
     2005,  resulting in a gain of approximately  $5 million.  The operations of
     this facility have been  reclassified as  "discontinued  operations" on our
     June 30, 2005 income  statement and "real estate held for  disposition"  on
     our balance sheet,  and included under the "Eminent Domain Facility" in the
     table below.

                                       11

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

              During the fourth  quarter of 2004, we sold a commercial  property
     (the "Sold  Commercial  Facility")  to a third party and recorded a gain on
     sale of $971,000.  The  historical  operating  results of this facility are
     reported as discontinued  operations,  and are presented in the table below
     as the "Sold Commercial Facility."

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

Discontinued Operations:
                                   Three Months Ended        Six Months Ended
                                        June 30,                 June 30,
                                   --------------------     --------------------
                                     2005        2004         2005        2004
                                   --------   ---------     ---------   --------
                                              (Amounts in thousands)
Rental income (a):
  Closed Facilities............... $     -      $1,925      $    95      $4,527
  Eminent Domain Facility.........     155         167          300         340
  Sold Commercial Facility........       -         105            -         174
                                   --------   ---------     ---------   --------
Total rental income...............     155       2,197          395       5,041
                                   --------   ---------     ---------   --------
Cost of operations (a):
  Closed Facilities...............       -      (1,797)        (194)     (4,022)
  Eminent Domain Facility.........     (96)        (45)        (175)        (93)
  Sold Commercial Facility........       -         (24)           -         (37)
                                   --------   ---------     ---------   --------
Total cost of operations..........     (96)     (1,866)        (369)     (4,152)
                                   --------   ---------     ---------   --------
Depreciation expense (a):
  Closed Facilities...............       -        (335)         (29)       (725)
  Eminent Domain Facility.........     (21)        (24)         (39)        (47)
  Sold Commercial Facility........       -         (24)           -         (49)
                                   --------   ---------     ---------   --------
Total depreciation ...............     (21)       (383)         (68)       (821)
                                   --------   ---------     ---------   --------
Other items (b)...................       -        (416)       1,143        (585)
                                   --------   ---------     ---------   --------
Net discontinued operations (c)... $    38      $ (468)     $ 1,101      $ (517)
                                   ========   =========     =========   ========

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

(b)      During the three months ended March 31, 2005, non-real estate assets of
         the  Closed  Facilities  were  sold,  resulting  in a gain  on  sale of
         approximately  $1,143,000.  Shutdown  expenses for the six months ended
         June 30, 2004 were  $585,000,  including  $169,000 in asset  impairment
         charges and  $416,000 in other  expenses  recorded  with respect to the
         Closed Facilities.

(c)      Earnings  per  share  for the six  months  ended  June  30,  2005  were
         increased by $0.01 per share (no impact for the three months ended June
         30,  2005 or for the three and six months  ended June 30,  2004) due to
         the impact from discontinued operations. 4.

                                       12

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

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

              Activity in real estate facilities is as follows:

                                                               Six Months Ended
                                                                 June 30, 2005
                                                               -----------------
                                                                 (In thousands)
Operating facilities, at cost:
   Balance at December 31, 2004........................        $    5,510,750
   Newly developed facilities opened for operations....                31,632
   Acquisition of real estate facilities...............                82,456
   Acquisition of minority interest (Note 9)...........                18,576
   Transfer  to real  estate  held  for  disposition  -
     eminent domain (Note 3)...........................                (2,789)

   Dispositions........................................                (2,563)
   Capital improvements................................                 9,370
                                                               -----------------
   Balance at June 30, 2005............................             5,647,432
                                                               -----------------
Accumulated depreciation:
   Balance at December 31, 2004........................            (1,320,200)
   Additions...........................................               (89,173)
   Transfer  to real  estate  held  for  disposition  -
     eminent domain (Note 3)...........................                 1,359
   Dispositions........................................                 1,450
                                                               -----------------
   Balance at June 30, 2005............................            (1,406,564)
                                                               -----------------
Construction in process:
   Balance at December 31, 2004........................                47,277
   Current development.................................                26,220
   Transfer to land held for development...............                  (569)
   Newly developed facilities opened for operations....               (31,632)
                                                               -----------------
   Balance at June 30, 2005............................                41,296
                                                               -----------------
Land held for development:
   Balance at December 31, 2004........................                 8,883
   Dispositions........................................                (1,048)
   Transfer from construction in process...............                   569
                                                               -----------------
   Balance at June 30, 2005............................                 8,404
                                                               -----------------
Real estate held for disposition:
   Balance at December 31, 2004........................                     -
   Transfers from land, building and accumulated
     depreciation (Note 3) ............................                 1,430
                                                               -----------------
   Balance at June 30, 2005............................                 1,430
                                                               -----------------
Total real estate facilities at June 30, 2005..........        $    4,291,998
                                                               =================

              During the six months  ended  June 30,  2005,  we opened two newly
     developed self-storage facilities (125,000 net rentable square feet) for an
     aggregate cost of $11,423,000  MDA. We also completed  three projects which
     converted 123,000 square feet of space previously used by our containerized
     storage  business  into  172,000 net rentable  square feet of  self-storage
     space for an aggregate cost of $6,839,000.  In addition, we completed three
     expansion projects to existing  self-storage  facilities adding 117,000 net
     rentable  square  feet for an  aggregate  of  $12,829,000,  and we incurred
     trailing  development costs with respect to development  projects completed
     in prior years, for an aggregate net cost of $541,000.

                                       13

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

              During the six months ended June 30, 2005,  we disposed of various
     parcels of land for an aggregate of $2,214,000, recording a gain on sale of
     approximately $53,000.

              In  addition,  during  the six  months  ended  June 30,  2005,  we
     acquired 14 self-storage facilities from third parties at an aggregate cost
     of $82,456,000 in cash (937,000 net rentable square feet).

              Construction  in process at June 30, 2005  consists  primarily  of
     seven self-storage facilities (555,000 net rentable square feet) with costs
     incurred  of  $30,118,000  at June 30,  2005 and total  estimated  costs of
     $81,157,000,  twenty five  projects  (1,478,000  net rentable  square feet)
     which  expand or enhance the visual and  structural  appeal of our existing
     self-storage  facilities  with cost incurred of $5,653,000 at June 30, 2005
     and total estimated costs of $110,979,000,  and sixteen projects (1,215,000
     net rentable square feet) to convert space at former containerized  storage
     facilities into self-storage space with cost incurred of $5,525,000 at June
     30, 2005 and total  estimated costs of  $45,333,000.  In addition,  we have
     five parcels of land held for development with total costs of approximately
     $8,404,000.

              Our policy is to capitalize  interest  incurred on debt during the
     course of construction of our self-storage facilities. Interest capitalized
     during  the three and six  months  ended  June 30,  2005 was  $679,000  and
     $1,344,000, respectively. Interest capitalized for the three and six months
     ended June 30, 2004 was $912,000 and $2,037,000, respectively.

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

              At June 30, 2005, our investments in real estate entities  consist
     of  ownership  interests  in  eight  partnerships,  which  principally  own
     self-storage facilities, and our ownership interest in PSB. These interests
     are non-controlling  interests of less than 50% and are accounted for using
     the equity method of accounting. Accordingly, earnings are recognized based
     upon our ownership  interest in each of the  partnerships.  The  accounting
     policies of these entities are similar to the Company's.

              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  increase  of equity in  earnings  of
     $310,000 and  $1,575,000  for the three and six months ended June 30, 2005,
     respectively,  as  compared  to a decrease in equity in earnings of $74,000
     and  $1,017,000  for  the  three  and  six  months  ended  June  30,  2004,
     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 for the six
     months  ended  June 30,  2005 and 2004,  in the amount of  $11,496,000  and
     $9,902,000, respectively. In addition, during the six months ended June 30,
     2005, we received a distribution from affiliated entities of 635,885 shares
     of our common  stock and  31,909  depositary  shares of our  Equity  Stock,
     Series A, with an aggregate book value of $11,189,000.

              The  following  table sets forth our  investments  in real  estate
     entities at June 30, 2005 and December 31, 2004, and our equity in earnings
     of real estate  entities  for the three and six months  ended June 30, 2005
     and 2004 (amounts in thousands):

                                       14

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                        Equity in Earnings of Real      Equity in Earnings of Real
                                      Investments in Real Estate          Estate Entities for the      Estate Entities for the Six
                                              Entities at               Three Months Ended June 30,       Months Ended June 30,
                                   --------------------------------    ----------------------------    ---------------------------
                                      June 30,         December 31,
                                        2005               2004             2005           2004             2005            2004
                                   ------------       -------------    -------------    -----------    ------------    -----------
<S>                                <C>                <C>               <C>             <C>            <C>             <C>
  PSB (a).......................   $   284,896        $   284,564       $     3,369     $     3,172    $     7,578     $     5,696
  Acquisition Joint Venture.....         2,837              2,857                (5)              -            (20)              -
  Other Investments ............        41,415             53,883             1,487           1,233          2,971           2,766
                                   ------------       -------------    -------------    -----------    ------------    -----------
    Total.......................   $   329,148        $   341,304       $     4,851     $     4,405    $    10,529     $     8,462
                                   ============       =============    =============    ===========    ============    ===========

</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 of these items resulted in an increase of equity in earnings
         of $310,000 and  $1,575,000 for the three and six months ended June 30,
         2005, respectively,  as compared to a decrease in equity in earnings of
         $74,000  and  $1,017,000  for the three and six  months  ended June 30,
         2004, respectively.

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

              PS Business  Parks,  Inc. is a REIT traded on the  American  Stock
     Exchange, which controls an operating partnership  (collectively,  the REIT
     and the  operating  partnership  are  referred to as "PSB").  We have a 44%
     common  equity  interest in PSB as of June 30,  2005.  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 June 30, 2005 and  December  31, 2004;  these  limited  partnership
     units are convertible at our option,  subject to certain  conditions,  on a
     one-for-one  basis into PSB common  stock.  Based upon the closing price at
     June 30, 2005 ($44.45 per common share of PSB stock),  the shares and units
     had a market value of  approximately  $565.6  million as compared to a book
     value of $284.9 million.

              At June 30, 2005, PSB wholly owned  approximately 17.9 million net
     rentable  square  feet  of  commercial  space.  In  addition,  PSB  manages
     commercial  space  owned  by the  Company  and  the  Consolidated  Entities
     pursuant to property management agreements.

              The  following  table  sets  forth  the  condensed  statements  of
     operations  for each of the six month  periods ended June 30, 2005 and 2004
     (as restated for discontinued operations), and the condensed balance sheets
     of PSB at June 30, 2005 and December 31, 2004. The amounts below  represent
     100% of PSB's balances and not our pro rata share.

                                                       Six Months Ended June 30,
                                                      --------------------------
                                                         2005            2004
                                                      ------------  ------------
                                                          (Amounts in thousands)
   Total revenue....................................  $  109,506    $  103,858
   Cost of operations and other operating expenses..     (35,308)      (33,131)
   Other income and expense, net....................         818        (2,021)
   Depreciation and amortization....................     (36,965)      (34,061)
   Discontinued operations (a)......................       4,201         1,989
   Minority interest (b)............................      (8,654)      (12,360)
                                                      ------------  ------------
     Net income.....................................  $   33,598    $   24,274
                                                      ============  ============

                                       15

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

                                                        June 30,    December 31,
                                                          2005          2004
                                                     ------------  -------------
                                                         (Amounts in thousands)
   Total assets (primarily real estate)............. $  1,444,060  $   1,363,829
   Total debt.......................................       11,161         11,367
   Other liabilities................................       48,280         38,453
   Preferred equity and preferred minority interest.      709,100        638,600
   Common equity and common minority interest.......      675,519        675,409

(a)      Included in  discontinued  operations for the six months ended June 30,
         2005 is a net gain on  disposition  of real  estate  of  $3,930,000  as
         compared to a loss of $168,000 for the same period in 2004.

(b)      Minority  interest  for the six  months  ended  June 30,  2005 and 2004
         includes  $301,000  and  $267,000,  respectively,  in EITF  Topic  D-42
         charges related to PSB's redemption of preferred units.

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

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

              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:

                                                    Six Months Ended
                                                     June 30, 2005
                                                    ----------------
                                                     (Amounts in
                                                     thousands)
   Total revenue................................... $          623
   Cost of operations and other expenses...........           (238)
   Depreciation and amortization...................           (134)
                                                    ----------------
     Net income.................................... $          251
                                                    ================


                                                   At June 30,   At December 31,
                                                       2005           2004
                                                   ------------  ---------------
                                                      (Amounts in thousands)
   Total assets (primarily storage facilities)..... $    9,281    $   9,168
   Liabilities.....................................         83           11
   Partners' equity................................      9,198        9,157

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

              During the six months ended June 30, 2005 we had an average common
     equity  ownership  of  approximately  40%  in  seven  limited  partnerships
     (collectively,  the "Other  Investments") owning an aggregate of 36 storage
     facilities.

                                       16

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

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

<TABLE>
<CAPTION>

                                                                  Six Months Ended June 30,
                                                              -----------------------------------
                                                                    2005               2004
                                                              ----------------   ----------------
                                                                  (Amounts in thousands)
<S>                                                           <C>                 <C>
   Total revenue........................................      $       14,465      $       13,881
   Cost of operations and other expenses................              (4,947)             (4,858)
   Depreciation and amortization........................              (1,006)             (1,128)
                                                              ----------------   ----------------
     Net income.........................................      $        8,512      $        7,895
                                                              ================   ================
</TABLE>

<TABLE>
<CAPTION>

                                                                  June 30,         December 31,
                                                                    2005               2004
                                                              ----------------   ----------------
                                                                  (Amounts in thousands)
<S>                                                           <C>                 <C>
   Total assets (primarily storage facilities)..........      $       50,102      $       58,124
   Other liabilities....................................               1,833               1,853
   Partners' equity.....................................              48,269              56,271

</TABLE>


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

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

              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 June 30, 2005. At June 30, 2005 and at
     August 5, 2005, we had no outstanding borrowings on our line of credit.

              At June 30,  2005 and  August  5,  2005,  we had  undrawn  standby
     letters of credit totaling $18,693,000.  The beneficiaries of these standby
     letters of credit were  certain  insurance  companies  associated  with our
     captive insurance and tenant insurance activities.

                                       17

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

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

              Notes  payable at June 30, 2005 and  December  31, 2004 consist of
     the following:

<TABLE>
<CAPTION>

                                                                         Carrying Amount
                                                                 -------------------------------
                                                                    June 30,       December 31,
                                                                      2005            2004
                                                                 -------------    --------------
                                                                     (Amounts in thousands)
Unsecured senior notes:
<S>                                                              <C>               <C>
  7.66% note due January 2007.............................       $     22,400      $     33,600
Mortgage notes payable:
  7.134% and 8.75%  mortgage  notes  secured by two real estate
  facilities with a net book value of $11.0 million,  principal
  and interest  payable  monthly,  due at varying dates between
  October 2009 and September 2028.........................              1,543             1,629

  5.05% mortgage notes (including unamortized note premium of
  $2.1 million) secured by 25 real estate facilities with a net
  book value of $97.0 million, principal and interest due
  monthly,  due at varying dates  between  October 2010 and May
  2023....................................................             40,036            41,470
  5.25% mortgage notes  (including  unamortized note premium of
  $3.8 million) secured by seven real estate  facilities with a
  net book value of $91.1  million,  principal and interest due
  monthly, due at varying dates between June 2011 and July 2013
  ........................................................             52,168            52,820
                                                                 -------------    --------------
         Total notes payable..............................        $   116,147       $   129,519
                                                                 =============    ==============
</TABLE>

              All of our notes  payable are fixed  rate.  The  unsecured  senior
     notes require interest and principal  payments to be paid semi-annually and
     have various restrictive covenants,  all of which have been met at June 30,
     2005.

              We assumed the 5.05% and 5.25% mortgage  notes in connection  with
     property acquisitions in 2004. The stated interest rates on the notes range
     from 5.4% to 8.1% with a weighted average of approximately 6.65%. The notes
     were recorded at their estimated fair value based upon the estimated market
     rate upon  assumption  of 5.05% and 5.25%,  an aggregate  of  approximately
     $94,693,000,   as  compared   to  actual   assumed   balances   aggregating
     approximately  $88,247,000.  This premium of approximately  $6,446,000 over
     the principal  balance of the notes payable is amortized over the remaining
     term of the loans based upon the effective interest method.  During the six
     months ended June 30, 2005, $515,000 of the premium was amortized.

              At June  30,  2005,  approximate  principal  maturities  of  notes
     payable are as follows:


                                Unsecured
                               Senior Notes       Mortgage Notes        Total
                               -------------      --------------      ----------
                                            (Amounts in thousands)
2005 (remainder of)..........  $          -       $      1,980        $   1,980
2006.........................        11,200              4,539           15,739
2007.........................        11,200              4,783           15,983
2008.........................             -              5,034            5,034
2009.........................             -              5,213            5,213
Thereafter...................             -             72,198           72,198
                               -------------      --------------      ----------
                               $     22,400         $   93,747        $ 116,147
                               =============      ==============      ==========
Weighted average rate........         7.7%               5.2%              5.7%
                               ============       ==============      ==========

                                       18

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

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

              As  described  more fully in Note 2, we accounted  for  facilities
     sold to our Acquisition Joint Venture as financing transactions pursuant to
     SFAS 66.  As a  result,  the  fair  value of our  joint  venture  partner's
     interest in these facilities  ($35,610,000 at June 30, 2005 and $16,095,000
     at  December  31,  2004)  is  accounted   for  as  debt  on  our  condensed
     consolidated balance sheets.

              On December 31, 2004, we sold seven  self-storage  facilities that
     we had acquired in 2004 from third parties to our Acquisition Joint Venture
     for $22,993,000,  an amount that was equal to fair value and our cost; this
     transaction increased Debt to Joint Venture Partner by $16,095,000.

              On January  14,  2005,  we sold an  interest  in three  additional
     facilities we had recently acquired for an aggregate amount of $27,424,000,
     an amount equal to the  acquired  pro rata share of cost and market  value;
     this   transaction   increased  the  Debt  to  Joint  Venture   Partner  by
     $19,197,000,  representing  our Joint  Venture  Partner's  interest  in the
     acquisition.

              A total of  $1,426,000  was  recorded as  interest  expense on our
     consolidated  income  statement  during the six months ended June 30, 2005,
     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);  a total of  $1,108,000  was paid to our joint  venture
     partner  (an  8.0%  return  payable   currently  in  accordance   with  the
     partnership  documents) during the six months ended June 30, 2005, with the
     debt balance increasing $318,000.

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

9.   Minority Interest
     -----------------

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

                                       19

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

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

              The following  table  summarizes the preferred  partnership  units
     outstanding at June 30, 2005 and December 31, 2004:

<TABLE>
<CAPTION>

                                                          At June 30, 2005              At December 31, 2004
                                                    ------------------------------   --------------------------
                     Earliest        Distribution       Units          Carrying         Units        Carrying
    Series      Redemption Date (a)      Rate        Outstanding        Amount       Outstanding      Amount
--------------  -------------------  ------------   --------------  --------------   ------------   -----------
                                                                      (Amounts in thousands)
<S>                                       <C>                  <C>     <C>                 <C>       <C>
Series N......   March 17, 2005           9.500%               -       $       -           1,600     $   40,000
                (b)
Series NN.....           March 17,        6.400%           8,000          200,000          8,000        200,000
                        2010
Series O......   March 29, 2005           9.125%               -                -          1,800         45,000
                (b)
Series Z......         October 12,        6.250%           1,000           25,000          1,000         25,000
                           2009
                                                    --------------  --------------   ------------   -----------
Total                                                      9,000       $ 225,000          12,400     $  310,000
                                                    ==============  ==============   ============   ===========

</TABLE>

(a)      After these dates, at our option,  we can call the units for redemption
         at the issuance amount plus any unpaid distributions. The units are not
         redeemable by the holder with the exception of the Series Z units.  The
         holders of the Series Z units have a one-time option,  exercisable five
         years  from  issuance,   to  require  us  to  redeem  their  units  for
         $25,000,000 cash plus unpaid and accrued distributions.

(b)      On March 17, 2005 we redeemed all outstanding  Series N Preferred Units
         ($40,000,000) and on March 29, 2005, we redeemed all outstanding Series
         O Preferred Units ($45,000,000),  at their carrying amount plus accrued
         distributions.

              Income  allocated  to the  preferred  minority  interests  totaled
     $3,590,000 and $9,839,000 for the three and six months ended June 30, 2005,
     respectively,  as  compared  to  $5,177,000  and  $21,794,000  for the same
     periods in 2004,  respectively,  comprised  of  distributions  paid and the
     allocation of income resulting from the application of EITF Topic D-42.

              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.

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

              The redemption of these Preferred Units resulted in an increase in
     income allocated to minority interests and a reduction to the Company's net
     income during 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. During the first
     quarter of 2004,  income  allocated to minority  interests was increased by
     $10,063,000  from  (i)  the  special  distribution  to the  holders  of the
     preferred  units  ($8,000,000)  and  (ii)  the  application  of  the  SEC's
     clarification of EITF Topic D-42 ($2,063,000).

                                       20

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

              Subject to certain  conditions,  the Series NN preferred units are
     convertible into shares of our 6.400% Series NN Cumulative  Preferred Stock
     and the Series Z preferred units are convertible  into shares of our 6.250%
     Series Z Cumulative Preferred Stock. The holders of the Series Z units have
     a one-time option,  exercisable five years from issuance,  to require us to
     redeem   their  units  for   $25,000,000   cash  plus  unpaid  and  accrued
     distributions.

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

              The following table sets forth the minority  interests at June 30,
     2005 and December 31, 2004 (amounts in thousands):


                                                  Minority Interest at
                                             -----------------------------
                                             June 30,         December 31,
               Description                     2005                2004
-----------------------------------------    -----------      ------------
Consolidated Development Joint Venture...    $   62,778       $    64,297
Convertible Partnership Units...........          6,119             6,160
Other consolidated partnerships..........        31,859            48,446
                                             -----------      ------------
Total other partnership interests........    $  100,756       $   118,903
                                             ===========      ============

              Income is allocated to the minority interests based upon their pro
     rata interest in the operating  results of the Consolidated  Entities.  The
     following table sets forth minority  interest in income with respect to the
     other  partnership  interests  for the three and six months  ended June 30,
     2005 and 2004 (amounts in thousands):

<TABLE>
<CAPTION>

                                                Minority Interest in Income for the     Minority Interest in Income for the
                                                   Three Months Ended June 30,               Six Months Ended June 30
                 Description                          2005                2004               2005                2004
--------------------------------------------    ---------------   -----------------     --------------      ----------------
<S>                                               <C>                 <C>                <C>                 <C>
Consolidated Development Joint Venture......      $     1,835         $    1,420         $     3,403         $     2,377
Convertible Partnership Units...............               83                 91                 173                 131
Other Consolidated Partnerships.............            2,960              3,069               5,697               6,075
                                                ---------------   -----------------     --------------      ----------------
Total other partnership interests...........      $     4,878         $    4,580         $     9,273         $     8,583
                                                ===============   =================     ==============      =================

</TABLE>

              Distributions paid to minority interests with respect to the other
     partnership  interests  for the three  months  ended June 30, 2005 and 2004
     were $5,182,000 and $4,401,000,  respectively  and for the six months ended
     June 30, 2005 and 2004 were $9,198,000 and $10,013,000, respectively.

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

              In November  1999,  we formed a  development  joint  venture  (the
     "Consolidated  Development  Joint  Venture")  with a joint venture  partner
     ("PSAC  Storage  Investors,  LLC")  whose  partners  include a third  party
     institutional  investor  and B. Wayne  Hughes  ("Mr.  Hughes"),  to develop
     approximately $100 million of self-storage  facilities and to purchase $100
     million of our Equity  Stock,  Series AAA (see Note 10). At June 30,  2005,
     the  Consolidated  Development  Joint  Venture was fully  committed  having
     completed  construction on 22  self-storage  facilities for a total cost of
     $108.6 million.

                                       21

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

              The Consolidated  Development  Joint Venture is funded solely with
     equity  capital  consisting  of 51%  from  us and  49%  from  PSAC  Storage
     Investors,  LLC. The accounts of the Consolidated Development Joint Venture
     are  included  in our  condensed  consolidated  financial  statements.  The
     accounts of PSAC Storage  Investors,  LLC are not included in our condensed
     consolidated  financial statements.  At June 30, 2005, we have no ownership
     interest in PSAC  Storage  Investors,  LLC.  Minority  interests  primarily
     represent the total contributions received from PSAC Storage Investors, LLC
     combined  with  the  accumulated  net  income  allocated  to  PSAC  Storage
     Investors,  LLC, net of cumulative  distributions.  The amounts included in
     our  financial  statements  with  respect to the  minority  interest in the
     Consolidated Development Joint Venture are denoted in the tables above.

              On August 5,  2005,  we  acquired  the third  party  institutional
     investor's interest in PSAC Storage Investors,  LLC for approximately $41.4
     million in cash. The  acquisition of this interest gives us the controlling
     partnership  interest in PSAC  Storage  Investors,  LLC and  increases  our
     effective  ownership  in the  Consolidated  Development  Joint  Venture  to
     approximately  67%. In addition,  the  acquisition  gives us the ability to
     acquire the remaining interest in PSAC Storage Investors,  LLC, held by Mr.
     Hughes, on November 17, 2005 for approximately  $64.1 million.  As a result
     of our controlling  position in PSAC Storage Investors,  LLC, we will begin
     to  consolidate  the accounts of this  partnership  commencing in the third
     quarter of 2005.

              PSAC Storage Investors, LLC provides Mr. Hughes with a fixed yield
     of  approximately  8.0% per  annum  on his  preferred  non-voting  interest
     (representing  an  investment  of  approximately  $64.1 million at June 30,
     2005).  In addition,  Mr. Hughes  receives 1% of the remaining cash flow of
     PSAC Storage  Investors,  LLC (estimated to be less than $50,000 per year).
     As we have assumed the third party institutional  investor's rights in this
     partnership,  we therefore have the option, which we intend to exercise, to
     acquire Mr. Hughes interest in PSAC Storage Investors,  LLC on November 17,
     2005 for an aggregate of $64.1 million in cash.

              In consolidation, the Equity Stock, Series AAA, owned by the joint
     venture and the related dividend income have been eliminated.

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

              As of June 30, 2005 and December 31, 2004, one of the Consolidated
     Entities had approximately  237,935 convertible operating partnership units
     ("Convertible  Units")  outstanding,  representing  a  limited  partnership
     interest in the  partnership.  The  Convertible  Units are convertible on a
     one-for-one basis (subject to certain limitations) into our common stock at
     the option of the unitholder.  Minority  interest in income with respect to
     the  Convertible  Units  reflects the  Convertible  Units' share of our net
     income,  with net income  allocated to minority  interests  with respect to
     weighted average outstanding Convertible Units on a per unit basis equal to
     diluted  earnings  per common  share.  During the six months ended June 30,
     2005 and the year ended December 31, 2004, no units were converted.

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

              At June 30,  2005,  the other  consolidated  partnerships  reflect
     common  equity  interests  that  we do not  own in 23  entities  having  an
     interest in an aggregate  of 89  self-storage  facilities.  At December 31,
     2004, the consolidated partnerships included 24 entities having an interest
     in an aggregate of 123 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

                                       22

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

     with the excess of cost over underlying book value ($17,038,000)  allocated
     to real estate.  One of the  acquisitions  included the remaining  minority
     interest we did not own in one of the Consolidated  Entities,  accordingly,
     the entity, owning 34 facilities, is now wholly owned.

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

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

     Cumulative Preferred Stock

              At June 30,  2005 and  December  31,  2004,  we had the  following
     series of Cumulative Preferred Stock outstanding:

<TABLE>
<CAPTION>

                                                             At June 30, 2005             At December 31, 2004
                           Earliest                    -----------------------------   ---------------------------
                          Redemption      Dividend        Shares        Carrying         Shares         Carrying
       Series              Date (a)          Rate        Outstanding      Amount        Outstanding       Amount
---------------------- --------------    ------------  --------------  -------------   -------------  ------------
                                                                       (Dollar amount in thousands)
<S>                                           <C>                       <C>               <C>          <C>
Series F                 5/2/05 (b)           9.750%               -    $         -       2,300,000    $    57,500
Series Q                 1/19/06              8.600%           6,900        172,500           6,900        172,500
Series R                 9/28/06              8.000%          20,400        510,000          20,400        510,000
Series S                 10/31/06             7.875%           5,750        143,750           5,750        143,750
Series T                 1/18/07              7.625%           6,086        152,150           6,086        152,150
Series U                 2/19/07              7.625%           6,000        150,000           6,000        150,000
Series V                 9/30/07              7.500%           6,900        172,500           6,900        172,500
Series W                 10/6/08              6.500%           5,300        132,500           5,300        132,500
Series X                 11/13/08             6.450%           4,800        120,000           4,800        120,000
Series Y                 1/2/09               6.850%       1,600,000         40,000       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               -              -
Series E                 4/27/10              6.750%           5,650        141,250               -              -
                                                       --------------  -------------   -------------  ------------
      Total Cumulative Preferred Stock                     1,691,236    $ 2,320,900       3,980,186    $ 2,102,150
                                                       ==============  =============   =============  ============

</TABLE>

(a)      Except under certain conditions relating to the Company's qualification
         as a REIT, the Cumulative  Preferred Stock outstanding at June 30, 2005
         are not redeemable prior to the dates indicated.  On or after the dates
         indicated,  each series of Cumulative  Senior  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.

(b)      The Series F Cumulative  Preferred  Stock was called for  redemption on
         March 31,  2005 and was  redeemed  in May 2005  along  with the  unpaid
         distributions from April 1, 2005 through the redemption date.


              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

                                       23

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

     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 June 30,  2005,  there were no dividends in arrears and the Debt
     Ratio was 2.3%.

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

              During  the first  quarter of 2005,  we issued our 6.18%  Series D
     Cumulative  Preferred Stock for net proceeds of $130,547,000.  On April 27,
     2005, we issued our 6.75%  Cumulative  Preferred  Stock,  Series E, for net
     proceeds of $136,601,000.

              During the first  quarter of 2005,  we redeemed our 10.0% Series E
     Cumulative   Preferred  Stock  for  $54,875,000  plus  accrued  and  unpaid
     dividends.   The  Series  E  Cumulative  Preferred  Stock  was  called  for
     redemption  in  December  2004;   accordingly,   the  redemption  value  of
     $54,875,000  was  classified  as a  liability  at  December  31,  2004.  In
     addition,  on May 2,  2005,  we  redeemed  our  9.75%  Series F  Cumulative
     Preferred Stock,  which was called for redemption  during the first quarter
     of 2005, for $57,500,000  plus accrued and unpaid  dividends and $17,000 of
     redemption costs.

     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 June 30, 2005, we had 8,744,193  depositary shares  outstanding
     (8,776,102 at December 31, 2004), each  representing  1/1,000 of a share of
     Equity Stock,  Series A ("Equity Stock A"). We received  31,909  depositary
     shares from a distribution from affiliated  entities at March 31, 2005 (see
     Note 5). 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 not less than
     the lesser of: (i) five times the per share dividend on our common stock or
     (ii) $2.45 per annum.  We have no  obligation to pay  distributions  on the
     depositary shares if no distributions are paid to common shareholders.

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

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

              In  November  1999,  we sold  $100,000,000  (4,289,544  shares) of
     Equity  Stock,  Series AAA  ("Equity  Stock AAA") to a newly  formed  joint
     venture (the  "Consolidated  Development  Joint  Venture").  We control the

                                       24

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

     joint venture and  consolidate  its accounts,  and  accordingly  the Equity
     Stock AAA is eliminated in  consolidation.  The Equity Stock AAA ranks on a
     parity with our common stock and junior to the Cumulative  Preferred  Stock
     with respect to general  preference  rights,  and has a liquidation  amount
     equal  to 120% of the  amount  distributed  to each  common  share.  Annual
     distributions per share shall be not less than the lesser of (i) five times
     the amount paid per common share or (ii) $2.1564.  We have no obligation to
     pay  distributions on these shares if no  distributions  are paid to common
     shareholders.

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

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

              During  the six  months  ended June 30,  2005,  we issued  169,088
     shares of common stock in  connection  with  stock-based  compensation.  In
     addition,  one of the Consolidated  Entities  acquired 84,000 shares of our
     common stock,  which were eliminated in  consolidation.  We also received a
     distribution  of  503,110  shares,  and  one of the  Consolidated  Entities
     received  132,775  shares,  of common stock  previously  held by affiliated
     entities. The 503,110 shares that we received were retired.

              At June 30, 2005,  entities  consolidated  with the Company  owned
     1,146,207 common shares of the Company. These shares continue to be legally
     issued and outstanding.  In the consolidation process, these shares and the
     related  balance sheet  amounts have been  eliminated.  In addition,  these
     shares are not  included  in the  computation  of weighted  average  shares
     outstanding.   The  following  chart  reconciles  our  legally  issued  and
     outstanding  shares of common stock and the reported  outstanding shares of
     common stock at June 30, 2005 and December 31, 2004:

Reconciliation of Common Shares Outstanding      At June 30,    At December 31,
-------------------------------------------          2005              2004
                                                 -------------- --------------
Legally issued and outstanding shares.........     129,121,860     129,455,882
Less - Shares owned by the Consolidated
    Entities that are eliminated in
    consolidation (a).........................      (1,146,207)       (929,432)
                                                 -------------- --------------
Reported issued and outstanding shares........     127,975,653     128,526,450
                                                 ============== ==============

              (a) The increase in shares owned by the  Consolidated  Entities is
     due to the Consolidated  Entities'  purchase of 84,000 shares of our common
     stock during the six months ended June 30, 2005 and one of the Consolidated
     Entities'  receipt of 132,775  shares of our common stock in a distribution
     from affiliates on March 31, 2005.

                                       25

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

     Dividends
     ---------

              The following table summarizes  dividends declared and paid during
     the six months ended June 30, 2005:

                                         Distributions Per
                                        Share or Depositary
                                               Share         Total Distributions
                                        -------------------  -------------------
Preferred Stock:
----------------
Series E..............................         $0.208          $     457,000
Series F..............................         $0.819              1,884,000
Series Q..............................         $1.075              7,418,000
Series R..............................         $1.000             20,400,000
Series S..............................         $0.984              5,660,000
Series T..............................         $0.953              5,800,000
Series U..............................         $0.953              5,720,000
Series V..............................         $0.937              6,468,000
Series W..............................         $0.813              4,306,000
Series X..............................         $0.806              3,870,000
Series Y..............................         $0.856              1,370,000
Series Z..............................         $0.781              3,516,000
Series A..............................         $0.766              3,522,000
Series B..............................         $0.891              3,874,000
Series C..............................         $0.825              3,796,000
Series D..............................         $0.515              2,781,000
Series E..............................         $0.304              1,718,000
                                                             -------------------
                                                                  82,560,000
Common Stock:
Equity Stock, Series A................         $1.225             10,731,000
Common ...............................         $0.900            115,665,000
                                                             -------------------
   Total dividends....................                         $ 208,956,000
                                                             ===================

              The  dividends  paid on the  common  stock  amounted  to $0.45 per
     common  share and $0.90 per common share for the three and six months ended
     June 30, 2005,  respectively.  The dividend  rate on the Equity Stock A was
     $0.6125 per depositary  share and $1.225 per depositary share for the three
     and six months ended June 30, 2005, respectively.

              As  previously  announced,  on August 4, 2005,  we  increased  the
     quarterly  dividend  rate on our common stock 11.1% from $0.45 per share to
     $0.50 per share.

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

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

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

              The   self-storage   segment   comprises  the  direct   ownership,
     development  and  operation  of  traditional  storage  facilities,  and the
     ownership of equity interests in entities that own self-storage properties.

                                       26

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

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

     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 U.S.  generally  accepted  accounting  principles  and our
     significant  accounting  policies as stated in Note 2, before  interest and
     other  income,  interest  expense,  corporate  general  and  administrative
     expense,  and minority interest in income.  The accounting  policies of the
     reportable  segments  are the same as those  described  in the  Summary  of
     Significant Accounting Policies.

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

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

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

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

              Our  condensed   consolidated   income   statement   provides  the
     information required in order to determine the revenues of each of our four
     segments.  The following table  reconciles the performance of each segment,
     in terms of segment income, to our consolidated net income.

                                       27

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                Three Months Ended                     Six Months Ended
                                                                     June 30,                              June 30,
                                                            -------------------------              ----------------------
                                                               2005           2004       Change       2005         2004     Change
                                                            -----------   -----------  ----------  ----------   ---------  ---------
                                                                                     (Amounts in thousands)
Reconciliation of Net Income by Segment:

Self-storage
<S>                                                         <C>            <C>         <C>         <C>          <C>         <C>
  Self-storage net operating income......................   $ 154,925      $ 138,468   $  16,457   $ 300,691    $268,826    $31,865
  Self-storage depreciation..............................     (46,666)       (43,033)     (3,633)    (92,883)    (87,757)    (5,126)
  Equity in earnings - self-storage property operations..       2,250          1,586         664       3,984       3,270        714
  Equity in earnings - depreciation (self-storage) ......        (476)          (384)        (92)       (908)       (778)      (130)
  Discontinued operations (Note 3) ......................          38             98         (60)         86         200       (114)
                                                            -----------   -----------  ----------  ----------   ---------  ---------
      Total self-storage segment net income..............     110,071         96,735      13,336     210,970     183,761     27,209
                                                            -----------   -----------  ----------  ----------   ---------  ---------
  Commercial properties
  Commercial properties net operating income.............       1,884          1,690         194       3,605       3,188        417
  Depreciation and amortization - commercial properties..        (580)          (550)        (30)     (1,159)     (1,110)       (49)
  Equity in earnings - commercial property operations....      16,914         16,601         313      34,128      33,794        334
  Equity in earnings - depreciation (commercial                (8,282)        (7,875)       (407)    (16,535)    (15,756)      (779)
     properties) ........................................
  Discontinued operations (Note 3) ......................           -             57         (57)          -          88        (88)
                                                            -----------   -----------  ----------  ----------   ---------  ---------
      Total commercial property segment net income........      9,936          9,923          13      20,039      20,204       (165)
                                                            -----------   -----------  ----------  ----------   ---------  ---------
  Containerized storage
  Containerized storage net operating income.............         714          2,351      (1,637)      1,809       4,383     (2,574)
  Containerized storage depreciation.....................      (1,015)        (1,100)         85      (2,177)     (2,226)        49
  Discontinued operations (Note 3) ......................           -           (623)        623       1,015        (805)     1,820
                                                            -----------   -----------  ----------  ----------   ---------  ---------
      Total containerized storage segment net income.....        (301)           628        (929)        647       1,352       (705)
                                                            -----------   -----------  ----------  ----------   ---------  ---------
  Tenant Reinsurance
   Tenant reinsurance net income.........................       4,685          2,343       2,342       7,624       5,171      2,453
                                                            -----------   -----------  ----------  ----------   ---------  ---------
  Other items not allocated to segments
  -------------------------------------
  General and administrative and other included in
     equity in earnings..................................      (5,555)        (5,523)        (32)    (10,140)    (12,068)     1,928
  Interest and other income..............................       5,767          2,583       3,184       9,322       3,940      5,382
  General and administrative.............................      (6,128)        (4,572)     (1,556)    (11,269)    (10,456)      (813)
  Interest expense.......................................      (1,794)             -      (1,794)     (3,457)       (100)    (3,357)
  Gain on sale of real estate............................          53              -          53          53           -         53
  Minority interest in income............................      (8,468)        (9,757)      1,289     (19,112)    (30,377)    11,265
                                                            -----------   -----------  ----------  ----------   ---------  ---------
      Total other items not allocated to segments             (16,125)       (17,269)      1,144     (34,603)    (49,061)    14,458
                                                            -----------   -----------  ----------  ----------   ---------  ---------
      Total consolidated net income......................   $ 108,266      $  92,360   $  15,906   $ 204,677    $161,427    $43,250
                                                            ===========   ===========  =========   ==========   =========  =========

</TABLE>

                                       28

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

12.   Stock-Based Compensation
      ------------------------

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

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

              As of January 1,  2002,  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").  We
     recognize compensation expense in our income statement using the Fair Value
     Method only with respect to stock options  issued after January 1, 2002. We
     disclose,  but do not record,  stock  option  expense with respect to stock
     options   granted   prior  to  January  1,  2002  (the  "APB  25  Method").
     Substantially all stock options are issued to employees.

              For the three  and six  months  ended  June 30,  2005 we  recorded
     $214,000 and $427,000,  respectively,  in stock option compensation expense
     related to options  granted  after January 1, 2002, as compared to $170,000
     and $289,000, respectively, for the same periods in 2004. The fair value of
     each  option  grant  is  estimated  on the  date  of the  grant  using  the
     Black-Scholes  option  pricing  model.  The  estimated  per option value of
     150,000  stock  options  granted  in the first six months of 2005 was based
     upon an estimated  life of 5 years,  a risk-free  rate of 3.4%, an expected
     dividend yield of 7%, and expected volatility of 0.23.

              If we had recorded  stock option  expense  applying the Fair Value
     Method to all awards,  we would have recognized an additional  $291,000 for
     the six months  ended June 30, 2004 in stock  option  compensation  expense
     (none for the same period in 2005).  Basic and diluted  earnings  per share
     would  have been $0.55 and $0.54,  respectively,  for the six months  ended
     June 30, 2004.

              A total of  150,000  stock  options  were  granted  during the six
     months  ended June 30,  2005,  162,822  shares were  exercised,  and 53,435
     shares were forfeited.  A total of 1,375,644 stock options were outstanding
     at June 30,  2005 at an  average  exercise  price of $35.54  (1,441,901  at
     December 31, 2004 at an average exercise price of $35.08).

                                       29

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

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

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

              From December 31, 2004 through June 30, 2005,  156,050  restricted
     stock units were granted, 44,556 restricted stock units were forfeited, and
     9,144 restricted stock units vested.  This vesting resulted in the issuance
     of  6,266  shares  of  the  Company's  common  stock.  In  addition,   cash
     compensation  was paid to employees in lieu of 2,878 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 June 30, 2005,  approximately  354,390  restricted  stock units
     were  outstanding  (252,040 at December 31, 2004).  A total of $938,000 and
     $1,956,000 in  restricted  stock expense was recorded for the three and six
     months  ended  June  30,  2005,   respectively  ($583,000  and  $1,117,000,
     respectively,  for the same periods in 2004) which includes amortization of
     the fair value of the grant reflected as an increase to paid-in capital, as
     well as accrued estimated burden to be incurred upon vesting.

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

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

              B.  Wayne  Hughes,  Chairman  of the Board,  and his  family  (the
     "Hughes Family") have ownership interests in, and operate, approximately 40
     self-storage  facilities in Canada under the name "Public Storage" pursuant
     to a  license  agreement  with the  Company.  We  currently  do not own any
     interests in these  facilities nor do we own any facilities in Canada.  The
     Hughes Family owns  approximately  36% of our common stock  outstanding  at
     June 30,  2005.  We have a right of first  refusal to acquire  the stock or
     assets of the  corporation  engaged in the  operation of  approximately  40
     self-storage  facilities in Canada if the Hughes Family or the  corporation
     agrees to sell them. However, we have no interest in the operations of this
     corporation,  have no right to  acquire  this  stock or assets  unless  the
     Hughes Family  decides to sell, and receive no benefit from the profits and
     increases in value of the Canadian self-storage facilities.

              Prior to December  31,  2003,  our  personnel  were engaged in the
     supervision and the operation of these Canadian self-storage facilities and
     provided  certain  administrative  services  for the Canadian  owners,  and
     certain other  services,  primarily  tax services,  with respect to certain
     other Hughes Family  interests.  The Hughes Family and the Canadian  owners
     reimbursed  us at cost for these  services  (U.S.  $542,499 and $638,000 in
     respect of the Canadian  operations  for 2003 and 2002,  respectively,  and
     U.S.  $151,063  and  $167,930  for  other  services  during  2003 and 2002,
     respectively). There have been conflicts of interest in allocating the time
     of our  personnel  between our  properties,  the Canadian  properties,  and
     certain other Hughes Family interests. The sharing of personnel and systems
     with the Canadian entities was  substantially  discontinued by December 31,
     2003. The Canadian  entities  claim that the Company owes them  CAD$653,424
     representing  the  amount  charged to them for the  development  of certain
     systems  that they no longer  utilize.  This amount has been accrued on the
     Company's financial statements for the year ended December 31, 2004.

              The Company,  through  subsidiaries,  continues to reinsure  risks
     relating to loss of goods stored by tenants in the self-storage  facilities
     in Canada.  The  Company  had  acquired  the tenant  insurance  business on
     December 31, 2001 through its  acquisition  of PSIC.  During the six months
     ended  June  30,  2005 and  2004,  PSIC  received  $526,000  and  $513,000,
     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.

                                       30

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

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

              In November  1999, we formed the  Consolidated  Development  Joint
     Venture  with  a  joint   venture   partner  whose   partners   include  an
     institutional  investor and Mr. Hughes.  This transaction is discussed more
     fully in Note 9.

              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,  chief  executive
     officer, and President,  and he is also chairman of the board of PSB. Until
     August 2003,  Mr. Havner was also the Chief  Executive  Officer of PSB. For
     2003 and 2004  services,  Mr. Havner was  compensated by PSB, as well as by
     the Company.

              In December  2003, we loaned  $100,000,000  to PSB. This loan bore
     interest at the rate of 1.45% per year.  This loan,  which was fully repaid
     on March 8, 2004, was included in Notes Receivable at December 31, 2003.

              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 $144,000  and  $289,000 for the three and six
     months  ended June 30,  2005,  respectively,  and  $144,000  and  $282,000,
     respectively,  for the same periods in 2004 in management fees with respect
     to PSB's property management services.

              Pursuant to a cost-sharing and administrative  services agreement,
     PSB reimburses us for certain administrative services. PSB's share of these
     costs totaled  approximately $85,000 and $170,000 for each of the three and
     six month periods ended June 30, 2005 and 2004, respectively.

              STOR-Re provided  limited property and liability  insurance to the
     Company,  PSB and our affiliates for losses  incurred during policy periods
     prior to April 1, 2004.

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

     Legal Matters

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

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

                                       31

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

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

              Based upon the uncertainty  inherent in any putative class action,
     the Company cannot presently  determine the potential  damages,  if any, or
     the ultimate  outcome of this  litigation.  On November 3, 2003,  the court
     granted the Company's  motion to strike the  plaintiff's  nationwide  class
     allegations  and to limit any putative class to California  residents only.
     In August  2005,  the Company  filed a motion to remove the case to federal
     court.  There can be no  assurance  that this motion  will be granted.  The
     Company is  vigorously  contesting  the claims  upon which this  lawsuit is
     based including class certification efforts.

     Gustavson,  et al v. Public Storage, Inc. (filed June 2003) (Superior Court
     ---------------------------------------------------------------------------
     - Los Angeles County); Potter, et al v. Hughes, et al (filed December 2004)
     ---------------------------------------------------------------------------
     (United States District Court - Central District of California)
     ---------------------------------------------------------------

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

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

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

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

                                       32

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

              In July 2003,  the Company filed an answer to the Hughes  family's
     complaint requesting a final judicial determination of the Company's rights
     of recovery  against  the Hughes  family in respect of PSIC.  In  September
     2003, by order of the Superior Court, Justice Malcolm Lucas, a former chief
     justice of the  California  Supreme  Court,  was appointed to try the case.
     This matter was tried in June 2005, and  post-trial  briefing was completed
     in July 2005.  The parties are  awaiting the court's  decision.  We believe
     that the  lawsuit by the Hughes  family  will  ultimately  resolve  matters
     relating to PSIC and will not have any  financially  adverse  effect on the
     Company (other than the costs and other expenses relating to the lawsuit).

              At the end of  December  2004,  the same  shareholder  referred to
     above and a second shareholder filed a shareholder's  derivative  complaint
     (Potter,  et al v.  Hughes,  et al)  naming  as  defendants  the  Company's
     directors (and two former  directors) and certain  officers of the Company.
     The  matters  alleged in the Potter  complaint  relate to PSIC,  the Hughes
     family's  Canadian   mini-warehouse   operations  and  the  Company's  1995
     reorganization.  In June 2005, the court granted the defendants'  motion to
     dismiss the Potter complaint with leave to amend  complaint.  In July 2005,
     the  plaintiffs  filed an amended  complaint,  and the  defendants  filed a
     motion  to  dismiss  the  amended  complaint.   The  Company  believes  the
     litigation  will not have any  financially  adverse  effect on the  Company
     (other than the costs and other expenses relating to the lawsuit).

     Brinkley et al v. Public Storage,  Inc. (filed April, 2005) (Superior Court
     ---------------------------------------------------------------------------
     of California - Los Angeles County)
     -----------------------------------
     Inhan et al v. Public  Storage,  Inc.  (filed  May,  2005)  (United  States
     ---------------------------------------------------------------------------
     District Court - Southern District of Florida)
     ----------------------------------------------

              The  Brinkley  plaintiffs  are  suing the  Company  on behalf of a
     purported  class of California  property  managers who claim that they were
     not compensated  for all the hours they worked.  The Brinkley suit is based
     upon  California  wage and hour laws.  The Inhan  plaintiffs  are suing the
     Company in Florida on behalf of a purported class of property  managers who
     claim they were not  compensated  for all hours  worked.  The Inhan suit is
     based upon the Federal  Fair Labor  Standards  Act.  The maximum  potential
     liability cannot be estimated, but would be increased if a class or classes
     are certified or, in  California,  if claims are permitted to be brought on
     behalf of others under the California  Unfair  Business  Practices Act. The
     Company is  vigorously  contesting  the claims in each case and  intends to
     resist any expansion  beyond the named plaintiffs on the grounds of lack of
     commonality  of claims.  The Company does not believe that these cases will
     have any  material  adverse  effect on the  results  of  operations  of the
     Company.

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

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

                                       33

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2005
                                   (Unaudited)

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

     DEVELOPMENT OF REAL ESTATE FACILITIES

              At June  30,  2005 we have 48  projects  (3,248,000  net  rentable
     square feet) in our development  pipeline,  including seven newly developed
     self-storage   facilities  and  expansions  to  41  existing   self-storage
     facilities,  with total estimated  development costs of $237.5 million,  of
     which $41.3  million has been spent through June 30, 2005.  Development  of
     these facilities is subject to various risks and contingencies.

     ACQUISITION OF REAL ESTATE FACILITIES

              As of August  5,  2005,  we were  under  contract  to  acquire  11
     additional  existing  self-storage  facilities  at  an  aggregate  cost  of
     approximately $119.4 million in cash. We anticipate that these acquisitions
     will be  entirely  funded by us.  Each of these  contracts  is  subject  to
     contingencies,  and there is no assurance that any of these facilities will
     be acquired.

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

              From  June  30,  2005  through  August  5,  2005,  we  acquired  3
     additional self-storage facilities (235,000 net rentable square feet) at an
     aggregate cost of approximately  $18.2 million in cash. These  acquisitions
     were entirely funded by us.

              In July 2005, we made an unsolicited  proposal for the combination
     of the Company and Shurgard  Storage  Centers,  Inc.  (NYSE:SHU)  through a
     merger in which each share of SHU common stock would be  exchanged  for .80
     shares of our common stock. SHU has rejected our proposal,  and there is no
     assurance that any agreement will be reached.  If completed on the terms of
     our  proposal,  the merger  would (1)  increase the number of shares of our
     common stock from  approximately  127,975,653 to 165,302,255,  (2) increase
     the liquidation  preference of our preferred stock from  $2,320,900,000  to
     $2,457,150,000 and (3) increase our debt from approximately $151,757,000 to
     an estimated $1,848,150,000 (assuming no prepayment). Our estimate of SHU's
     debt,  preferred and common shares outstanding is from SHU's March 31, 2005
     balance sheet included in its quarterly  report on form 10-Q for the period
     ended March 31, 2005.

              SHU has reported  that it is a real estate  investment  trust that
     operates approximately 630 self-storage facilities in the United States and
     Europe.

              On August 5,  2005,  we  acquired  the third  party  institutional
     investor's interest in PSAC Storage Investors,  LLC for approximately $41.4
     million in cash. The  acquisition of this interest gives us the controlling
     partnership  interest in PSAC  Storage  Investors,  LLC and  increases  our
     effective  ownership  in the  Consolidated  Development  Joint  Venture  to
     approximately  67%. In addition,  the  acquisition  gives us the ability to
     acquire the remaining interest in PSAC Storage Investors,  LLC, held by Mr.
     Hughes, on November 17, 2005 for approximately  $64.1 million.  As a result
     of our controlling  position in PSAC Storage Investors,  LLC, we will begin
     to  consolidate  the accounts of this  partnership  commencing in the third
     quarter of 2005.

                                       34

<PAGE>

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

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

         FORWARD LOOKING STATEMENTS:  When used within this document,  the words
"expects,"  "believes,"   "anticipates,"   "should,"  "estimates,"  and  similar
expressions  are intended to identify  "forward-looking  statements"  within the
meaning of that term in Section 27A of the  Securities  Exchange Act of 1933, as
amended,  and in Section 21E of the Securities Exchange Act of 1934, as amended.
Such forward-looking statements involve known and unknown risks,  uncertainties,
and other  factors,  which may cause our actual  results and  performance  to be
materially  different  from those  expressed  or implied in the forward  looking
statements.  Such factors are  described in Item 2A, "Risk  Factors" and include
changes in general  economic  conditions and in the markets in which we operate,
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 our ability to evaluate,
finance and integrate acquired and developed  properties into our 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  expense  and  reduce  our cash
available  for  distribution;  consumers'  failure to accept  the  containerized
storage  concept which would reduce our  profitability;  difficulties in raising
capital at reasonable  rates,  which would impede our ability to grow; delays in
the development  process,  which could adversely affect our  profitability;  and
economic  uncertainty  due to the  impact of war or  terrorism  could  adversely
affect our business  plan. We disclaim any  obligation  to publicly  release the
results of any  revisions to these  forward-looking  statements  reflecting  new
estimates, events or circumstances after the date of this report.

         CRITICAL ACCOUNTING POLICIES

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

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

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

         We therefore  don't  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,
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

                                       35

<PAGE>

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

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

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

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

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

                                       36

<PAGE>

RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2005:

         Net income for the three  months  ended June 30, 2005 was  $108,266,000
compared to $92,360,000 for the same period in 2004, representing an increase of
$15,906,000,  or 17.2%.  This increase is primarily  due to improved  operations
from our self-storage facilities,  improved tenant reinsurance operations, and a
decrease  in  income  allocated  to  preferred  minority  interests  due  to the
redemption of our preferred units in the first quarter of 2005. These items were
partially  offset by increases in general and  administrative,  depreciation and
interest expense.

         Net income allocable to our common  shareholders  (after allocating net
income to our preferred and equity  shareholders)  was  $60,763,000 or $0.47 per
common  share on a diluted  basis  for the  three  months  ended  June 30,  2005
compared to  $48,204,000  or $0.37 per common  share on a diluted  basis for the
same period in 2004,  representing  an increase  of $0.10 per common  share,  or
27.0%. The increases in net income allocable to common shareholders and earnings
per  common  diluted  share  are due  primarily  to the  impact  of the  factors
described  above.  Weighted  average diluted shares increased to 128,618,000 for
the three months ended June 30, 2005 from 128,548,000 for the three months ended
June 30, 2004, due primarily to the exercise of employee stock options.

         For the  three  months  ended  June 30,  2005 and  2004,  we  allocated
$42,147,000  and $38,780,000 of our net income,  respectively,  to our preferred
shareholders based on distributions paid.

FOR THE SIX MONTHS ENDED JUNE 30, 2005:

         Net  income for the six months  ended  June 30,  2005 was  $204,677,000
compared to $161,427,000  for the same period in 2004,  representing an increase
of $43,250,000,  or 26.8%. This increase is primarily due to improved operations
from our self-storage  facilities,  improved tenant reinsurance  operations,  an
increase in equity in earnings of real estate entities, and a decrease in income
allocated to preferred minority interests.  These items were partially offset by
increases in general and administrative, depreciation and interest expense.

         Minority  interest in income  declined  primarily due to a reduction in
redemption and restructuring  costs associated with preferred  partnership units
and a reduction in rates on preferred  issues.  We allocated  income to minority
interests  pursuant to Emerging Issues Task Force Topic D-42 ("EITF Topic D-42")
totaling  $874,000  and  $2,063,000  for the six months  ended June 30, 2005 and
2004, respectively. In addition, we allocated $8.0 million to preferred minority
interests  in the  quarter  ended  March  31,  2004  as a  result  of a  special
distribution associated with a restructuring.

         Net income allocable to our common  shareholders  (after allocating net
income to our preferred and equity  shareholders)  was $109,482,000 or $0.85 per
common share on a diluted  basis for the six months ended June 30, 2005 compared
to  $70,131,000 or $0.55 per common share on a diluted basis for the same period
in 2004,  representing  an increase  of $0.30 per common  share,  or 54.5%.  The
increases in net income allocable to common shareholders and earnings per common
diluted  share are due primarily to the impact of the factors  described  above.
Weighted  average  diluted shares  increased to  128,895,000  for the six months
ended June 30, 2005 from 128,375,000 for the six months ended June 30, 2004, due
primarily to the exercise of employee stock options.

         For the  six  months  ended  June  30,  2005  and  2004,  we  allocated
$82,560,000  and $76,822,000 of our net income,  respectively,  to our preferred
shareholders based on distributions paid. We also recorded allocations of income
to our preferred shareholders with respect to the application of Emerging Issues
Task Force ("EITF")  Topic D-42 totaling  $1,904,000 (or $0.01 per common share)
and  $3,723,000  (or $0.03 per common  share) for the six months  ended June 30,
2005 and 2004, respectively.

                                       37

<PAGE>

REAL ESTATE OPERATIONS

         SELF-STORAGE  OPERATIONS:  Our  self-storage  operations are by far the
largest component of our operations, representing approximately 93% of our total
revenues  generated  for the six  months  ended  June 30,  2005.  As a result of
acquisitions  and  development  of  self-storage  facilities,   year  over  year
comparisons as presented on the  consolidated  statements of income with respect
to our self-storage operations are not meaningful.

         To enhance year over year comparisons,  the following table summarizes,
and the  ensuing  discussion  describes,  the  operating  results  of (i)  1,269
self-storage  facilities  that are  reflected in the  financial  statements on a
stabilized basis since January 1, 2003 (the "Same Store" facilities,  previously
referred to as the "Consistent Group" facilities),  (ii) 59 facilities that were
acquired in 2004 and the first six months of 2005 ( the "Acquired  Facilities"),
(iii) 47  facilities  that  were  owned  prior to  January  1, 2003 but were not
stabilized due primarily to expansions in their net rentable square footage (the
"Expansion Facilities") and (iv) 66 newly-developed  facilities that were opened
after January 1, 2001 (the "Developed Facilities"):

                                       38

<PAGE>

<TABLE>
<CAPTION>

    Self - storage operations summary:             Three Months Ended June 30,              Six Months Ended June 30,
    ----------------------------------         ------------------------------------    ------------------------------------
                                                                         Percentage                               Percentage
                                                  2005         2004        Change         2005          2004        Change
                                               -----------   ---------- -----------     -----------   ----------  ----------
                                                                      (Dollar amounts in thousands)
 Revenues (a):
<S>                                            <C>           <C>            <C>        <C>           <C>             <C>
    Same Store Facilities (b)...........       $  203,231    $ 194,023      4.7%       $  401,237    $ 382,802       4.8%
    Acquired Facilities (c).............            8,831            -      -              16,327            -       -
    Expansion Facilities (d)............            9,391        8,686      8.1%           18,393       16,957       8.5%
    Developed Facilities (e)............           13,910       10,196     36.4%           26,855       19,018      41.2%
                                               -----------   ---------- ----------     -----------   ----------  ----------
      Total rental income...............          235,363      212,905     10.5%          462,812      418,777      10.5%
                                               -----------   ---------- ----------     -----------   ----------  ----------
 Cost of operations:
    Same Store Facilities...............           67,393       66,722      1.0%          137,146      134,726       1.8%
    Acquired Facilities.................            3,880            -      -               7,308            -       -
    Expansion Facilities................            3,412        3,080     10.8%            6,788        5,941      14.3%
    Developed Facilities................            5,753        4,635     24.1%           10,879        9,284      17.2%
                                               -----------   ---------- ----------     -----------   ----------  ----------
    Total cost of operations............           80,438       74,437      8.1%          162,121      149,951       8.1%
                                               -----------   ---------- ----------     -----------   ----------  ----------
 Net operating income (before depreciation):
    Same Store Facilities...............          135,838      127,301      6.7%          264,091      248,076       6.5%
    Acquired Facilities.................            4,951            -      -               9,019            -       -
    Expansion Facilities................            5,979        5,606      6.7%           11,605       11,016       5.3%
    Developed Facilities................            8,157        5,561     46.7%           15,976        9,734      64.1%
                                               -----------   ---------- ----------     -----------   ----------  ----------
    Total net operating income before
      depreciation......................          154,925      138,468     11.9%          300,691      268,826      11.9%
                                               -----------   ---------- ----------     -----------   ----------  ----------
  Depreciation and amortization.........          (46,666)     (43,033)     8.4%          (92,883)     (87,757)      5.8%
                                               -----------   ---------- ----------     -----------   ----------  ----------
    Net operating income................       $  108,259    $  95,435     13.4%       $  207,808    $ 181,069      14.8%
                                               ===========   ========== ==========     ===========   ==========  ==========
 Number of self-storage facilities (at end
 of period):.............................                                                   1,441        1,378       4.6%
 Net rentable square feet (at end of period
 - in thousands):........................                                                  88,058       83,457       5.5%

</TABLE>

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

(b)  The Same Store Facilities  include 1,269 facilities  containing  73,913,000
     net rentable square feet that have been owned prior to January 1, 2003, and
     operated at a mature, stabilized occupancy level since January 1, 2003.

(c)  The Acquired  Facilities  include 59  facilities  containing  4,046,000 net
     rentable  square feet that were acquired  after  January 1, 2003,  and were
     substantially  all  mature,  stabilized  facilities  at the  time of  their
     acquisition.

(d)  The Expansion  Facilities  include 47 facilities  containing  4,161,000 net
     rentable  square  feet of  self-storage  space and  586,000  square feet of
     containerized  storage space.  These facilities were owned since January 1,
     2003, however,  operating results are not comparable throughout the periods
     presented due primarily to expansions in their net rentable  square feet or
     their  conversion into  Combination  Facilities  (described  below).  Since
     January 1, 2003, we completed  construction on expansion  projects to these
     facilities with a total cost of $41.3 million.

(e)  The Developed  Facilities  include 66 facilities  containing  4,986,000 net
     rentable square feet of self-storage  space and 366,000 net rentable square
     feet of  industrial  space  initially  developed  for use in  containerized
     storage   activities  (see   "Containerized   Storage"  and   "Discontinued
     Operations").  These  facilities were developed and opened since January 1,
     2001 at a total cost of $516.7 million.

                                       39

<PAGE>

Self-Storage Operations - Same Store Facilities

         We  increased  the  number of  facilities  included  in the Same  Store
Facilities from 1,194 facilities at December 31, 2004 (which were referred to as
the  "Consistent  Group"  facilities  in our 2004 Form  10-Q's and Form 10-K) to
1,269  facilities.  The increase in the Same Store pool of  facilities is due to
the inclusion of 75  facilities  which were  previously  classified as Acquired,
Developed,  or Expansion  facilities.  These facilities are included in the Same
Store Facilities because they are all stabilized and owned since January 1, 2003
and will therefore provide meaningful comparative data for 2003, 2004, and 2005.

         As a result of the change in the Same Store  Facilities,  the  relative
weighting of markets has changed.  Accordingly,  comparisons  should not be made
between  information  presented  in  2004  reports  for  the  1,194  Same  Store
Facilities (previously referred to as the "Consistent Group" facilities) and the
current 1,269 Same Store  Facilities in order to identify trends in occupancies,
realized rents per square foot, or operating results.

         The Same Store Facilities contain approximately 73,913,000 net rentable
square feet, representing approximately 84% of the aggregate net rentable square
feet of our self-storage portfolio. Revenues and operating expenses with respect
to this group of properties are set forth in the above  Self-Storage  Operations
table under the caption, "Same Store Facilities." The following table sets forth
additional operating data with respect to the Same Store Facilities:


<TABLE>
<CAPTION>

     SAME STORE FACILITIES                                       Three Months Ended June 30,           Six Months Ended June 30,
     ---------------------                                -------------------------------------  -----------------------------------
                                                                                   Percentage                             Percentage
                                                              2005         2004       Change        2005         2004         Change
                                                          ------------ ------------ -----------  -----------  -----------  ---------
                                                                        (Amounts in thousands except weighted average amounts)
     Revenues:
<S>                                                        <C>          <C>              <C>     <C>          <C>               <C>
       Rental income, net of discounts................     $  194,292   $  185,905       4.5%    $  383,799   $  366,515        4.7%
       Late charges and administrative fees collected.          8,939        8,118      10.1%        17,438       16,287        7.1%
                                                          ------------ ------------ -----------  -----------  -----------  ---------
       Total revenues.................................        203,231      194,023       4.7%       401,237      382,802        4.8%

     Cost of operations:
       Property taxes.................................         18,134       17,539       3.4%        37,926       36,726        3.3%
       Payroll expense................................         20,988       20,437       2.7%        42,132       41,100        2.5%
       Advertising and promotion......................          6,783        5,519      22.9%        12,627       11,087       13.9%
       Utilities......................................          3,762        3,824      (1.6)%        8,262        7,897        4.6%
       Repairs and maintenance........................          6,341        6,744      (6.0)%       13,027       12,793        1.8%
       Telephone reservation center...................          2,039        2,895     (29.6)%        3,791        5,655     (33.0)%
       Property insurance.............................          2,241        2,385      (6.0)%        4,253        4,724     (10.0)%
       Other cost of managing facilities..............          7,105        7,379      (3.7)%       15,128       14,744        2.6%
                                                          ------------ ------------ -----------  -----------  -----------  ---------
       Total cost of operations.......................         67,393       66,722       1.0%       137,146      134,726        1.8%
                                                          ------------ ------------ -----------  -----------  -----------  ---------
     Net operating income before depreciation.........        135,838      127,301       6.7%       264,091      248,076        6.5%
     Depreciation.....................................        (38,532)     (37,533)      2.7%       (77,155)     (76,897)       0.3%
                                                          ------------ ------------ -----------  -----------  -----------  ---------
     Net operating income.............................     $   97,306   $   89,768       8.4%    $  186,936   $  171,179        9.2%
                                                          ============ ============ ===========  ===========  ===========  =========
     Gross margin (before depreciation)...............         66.8%        65.6%         1.8%       65.8%        64.8%         1.5%

     Weighted average for the period:
        Square foot occupancy (a).....................         92.1%        91.5%         0.7%       91.0%        90.6%         0.4%
        Realized annual rent per occupied square foot
          (b).........................................     $   11.42    $   11.00        3.8%    $   11.41    $   10.95         4.2%
        REVPAF (c)....................................     $   10.51    $   10.06        4.5%    $   10.39    $    9.92         4.7%

      Weighted average at June 30:
        Square foot occupancy.........................                                               92.4%        91.5%         1.0%
        In place annual rent per occupied square foot                                            $   12.62    $   12.22         3.3%
           (d)........................................
     Total net rentable square feet ..................                                              73,913       73,913         0.0%

</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
     annualized  rental  income,  net  of  discounts,  by the  weighted  average
     occupied  square  footage  for the period.  Realized  rents per square foot
     takes into consideration promotional discounts, bad debt costs, credit card
     fees and other  costs  which  reduce  rental  income  from the  contractual
     amounts due.  Realized rents per occupied  square foot exclude late charges
     and administrative  fees collected,  and it is presented because we believe
     realized  rents per  occupied  square foot is an  important  measure of our
     operations.

                                       40

<PAGE>

(c)  Annualized  rental income per available  square foot ("REVPAF")  represents
     annualized rental income, net of discounts,  divided by total available net
     rentable square feet. REVPAF excludes late charges and administrative  fees
     collected.  REVPAF  is  presented  because  we  believe  it  is  useful  in
     evaluating our operations.

(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.

         During the second  quarter of 2005,  net operating  income for the Same
Store  Facilities  increased 8.4% as compared to the same period in 2004, due to
the following:

o        REVPAF increased 4.5% from $10.06 per square foot in the second quarter
         of 2004 to $10.51 in the same  period  in 2005.  This was  attributable
         primarily  to a 3.8%  increase  in realized  annual  rent per  occupied
         square foot and a 0.7% increase in average occupancy.

o        The impact of the increase in revenues was  partially  offset by a 1.0%
         increase  in cost of  operations.  This  increase is  primarily  due to
         increases in advertising and promotion expense, offset by reduced costs
         from telephone  reservation center,  property insurance and repairs and
         maintenance.

o        Depreciation  increased  2.7% from the  second  quarter  of 2004 to the
         second  quarter of 2005,  due  primarily to increased  depreciation  on
         capital expenditures.

         During the six months ended June 30, 2005, net operating income for the
Same Store Facilities increased 9.2% as compared to the same period in 2004, due
to the following:

o        REVPAF  increased  4.7% from  $9.92 per  square  foot in the six months
         ended  June 30,  2004 to  $10.39 in the same  period in 2005.  This was
         attributable  primarily to a 4.2% increase in realized  annual rent per
         occupied square foot and a 0.4% increase in average occupancy.

o        The impact of the increase in revenues was  partially  offset by a 1.8%
         increase in operating expenses.  This increase in cost of operations is
         primarily due to increases in most  categories  of operating  expenses,
         with the  exception of the  telephone  reservation  center and property
         insurance, which declined.

o        Depreciation increased 0.3% in the six month period ended June 30, 2005
         as compared  to the same period in 2004,  due  primarily  to  increased
         depreciation on capital expenditures.

ANALYSIS OF REVENUE TRENDS
--------------------------

         We experience  minor seasonal  fluctuations in the occupancy  levels of
self-storage  facilities with occupancies  generally higher in the summer months
than in the winter  months.  We believe that these  fluctuations  result in part
from  increased  moving  activity  during the summer.  We also  believe that our
occupancy  levels  with  respect to the Same Store  facilities  have become more
stabilized and therefore further  year-over-year  gains in occupancy levels will
be difficult to generate.

         Our growth in rental income will depend on various  factors,  including
our ability to maintain high occupancy levels,  increase rental rates charged to
both new and  existing  customers,  and to  reduce  the  amount  of  promotional
discounts  given to new tenants.  We believe that future growth in rental income
will  come  primarily  from  increases  in  average  rental  rates  and  reduced
promotional discounts rather than year-over-year increases in occupancy levels.

         Going into the third  quarter of 2005,  we believe  that our same store
facilities are well positioned for further growth, as occupancy levels were 1.0%
higher at June 30, 2005 as compared  to the same  period in 2004,  and  in-place
annual rental rates were 3.3% higher.

                                       41

<PAGE>

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

ANALYSIS OF EXPENSE TRENDS
--------------------------

         Total cost of operations for the Same Store  facilities  increased 1.0%
in the second  quarter of 2005 as compared to the same period in 2004,  and only
1.8% for the six months  ended June 30,  2005 as  compared to the same period in
2004. We expect overall  operating  expenses for the remainder of the year ended
December  31,  2005 to  increase  at a rate  higher  than the  level  of  growth
experienced in the first six months of 2005.

         We expect our repairs and maintenance expense for the remainder of 2005
and during 2006 to increase from the levels  experienced in the first six months
of 2005.

         The  percentage  decrease in  telephone  reservation  center costs will
decline on a quarter-over-quarter  basis as the year progresses.  Initiatives to
reduce  costs were begun in the third  quarter of 2004.  Accordingly,  year-over
year comparisons will become less favorable.

         Property payroll also came in lower than anticipated,  in part due to a
reduction in workers  compensation  costs. We have bolstered our safety programs
over the past two years and improved our workers  compensation claims management
skills,  and these  efforts are  starting to have a positive  impact on reducing
workers compensation claims. While we are hopeful that current trends, which are
positive, will continue, we are not certain as to their ultimate outcome or when
they will be fully reflected in our operating results.

         Property payroll also benefited from reduced property-level labor hours
through our development of a transaction-based staffing model which is used as a
basis for all of our labor scheduling.

         The  impact  of  reduced   property-level   hours,  and  lower  workers
compensation  costs,  was  offset  partially  by the  impact of  higher  average
compensation rates.

         Our  advertising  costs will remain  volatile  during the  remainder of
2005,  and were up about  13.9%  during  the six months  ended June 30,  2005 as
compared  to the same  period in 2004,  and are  expected  to continue to remain
higher in the  remainder  of 2005 than it was in the same period in 2004.  Media
advertising  was not used in August 2004 or November  2004. We expect to utilize
media advertising in each month for the remainder of 2005,  although the markets
and frequency will vary.

                                       42

<PAGE>

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

<TABLE>
<CAPTION>

                                                 Three Months Ended
                      ----------------------------------------------------------------------
                        March 31,          June 30,         September 30,       December 31,         Full Year
                      ------------      -------------     ---------------      -------------       ------------
                                      (Amounts in thousands, except for per square foot amounts)
Total rental income:
<C>                   <C>                <C>                 <C>                 <C>               <C>
2005............      $   198,006        $   203,231
2004............      $   188,779        $   194,023         $  198,864          $  198,080        $   779,746

Total cost of operations:
2005............      $    69,753        $    67,393
2004............      $    68,004        $    66,722         $   66,196          $   67,733        $   268,655

Media advertising expense:
2005............      $     3,525        $     2,942
2004............      $     3,293        $     1,959         $    1,989          $    3,061        $    10,302

REVPAF:
2005............      $    10.26         $    10.51
2004............      $     9.77         $    10.06          $    10.32          $    10.27         $    10.11

Weighted  average  realized  annual  rent  per  occupied
square foot for the period:
2005............      $    11.41         $    11.42
2004............      $    10.90         $    11.00          $    11.23          $    11.31         $    11.10

Weighted average occupancy levels for the period:
2005............          89.9%              92.1%
2004............          89.7%              91.5%                91.9%               90.8%              91.0%

</TABLE>

                                       43

<PAGE>

ANALYSIS OF REGIONAL TRENDS

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

SAME STORE FACILITIES' OPERATING TRENDS BY REGION:

<TABLE>
<CAPTION>

                                                    Three Months Ended June 30,              Six months ended June 30,
                                               ------------------------------------    --------------------------------------
                                                                         Percentage                                Percentage
                                                  2005          2004       Change        2005          2004          Change
                                               ------------- ----------- ----------    -----------  ------------   ----------
                                                                       (Dollar amounts in thousands)
Rental income:
<S>                                             <C>          <C>             <C>       <C>          <C>               <C>
   Southern California  (126 facilities)..      $   33,297   $   31,038      7.3%      $   65,792   $   61,367        7.2%
   Northern California  (131 facilities)..          25,328       24,409      3.8%          49,833       48,255        3.3%
   Texas  (151 facilities)................          18,172       17,960      1.2%          35,949       35,478        1.3%
   Florida  (126 facilities)..............          19,682       17,700     11.2%          38,792       34,984       10.9%
   Illinois  (88 facilities)..............          14,647       14,249      2.8%          29,164       28,204        3.4%
   Georgia  (58 facilities)...............           6,713        6,321      6.2%          13,406       12,539        6.9%
   All other states  (589 facilities).....          85,392       82,346      3.7%         168,301      161,975        3.9%
                                               ------------- ----------- ----------    -----------  ------------   ----------
Total rental income.......................         203,231      194,023      4.7%         401,237      382,802        4.8%
                                               ------------- ----------- ----------    -----------  ------------   ----------
Cost of operations:
   Southern California....................           7,233        7,267     (0.5)%         14,835       14,660        1.2%
   Northern California....................           6,469        6,373      1.5%          13,009       12,717        2.3%
   Texas..................................           7,992        7,844      1.9%          16,246       16,063        1.1%
   Florida................................           7,084        7,265     (2.5)%         13,792       14,059       (1.9)%
   Illinois...............................           6,132        6,479     (5.4)%         12,907       13,430       (3.9)%
   Georgia................................           2,350        2,356     (0.3)%          4,756        4,570        4.1%
   All other states.......................          30,133       29,138      3.4%          61,601       59,227        4.0%
                                               ------------- ----------- ----------    -----------  ------------   ----------
Total cost of operations..................          67,393       66,722      1.0%         137,146      134,726        1.8%
                                               ------------- ----------- ----------    -----------  ------------   ----------
Net operating income (before depreciation):
   Southern California....................          26,064       23,771      9.6%          50,957       46,707        9.1%
   Northern California....................          18,859       18,036      4.6%          36,824       35,538        3.6%
   Texas..................................          10,180       10,116      0.6%          19,703       19,415        1.5%
   Florida................................          12,598       10,435     20.7%          25,000       20,925       19.5%
   Illinois...............................           8,515        7,770      9.6%          16,257       14,774       10.0%
   Georgia................................           4,363        3,965     10.0%           8,650        7,969        8.5%
   All other states.......................          55,259       53,208      3.9%         106,700      102,748        3.8%
                                               ------------- ----------- ----------    -----------  ------------   ----------
Total net operating income................      $  135,838   $  127,301      6.7%      $  264,091   $  248,076        6.5%
                                               ------------- ----------- ----------    -----------  ------------   ----------
Weighted average square foot occupancy:
   Southern California....................          92.7%        92.1%         0.7%        92.6%        91.1%         1.6%
   Northern California....................          92.0%        89.8%         2.4%        90.7%        89.2%         1.7%
   Texas..................................          90.6%        90.5%         0.1%        89.7%        90.0%        (0.3)%
   Florida................................          93.4%        92.2%         1.3%        92.7%        91.4%         1.4%
   Illinois...............................          91.0%        90.9%         0.1%        89.4%        89.5%        (0.1)%
   Georgia................................          92.9%        91.0%         2.1%        92.0%        90.5%         1.7%
   All other states.......................          92.1%        92.1%         0.0%        90.8%        91.0%        (0.2)%
                                               ------------- ----------- ----------    -----------  ------------   ----------
 Total weighted average occupancy.........          92.1%        91.5%         0.7%        91.0%        90.6%         0.4%
                                               ------------- ----------- ----------    -----------  ------------   ----------

</TABLE>

                                       44

<PAGE>

SAME STORE FACILITIES' OPERATING TRENDS BY REGION: (CONTINUED)

<TABLE>
<CAPTION>

                                                   Three months ended June 30,          Six months ended June 30,
                                                 ---------------------------------     --------------------------------
                                                                        Percentage                           Percentage
                                                   2005         2004       Change       2005        2004        Change
                                                 -----------  --------- ----------     ---------   --------  ----------
REVPAF:
<S>                                                  <C>         <C>       <C>           <C>         <C>         <C>
   Southern California...................            $16.28      $15.20    7.1%          $16.08      $15.02      7.1%
   Northern California...................             13.72       13.26    3.4%           13.50       13.11      3.0%
   Texas.................................              7.38        7.31    1.0%            7.31        7.21      1.4%
   Florida...............................             10.47        9.39   11.5%           10.31        9.26     11.3%
   Illinois..............................             10.42       10.20    2.2%           10.39       10.10      2.9%
   Georgia...............................              7.60        7.16    6.2%            7.59        7.09      7.1%
   All other states......................              9.67        9.35    3.4%            9.54        9.19      3.8%
                                                 -----------  --------- ----------     ---------   --------  ----------
Total REVPAF:............................            $10.51      $10.06    4.5%          $10.39       $9.92      4.7%
                                                 -----------  --------- ----------     ---------   --------  ----------
Realized annual rent per occupied square foot:
   Southern California...................            $17.57      $16.51    6.4%          $17.37      $16.49      5.3%
   Northern California...................             14.91       14.77    1.0%           14.89       14.70      1.3%
   Texas.................................              8.15        8.08    0.9%            8.15        8.02      1.6%
   Florida...............................             11.21       10.19   10.0%           11.13       10.13      9.9%
   Illinois..............................             11.45       11.22    2.1%           11.63       11.28      3.1%
   Georgia...............................              8.18        7.86    4.0%            8.24        7.83      5.2%
   All other states......................             10.50       10.16    3.4%           10.50       10.10      4.0%
                                                 -----------  --------- ----------     ---------   --------  ----------
Total realized annual rent per occupied
  square foot:...........................            $11.42      $11.00    3.8%          $11.41      $10.95      4.2%
                                                 -----------  --------- ----------     ---------   --------  ----------

</TABLE>

                                       45

<PAGE>

Self-Storage Operations - Acquired Facilities

         The  "Acquired  Facilities,"  at June 30,  2005,  are  comprised  of 59
self-storage  facilities containing 4,046,000 net rentable square feet that were
acquired  in 2004  and the  first  six  months  of  2005.  The  following  table
summarizes operating data with respect to these facilities:

ACQUIRED FACILITIES
                                                      Three Months    Six Months
                                                          Ended         Ended
                                                     June 30, 2005 June 30, 2005
                                                     ------------- -------------

  Rental income:
      Self-storage facilities acquired in 2005....   $      1,377   $     1,877
      Self-storage facilities acquired in 2004....          7,454        14,450
                                                     ------------- -------------
        Total rental income.......................          8,831        16,327
                                                     ------------- -------------
   Cost of operations:
      Self-storage facilities acquired in 2005 ...            674           951
      Self-storage facilities acquired in 2004 ...          3,206         6,357
                                                     ------------- -------------
        Total cost of operations..................          3,880         7,308
                                                     ------------- -------------
   Net operating income (loss) before depreciation:
   -----------------------------------------------
      Self-storage facilities acquired in 2005 ...            703           926
      Self-storage facilities acquired in 2004 ...          4,248         8,093
                                                     ------------- -------------
        Net operating income before depreciation..          4,951         9,019
    Depreciation..................................         (2,191)       (4,063)
                                                     ------------- -------------
        Net operating income......................   $      2,760   $     4,956
                                                     ============= =============
   Weighted average square foot occupancy during the
   period:
      Self-storage facilities acquired in 2005....           82.8%        80.7%
      Self-storage facilities acquired in 2004 ...           87.6%        85.3%
                                                     ------------- -------------
                                                             86.7%        84.6%
                                                     ============= =============

   Number of self-storage facilities (at end of                              59
   period)........................................
   Net rentable square feet (in thousands, at end of
      period).....................................                        4,046
   Cumulative acquisition cost (at end of period).                   $  341,943

         During  2004,  we  acquired  45  facilities  at an  aggregate  cost  of
approximately  $259,487,000,  comprised  of  three  facilities  acquired  for an
aggregate  of  $17.8  million,   as  well  as  the  following  larger  portfolio
acquisitions:

o        Twenty six  facilities  acquired in October 2004 from a third party for
         an aggregate cost of  approximately  $102.4 million.  This  acquisition
         increased our presence in the  Minneapolis and Milwaukee  markets,  and
         will allow us to cost-effectively  introduce media advertising in these
         markets,  improve our yellow page ad placement,  and drive  operational
         efficiency.   In  addition,   the  average  rental  rates  and  average
         occupancies of these properties, prior to acquisition,  were lower than
         comparable properties that we currently own in these markets.

o        Six  facilities  acquired in October  2004 in Dallas from a third party
         for an aggregate of approximately  $19.8 million.  We believe that this
         acquisition improved our presence in submarkets of Dallas where we were
         underrepresented.

o        Ten  facilities  acquired in November  2004 in the Miami  market for an
         aggregate  of $119.5  million.  We believe  that these  properties  are
         well-built and located in highly desirable  submarkets in Miami. All of
         these facilities were built between 1997 and 2003.

                                       46

<PAGE>

         In January 2005, we acquired a total of five facilities in New York and
one facility in Illinois for an aggregate of  $23,751,000  in cash (an aggregate
of 367,000 net rentable square feet).  During the quarter ended June 30, 2005 we
acquired a total of four  facilities in New Jersey,  two  facilities in Illinois
and two facilities in Georgia for an aggregate of  $58,705,000  (an aggregate of
570,000 net rentable square feet).

         Revenues and expenses  for the 2005  acquisitions,  in the table above,
represent  the results of these  acquisitions  from the  respective  acquisition
dates through June 30, 2005.

         In addition to the 14 facilities  acquired in the six months ended June
30, 2005,  we acquired  three  additional  facilities  for  approximately  $18.2
million with 235,000 net rentable square feet between July 1, 2005 and August 5,
2005.  Also, at August 5, 2005,  we are under  contract to acquire 11 additional
facilities  (total  approximate  net  rentable  square  feet of  886,000)  at an
aggregate cost of  approximately  $119.4  million.  These  acquisitions  will be
funded  entirely  by us.  Each of these  contracts  is  subject  to  significant
contingencies,  and there is no assurance that any of these  facilities  will be
acquired.

Self-Storage Operations - Expansion Facilities

         As  a  result   primarily  of  expansions   to  existing   self-storage
facilities, the net rentable space at certain of our self-storage facilities has
changed.  Accordingly,  the operating  results are not comparable on a year over
year basis.  The  operating  results for these  facilities  are presented in the
Self-Storage  Operations table above under the caption,  "Expansion Facilities."
Depreciation expense with respect to these facilities amounted to $2,256,000 and
$4,372,000  for the three and six months ended June 30, 2005,  respectively,  as
compared to $2,085,000 and $4,142,000 for the same periods in 2004.

         These 47 facilities contain approximately 4,161,000 net rentable square
feet of  self-storage  space  at June  30,  2005,  and  586,000  square  feet of
industrial  space  developed  for   containerized   storage   activities  -  see
"Containerized   Storage"   and   "Discontinued   Operations".   The   aggregate
construction  costs to complete these  expansions  totaled  approximately  $41.3
million since January 1, 2003.

         We expect that the Expansion Facilities will continue to provide growth
to our earnings  into 2005 as we continue to fill the newly added vacant  space.
The weighted average occupancy level of these facilities was 83.5% and 84.2% for
the six months  ended June 30,  2005 and 2004,  respectively.  The  decrease  in
average occupancy levels is partially  attributable to the increase in available
square footage resulting from expansion of these facilities.

         We have 41 projects to repackage  and expand our  existing  facilities,
with an aggregate  estimated cost of $156.3 million in our development  pipeline
at June 30, 2005, which will increase our self-storage  space by an aggregate of
2,693,000 net rentable square feet.  These  activities 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 and
structural appeal, provide an important means to improve the Company's earnings.
There  can be no  assurance  about  the  future  level  of  such  expansion  and
enhancement opportunities, and these projects are subject to contingencies.

Self-Storage Operations - Developed Facilities

         We have 49 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, 2003.  These newly  developed
facilities   have  an  aggregate  of  4,986,000  net  rentable  square  feet  of
self-storage  space,  and 366,000 net rentable  square feet of industrial  space
developed   originally  for  our  containerized   storage  business.   Aggregate
development  cost for these 66 facilities  was  approximately  $516.7 million at
June  30,  2005.  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.

                                       47

<PAGE>

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

DEVELOPED FACILITIES

<TABLE>
<CAPTION>

                                                         Three Months Ended June 30,                Six Months Ended June 30,
                                                    ---------------------------------------   --------------------------------------
                                                       2005          2004         Change         2005          2004        Change
                                                    -----------   ------------  -----------   -----------   -----------   ---------
                                                                             (Dollar amounts in thousands)
Rental income:
<S>                                                 <C>           <C>           <C>           <C>           <C>           <C>
   Self-storage facilities opened in 2005......     $       48    $        -    $       48    $       50    $        -    $      50
   Self-storage facilities opened in 2004......          1,247           138         1,109         2,254           147        2,107
   Self-storage facilities opened in 2003......          3,158         1,987         1,171         6,055         3,386        2,669
   Self-storage facilities opened in 2002 and            5,372         4,646           726        10,524         8,883        1,641
   2001........................................
   Combination facilities......................          4,085         3,425           660         7,972         6,602        1,370
                                                    -----------   ------------  -----------   -----------   -----------   ---------
     Total rental income.......................         13,910        10,196         3,714        26,855        19,018        7,837
                                                    -----------   ------------  -----------   -----------   -----------   ---------
Cost of operations:
   Self-storage facilities opened in 2005......             94             -            94           117             -          117
   Self-storage facilities opened in 2004......            659           310           349         1,178           403          775
   Self-storage facilities opened in 2003......          1,110         1,103             7         2,099         2,130          (31)
   Self-storage facilities opened in 2002 and            1,992         1,933            59         3,980         4,037          (57)
   2001........................................
   Combination facilities......................          1,898         1,289           609         3,505         2,714          791
                                                    -----------   ------------  -----------   -----------   -----------   ---------
     Total cost of operations..................          5,753         4,635         1,118        10,879         9,284        1,595
                                                    -----------   ------------  -----------   -----------   -----------   ---------
Net operating income (loss) before depreciation:
   Self-storage facilities opened in 2005......            (46)            -           (46)          (67)            -          (67)
   Self-storage facilities opened in 2004......            588          (172)          760         1,076          (256)       1,332
   Self-storage facilities opened in 2003......          2,048           884         1,164         3,956         1,256        2,700
   Self-storage facilities opened in 2002 and            3,380         2,713           667         6,544         4,846        1,698
   2001........................................
   Combination facilities......................          2,187         2,136            51         4,467         3,888          579
                                                    -----------   ------------  -----------   -----------   -----------   ---------
   Net operating income before depreciation....          8,157         5,561         2,596        15,976         9,734        6,242
 Depreciation..................................         (3,687)       (3,415)         (272)       (7,293)       (6,718)        (575)
                                                    -----------   ------------  -----------   -----------   -----------   ---------
   Net operating income........................     $    4,470    $    2,146   $     2,324    $    8,683    $    3,016   $    5,667
                                                    ===========   ============  ===========   ===========   ===========   ==========
Weighted average square foot occupancy during the period:
   Self-storage facilities opened in 2005......          31.2%          -             -            25.5%          -            -
   Self-storage facilities opened in 2004......          73.4%         27.4%        167.9%         66.2%         19.6%       237.8%
   Self-storage facilities opened in 2003......          90.4%         68.0%         32.9%         86.8%         59.9%        44.9%
   Self-storage facilities opened in 2002 and            93.4%         92.6%          0.9%         92.3%         90.2%         2.3%
   2001........................................
   Combination facilities......................          77.4%         80.5%         (3.9)%        75.4%         79.6%        (5.3)%
                                                    -----------   ------------  -----------   -----------   -----------   ---------
                                                         84.4%         79.7%          5.9%         82.2%         76.8%         7.0%
                                                    ===========   ============  ===========   ===========   ===========   ==========

</TABLE>

                                       48

<PAGE>

<TABLE>
<CAPTION>

DEVELOPED FACILITIES (Continued)
                                                                                      Six Months Ended June 30,
                                                                                   ---------------------------------
                                                                                     2005        2004       Change
                                                                                   ---------    --------    --------
                                                                                    (Dollar amounts in thousands)
Square footage (at end of period):
<S>                                                                                    <C>           <C>        <C>
   Self-storage facilities opened in 2005.....                                         125           -          125
   Self-storage facilities opened in 2004.....                                         507         382          125
   Self-storage facilities opened in 2003.....                                         994         994            -
   Self-storage facilities opened in 2002 and
   2001 (b)...................................                                       1,739       1,706           33
   Combination facilities - industrial space                                           366         607         (241)
   (a)........................................
   Combination facilities - self-storage                                             1,621       1,273          348
   space (a)..................................
                                                                                   ---------    --------    --------
                                                                                     5,352       4,962          390
                                                                                   =========    ========    ========
Number of facilities (at end of period):
   Self-storage facilities opened in 2005.....                                           2           -            2
   Self-storage facilities opened in 2004.....                                           7           5            2
   Self-storage facilities opened in 2003.....                                          14          14            -
   Self-storage facilities opened in 2002 and
   2001.......................................                                          26          26            -
   Combination Facilities  ...................                                          17          17            -
                                                                                   ---------    --------    --------
                                                                                        66          62            4
                                                                                   =========    ========    ========
Cumulative development cost (at end of
period):
   Self-storage facilities opened in 2005.....                                     $ 11,423    $      -    $ 11,423
   Self-storage facilities opened in 2004.....                                       61,558      46,320      15,238
   Self-storage facilities opened in 2003.....                                      107,452     107,452           -
   Self-storage facilities opened in 2002 and
   2001 (b)...................................                                      163,926     160,792       3,134
   Combination Facilities (a) ................                                      172,312     163,825       8,487
                                                                                   ---------    --------    --------
                                                                                   $516,671    $478,389    $ 38,282
                                                                                   ---------    --------    --------

</TABLE>

(a)      The  industrial   space  was  originally   developed  for  use  by  our
         containerized  storage  business.  During 2003, 2004, and the first six
         months of 2005, we have  converted  industrial  space no longer used by
         the  discontinued   containerized  storage  business  into  traditional
         self-storage space, at an aggregate cost of $18,135,000.

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

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

         We believe that our newly developed facilities are affected by the same
operating  trends  noted with  respect to our Same  Store  facilities.  However,
because  such   facilities  have  to  attract  more  new  tenants  during  their
stabilization period, they tend to offer lower rates, and move-in discounts have
a more  pronounced  effect upon realized rents because these  facilities tend to
have a higher  proportion of newer  tenants.  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 tenants at
higher rates.

                                       49

<PAGE>

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

         The  annualized  yield on cost for these  facilities for the six months
ended June 30, 2005,  based upon net operating income before  depreciation,  was
approximately  6.2%,  which is lower than our ultimate  yield  expectations.  We
expect these yields to improve as these facilities continue to fill up.

         Our newly  developed  facilities  have been subject to the same factors
denoted  above  with  respect  to our  same  store  facilities.  The  facilities
developed in 2001 and 2002 have  contributed  to our earnings  growth,  with net
operating income before depreciation increasing $1,698,000, or 35.0%, in the six
months ended June 30, 2005 as compared to the same period in 2004 ($667,000,  or
24.6%,  for the  quarter  ended June 30,  2005 as compared to the same period in
2004).  This growth was  primarily  due to higher  rental  rates during the 2005
period as compared to the same period in 2004,  as the tenant base  continues to
mature and  existing  tenants,  who moved in at lower  rates,  have their  rates
increase or are replaced with higher-rent tenants.

         Properties  developed in 2003 had increases in net operating  income of
$2,700,000 for the six months ended June 30, 2005 as compared to the same period
in 2004, through a combination of an increase in average  occupancies from 59.9%
for the six months ended June 30, 2004 to 86.8% for the same period in 2005, and
an increase in rates. The facilities developed in 2004 and 2005 had increases in
net operating income, primarily due to the physical fill-up of these facilities.

         With  respect  to our  Combination  Facilities,  we have been  steadily
converting this industrial space into  self-storage  space. As of June 30, 2005,
eleven of the 17  Combination  Facilities  have  been  converted  into  entirely
self-storage. The remaining six facilities are expected to be converted over the
next  two  years.   Weighted  average  square  foot  occupancy  levels  for  the
Combination Facilities was 77.4% for the quarter ended June 30, 2005 as compared
to 80.5% for the same  period  in 2004,  the  decrease  due to the  addition  of
348,000 additional net rentable square feet.

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

         We expect that over the next 24 months,  the Developed  Facilities will
continue  to have a  negative  impact  to our  earnings  when  also  considering
financing  costs  with  respect to the  invested  capital.  Furthermore,  the 48
expansion and newly developed facilities in our development pipeline,  described
in "Liquidity and Capital Resources - Acquisition and Development of Facilities"
that will be opened for  operation  over the next 24 months are also expected to
negatively  impact our earnings until they reach a stabilized  occupancy  level.
Our  earnings  will  continue  to be  negatively  impacted  by any future  newly
developed facilities until they reach a stabilized occupancy level.

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

         Our  commercial  operations  are  comprised of  1,040,000  net rentable
square  feet  of  commercial  space  operated  at  certain  of the  self-storage
facilities, and four stand-alone commercial facilities having a total of 302,000
net rentable square feet.

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

                                       50

<PAGE>


Commercial Property Operations:
(excluding discontinued operations)

<TABLE>
<CAPTION>
                                              Three Months Ended June 30,            Six Months Ended June 30,
                                           -----------------------------------   -----------------------------------
                                              2005         2004       Change        2005        2004        Change
                                           ------------ ----------  ----------   ----------- ----------   ----------
<S>                                        <C>          <C>         <C>          <C>         <C>          <C>
Rental income.........................     $    2,927   $   2,731   $     196    $    5,775  $   5,357    $     418
 Cost of operations...................         (1,043)     (1,041)         (2)       (2,170)    (2,169)          (1)
                                           ------------ ----------  ----------   ----------- ----------   ----------
   Net operating income...............          1,884       1,690         194         3,605      3,188          417

 Depreciation.........................           (580)       (550)        (30)       (1,159)    (1,110)         (49)
                                           ------------ ----------  ----------   ----------- ----------   ----------
   Operating income...................     $    1,304   $   1,140   $     164    $    2,446  $   2,078    $     368
                                           ============ ==========  ==========   =========== ==========   ===========

</TABLE>


         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
2005.

         CONTAINERIZED STORAGE OPERATIONS:

         We have closed many of our  containerized  storage  facilities in 2002,
2003,  and  2004,  and have  refined  our  market  and  product  focus to twelve
facilities  located in eight densely populated markets with  above-average  rent
and income.  The operations with respect to the facilities other than the twelve
ongoing  facilities  are  included in  "Discontinued  Operations"  on our income
statement.  The  operations of the twelve  remaining  facilities are included in
PSPUD's continuing operations and are reflected on the table below:

CONTAINERIZED STORAGE:
(excluding discontinued operations)

<TABLE>
<CAPTION>
                                            Three Months Ended June 30,          Six Months Ended June 30,
                                          --------------------------------   -----------------------------------
                                             2005       2004      Change       2005        2004       Change
                                          ----------  ---------  ---------   ---------  ----------   -----------
                                                                 (Amounts in thousands)
<S>                                        <C>         <C>        <C>         <C>        <C>          <C>
Rental and other income ............       $ 3,988     $ 5,245    $(1,257)    $ 7,825    $ 10,051     $ (2,226)
Cost of operations..................        (3,274)     (2,894)      (380)     (6,016)     (5,668)        (348)
                                          ----------  ---------  ---------   ---------  ----------   -----------
   Net operating income.............           714       2,351     (1,637)      1,809       4,383       (2,574)

Depreciation expense (a)............        (1,015)     (1,100)        85      (2,177)     (2,226)          49
                                          ----------  ---------  ---------   ---------  ----------   -----------
    Operating income................       $  (301)     $1,251    $(1,552)    $  (368)    $ 2,157     $ (2,525)
                                          ==========  =========  =========   =========  ==========   ===========

</TABLE>

(a)      Depreciation   expense  principally  relates  to  the  depreciation  of
         containers;  however, depreciation expense for the three and six months
         ended June 30, 2005  includes  $243,000 and  $524,000,  related to real
         estate  facilities  compared  to  $249,000  and  $506,000  for the same
         periods in 2004, respectively.


         Rental  and  other  income  includes  monthly  rental  charges,  net of
discounts, 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.  Rental income  decreased to $3,988,000  and $7,825,000 for the three and
six months  ended June 30, 2005 from  $5,245,000  and  $10,051,000  for the same
period in 2004,  primarily  as a result  of the  elimination  of these  non-core
services  and a decline  in  average  occupancy.  At June 30,  2005,  there were
approximately  22,500  occupied  containers  in  the  continuing  facilities  as
compared to 25,204 at June 30, 2004.

         Direct operating costs principally  includes  payroll,  equipment lease
expense,  utilities and vehicle  expenses (fuel and insurance).  While the costs
associated with the eliminated non-core services were reduced,  these reductions
were substantially offset by increased marketing expenditures,  primarily yellow
page advertising.

         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.

                                       51

<PAGE>

         Tenant Reinsurance Operations:  Through a subsidiary of the Company, we
reinsure  policies against losses to goods stored by tenants in our self-storage
facilities.  The  tenant  reinsurance  operations  are  included  in the  income
statement under "Revenues - tenant reinsurance premiums" and "Cost of operations
- tenant reinsurance."  Revenues totaled $12,167,000 and $12,056,000 for the six
months  ended  June 30,  2005 and  2004,  respectively,  and cost of  operations
totaled $4,543,000 and $6,885,000, respectively. The tenant reinsurance business
earned net operating income of $7,624,000 and $5,171,000, respectively.

         An accrual in the amount of $1.5  million  was  recorded in the quarter
ended  September 30, 2004 as a result of hurricanes  which  occurred  during the
period for  estimated  tenant  claims for insured  losses.  To date we have paid
approximately  $500,000 in claims. Based upon historical trends and the lapse of
time,  during the quarter ended June 30, 2005, we decreased our estimated future
claims accrual by $500,000, reducing cost of operations in the quarter.

         Our tenant reinsurance revenues are dependent upon our occupancy level,
the level of move-in activity,  the level of newly moved in tenants that opt for
insurance, and the time that such tenants remain as insured tenants. For the six
months ended June 30, 2005 and 2004, approximately 33% and 36%, respectively, of
our  self-storage  tenant base had such policies.  Tenant  insurance  expense is
attributable primarily to the level of claims.

         We have  outside  third-party  insurance  coverage  for losses from any
individual  event that  exceeds a loss of $500,000,  to a limit of  $10,000,000.
Losses  below these  amounts are  accrued as cost of  operations  for the tenant
reinsurance operations.

         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 June 30, 2005. (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 six months  ended
June 30, 2005 and 2004  consists  of our  pro-rata  share of the  Unconsolidated
Entities based upon our ownership  interest for the period.  The following table
sets forth the  significant  components  of equity in  earnings  of real  estate
entities:

<TABLE>
<CAPTION>

                                                   Three Months Ended June 30,              Six Months Ended June 30,
                                                -----------------------------------     ----------------------------------
                                                  2005         2004        Change        2005         2004        Change
                                                ----------   ---------    ---------     ---------   ---------     --------
                                                                         (Amounts in thousands)
Property operations:
<S>                                             <C>           <C>             <C>       <C>          <C>             <C>
  PSB ...................................       $16,914       $16,601         $313      $34,128      $33,794         $334
  Acquisition Joint Venture..............            63             -           63          114            -          114
  Other investments (1)..................         2,187         1,586          601        3,870        3,270          600
                                                ----------   ---------    ---------     ---------   ---------     --------
                                                 19,164        18,187          977       38,112       37,064        1,048
                                                ----------   ---------    ---------     ---------   ---------     --------
Depreciation:
  PSB....................................        (8,282)       (7,875)        (407)     (16,535)     (15,756)        (779)
  Acquisition Joint Venture..............           (68)            -          (68)        (134)           -         (134)
  Other investments (1)..................          (408)         (384)         (24)        (774)        (778)           4
                                                ----------   ---------    ---------     ---------   ---------     --------
                                                 (8,758)       (8,259)        (499)     (17,443)     (16,534)        (909)
                                                ----------   ---------    ---------     ---------   ---------     --------
Other: (2)
  PSB (3)................................        (5,263)       (5,554)         291      (10,015)     (12,342)       2,327
  Other investments (1)..................          (292)           31         (323)        (125)         274         (399)
                                                ----------   ---------    ---------     ---------   ---------     --------
                                                 (5,555)       (5,523)         (32)     (10,140)     (12,068)       1,928
                                                ----------   ---------    ---------     ---------   ---------     --------
Total equity in earnings of real estate
entities..................................       $4,851        $4,405         $446      $10,529       $8,462       $2,067
                                                ==========   =========    =========     =========   ==========    ========
</TABLE>


(1)  Amounts  primarily reflect equity in earnings recorded for investments that
     have been held  consistently  throughout  each of the three and six  months
     ended June 30, 2005 and 2004.

                                       52

<PAGE>

(2)  "Other" reflects our share of general and administrative expense,  interest
     expense, interest income, and other non-property;  non-depreciation related
     operating  results  of these  entities.  The  amount  of  interest  expense
     included in "other" is $121,000  and  $244,000 for the three and six months
     ended June 30, 2005,  as compared to $373,000 and  $946,000,  respectively,
     for the same periods in 2004.

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

         The increase in equity in earnings of real estate  entities for the six
months  ended June 30, 2005 as compared to the six months ended June 30, 2004 is
principally  due to our $1,713,000  pro-rata share of PSB's gain on sale of real
estate  assets for the six months ended June 30, 2005  combined with a reduction
in the six months ended June 30,  2004,  related to our share of PSB's EITF D-42
charge amounting to $943,000.

         Equity in earnings of PSB  represents our pro-rata share (an average of
approximately  44% for the six  months  ended  June 30,  2005  and  2004) of the
earnings  of PSB.  Throughout  2004 and the first six  months of 2005,  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 June 30,
2005, PSB owned and operated 17.9 million net rentable square feet of commercial
space located in eight states.  PSB also manages  commercial  space owned by the
Company and affiliated entities at June 30, 2005 pursuant to property management
agreements.

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

         In January 2004, we entered into a joint  venture  partnership  with an
institutional  investor  for the purpose of  acquiring  up to $125.0  million of
existing  self-storage  properties  in the United States from third parties (the
"Acquisition  Joint  Venture").  The  venture  is funded  entirely  with  equity
consisting of 30% from us and 70% from the institutional  investor. As described
more fully in Note 2 to the  Consolidated  Financial  Statements for the quarter
ended June 30, 2005,  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 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 seven  limited  partnerships,  for which we held an  approximately
consistent level of equity interest  throughout 2004 and the first six months of
2005. These limited  partnerships  were formed by the Company during the 1980's.
We are the general partner in each limited partnership, and manage each of these
facilities for a management fee that is included in "Interest and Other Income."
The limited partners  consist of numerous  individual  investors,  including the
Company,   which   throughout  the  1990's   acquired  units  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 36  self-storage  facilities  that
these  entities  own. The  operating  characteristics  of these  facilities  are
similar to those of the Company's  self-storage  facilities,  and are subject to
the same operational issues as the Same Store Facilities as discussed above. See
Note 5 to the  consolidated  financial  statements for the operating  results of
these entities for the three and six months ended June 30, 2005 and 2004.

OTHER INCOME AND EXPENSE ITEMS

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

                                       53

<PAGE>

         Interest and other income was  $5,767,000  and $9,322,000 for the three
and six months ended June 30, 2005, respectively,  as compared to $2,583,000 and
$3,940,000,  respectively,  for the same periods in 2004.  This  increase is due
primarily  to higher  interest  income on cash  balances  due to higher  average
interest  rates  combined with improved  operations  of our truck,  retail,  and
property management operations, as described below.

         Included in our  interest and other income is net income for our truck,
retail,  and  property  management  operations   approximately   $2,250,000  and
$1,403,000 for the three months ended June 30, 2005 and 2004, respectively,  and
$2,959,000  and  $1,752,000  for the six months  ended  June 30,  2005 and 2004,
respectively.  These increases are due to improved operations of these ancillary
activities.

         As discussed more fully in "Liquidity and Capital  Resources" below, at
June 30, 2005, we had cash balances totaling  approximately $390 million,  which
includes significant  proceeds from recent equity issuances.  These balances are
typically  invested  in  short-term  low-risk  securities.  The future  level of
interest  and other income will be  partially  dependent  upon the timing of our
investment of these unused offering proceeds and the level of interest earned on
these short-term investments.

         DEPRECIATION AND  AMORTIZATION:  Depreciation and amortization  expense
was  $48,261,000  and  $96,219,000  for the three and six months  ended June 30,
2005,  respectively,  as compared to $44,683,000  and  $91,093,000  for the same
period in 2004. The increase in depreciation  and amortization for the three and
six months  ended June 30,  2005 as  compared  to the same period in 2004 is due
primarily to increased depreciation with respect to newly developed and acquired
facilities,  offset  partially  by a reduction in  depreciation  with respect to
maintenance capital expenditures.

         Included  in  depreciation  expense  with  respect  to our real  estate
facilities was  $44,759,000  and  $89,134,000 for the three and six months ended
June 30, 2005, respectively,  as compared to $41,186,000 and $84,110,000 for the
same period in 2004, respectively. The increase in depreciation and amortization
with respect to real estate  facilities  for the three and six months ended June
30, 2005 as compared to the same period in 2004 is due  primarily to an increase
in  depreciation  with  respect  to newly  developed  and  acquired  facilities.
Depreciation  expense with respect to other assets was $1,851,000 and $3,783,000
for the three and six months ended June 30, 2005,  respectively,  as compared to
$1,846,000  and   $3,681,000   for  the  same  period  in  2004,   respectively.
Depreciation  expense also includes  $1,651,000  and  $3,302,000 for each of the
three and six months,  respectively,  ended June 30, 2005 and 2004,  relating to
the amortization of property management contracts.

         Depreciation  and amortization for the three months ended June 30, 2005
with respect to developed and acquired real estate  facilities  added during the
quarter ended June 30, 2005 amounted to approximately  $144,000.  We expect that
the  quarterly  depreciation  and  amortization  expense,  with respect to these
facilities,  will approximate $450,000 for quarters beginning with third quarter
of 2005.

         GENERAL  AND  ADMINISTRATIVE:  General and  administrative  expense was
$6,128,000 and  $11,269,000 for the three and six months ended June 30, 2005, as
compared to $4,572,000 and $10,456,000 for the same period in 2004, representing
an increase of approximately $1,556,000 and $813,000, respectively.  General and
administrative  expense  principally  consists of state income  taxes,  investor
relation expenses and corporate and executive salaries. In addition, general and
administrative  expense  includes  expenses that vary depending on the Company's
activity  levels  in  certain  areas,  such  as  overhead  associated  with  the
acquisition  and  development  of real estate  facilities,  employee  severance,
stock-based compensation and product research and development expenditures.

         The  increase in general and  administrative  expense for the three and
six months  ended June 30, 2005 as compared to the same period in 2004 is due to
increased  restricted stock and stock option expense  attributable to additional
grants of restricted  stock units and stock  options,  combined  with  increased
professional  fees.  These impacts were partially offset in the six month period
as a results of $450,000 reduction in legal liabilities  recorded in the quarter
ended March 31, 2005, as well as a decrease in employee termination costs during
the six months ended June 30, 2005 as compared to the same period in 2004.

         INTEREST  EXPENSE:  Interest  expense was $1,794,000 and $3,457,000 for
the three and six months ended June 30, 2005, respectively, and $100,000 for the
six months ended June 30, 2004 (none for the three months ended June 30,  2004).
Interest  capitalized  during the three and six months  ended June 30,  2005 was

                                       54

<PAGE>

$679,000 and  $1,344,000,  respectively,  as compared to $912,000 and $2,037,000
for the three and six months  ended June 30,  2004.  The  increase  in  interest
expense is due to (i) $94.7 million in debt assumed, at an average interest rate
of  approximately  5.2%, in connection with property  acquisitions in 2004, (ii)
$35.6  million in debt to joint venture  partner at an average  interest rate of
8.5%, as described more fully in Note 8 to the consolidated financial statements
for the quarter ended June 30, 2005,  combined  with a reduction in  capitalized
interest due to lower  development  balances.  See Note 7 and Note 8 to the June
30, 2005 consolidated  financial statements for schedules and further discussion
on our debt balances,  principal  repayment  requirements,  and average interest
rates.

         Minority Interest in Income: Minority interest in income represents the
income  allocable to equity  interests in Consolidated  Entities,  which are not
owned by the Company. The following table summarizes minority interest in income
for the three and six months ended June 30, 2005 and 2004:

<TABLE>
<CAPTION>

                                                      Three Months Ended June 30,                   Six Months Ended June 30,
                                                 -------------------------------------      ---------------------------------------
                                                  2005           2004         Change          2005          2004         Change
                                                 ----------   ----------   -----------      ----------    -----------    ----------
                                                                             (Amounts in thousands)
Preferred partnership interests:
<S>                                              <C>          <C>          <C>               <C>          <C>         <C>
     Ongoing distributions (b)..........         $  3,590     $   5,177     $  (1,587)      $  8,965     $   11,731     $  (2,766)
     Special Distribution and EITF
      Topic D-42 allocations (a).......                 -             -             -             874         10,063        (9,189)

Consolidated Development Joint Venture (c)          1,835         1,420           415           3,403          2,377        1,026
Convertible Partnership Units (d).......               83            91            (8)            173            131           42
Acquired minority interests (e) ........              129           850          (721)            714          1,914        (1,200)
Other minority interests (f)............            2,831         2,219           612           4,983          4,161          822
                                                 ----------   ----------   -----------      ----------    -----------    ----------
    Total minority interests in income..        $   8,468     $   9,757     $  (1,289)      $  19,112     $   30,377     $ (11,265)
                                                 ==========   ==========   ===========      ==========    ===========    ==========

</TABLE>

(a)  As  described  more fully  below,  holders of $200  million of our Series N
     preferred  partnership  units  agreed  to a  restructuring  which  included
     reducing  their  distribution  rate  from  9.5% to 6.4% in  exchange  for a
     special  distribution of $8,000,000.  This special  distribution,  combined
     with  $2,063,000  in costs  incurred at the time the units were  originally
     issued that were charged  against income in accordance  with the Securities
     and Exchange Commissions  clarification of EITF Topic D-42, are included in
     minority  interest in income for the six months  ended June 30, 2004 as are
     $874,000  in such  original  issuance  cost with  respect to the six months
     ended June 30, 2005 based on the redemption of preferred units.

(b)  The decrease in ongoing  distributions  is due to the reduction in the rate
     on $200  million  of the  preferred  partnership  units  from 9.5% to 6.4%,
     effective  March 22, 2004, the redemption of $40 million of our 9.5% Series
     N Preferred  Units on March 17, 2005 and $45 million of our 9.125% Series O
     Preferred units on March 29, 2005.  These impacts were partially  offset by
     the  issuance of $25 million of our 6.25%  Series Z Preferred  Units in the
     connection with an acquisition in the fourth quarter of 2004.

(c)  These amounts  reflect  income  allocated to the minority  interests in the
     Consolidated  Development  Joint Venture.  Included in minority interest in
     income is $870,000 and $1,729,000 in depreciation expense for the three and
     six months ended June 30, 2005,  respectively,  as compared to $891,000 and
     $1,854,000 for the same periods in 2004.

(d)  These amounts reflect the minority interests represented by the Convertible
     Partnership  Units (see Note 8 to the consolidated  financial  statements).
     Included  in  minority  interest  in  income is  $94,000  and  $176,000  in
     depreciation  expense  for the three and six months  ended  June 30,  2005,
     respectively,  as compared to $81,000 and  $166,000 for the same periods in
     2004.

(e)  These  amounts  reflect  income  allocated to minority  interests  that the
     Company acquired in 2004 and the first six months of 2005 and are no longer
     outstanding  at June 30, 2005.  Included in minority  interest in income is
     $28,000 and $159,000 in  depreciation  expense for the three and six months
     ended June 30, 2005, respectively, as compared to $474,000 and $651,000 for
     the same periods in 2004.

(f)  These amounts  reflect  income  allocated to minority  interests  that were
     outstanding consistently throughout the three and six months ended June 30,
     2005 and 2004.  Included  in minority  interest  in income is $231,000  and
     $479,000 in  depreciation  expense for the three and six months  ended June
     30, 2005,  respectively,  as compared to $273,000 and $623,000 for the same
     periods in 2004.

                                       55

<PAGE>

         During the first quarter of 2005,  we acquired a minority  interest for
an aggregate  acquisition  cost of $4,366,000  in cash.  In addition  during the
second  quarter of 2005,  we acquired  minority  interests  in two  Consolidated
Entities for an aggregate of $32,432,000 in cash. The income  allocated to these
interests is included in the "Acquired minority interests" in the table above.

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

         As a result of this agreement,  income allocable to minority  interests
increased,  and the Company's net income  decreased  $10,063,000  due to (i) the
$8,000,000  cash  payment  to the  holders of the  preferred  units and (ii) the
application of the SEC Observer's recent  clarification of EITF Topic D-42, "The
Effect on the  Calculation  of Earnings per Share for the  Redemption or Induced
Conversion of Preferred Stock" totaling $2,063,000,  which represents the excess
of the $200 million  stated  amount of the preferred  units over their  carrying
amount.

         The  increase  in  minority  interest  in income  with  respect  to the
Consolidated  Development  Joint  Venture is due to an  increase  in income with
respect to the properties owned by this entity.

         As  described  more  fully  in Note 9 to our June  30,  2005  financial
statements,  on August 5,  2005,  we  acquired  the  third  party  institutional
investor's  interest in PSAC  Storage  Investors,  LLC for  approximately  $41.4
million in cash.  As we have  assumed the third party  institutional  investor's
rights in this  partnership,  we therefore  have the option,  which we intend to
exercise,  to acquire Mr.  Hughes  interest in PSAC  Storage  Investors,  LLC on
November 17, 2005 for approximately  $64.1 million in cash. As a result,  income
will cease to be allocated  to these  interests  as of the  respective  dates of
acquisition.

         Other minority interests reflect income allocated to minority interests
that have  maintained a  consistent  level of interest  throughout  2004 and the
three and six months  ended  June 30,  2005,  comprised  of  investments  in the
Consolidated Entities described in Note 9 to the Company's financial statements.
The level of income allocated to these interests in the future is dependent upon
the operating results of the storage facilities that these entities own, as well
as any minority interests that the Company acquires in the future.

         DISCONTINUED OPERATIONS: During the quarter ended June 30, 2005, we
designated one of our self-storage facilities that is the subject of a
condemnation proceeding as a discontinued facility. This facility is referred to
as the "Eminent Domain Facility".

         During the third  quarter of 2004, we entered into an agreement to sell
one of our  commercial  facilities  located  in West Palm  Beach,  Florida.  The
facility  sale closed on October 28, 2004.  This  facility is referred to as the
"Sold Commercial Facility".

         As  described  more  fully  in  Note  3 to the  consolidated  financial
statements,  during 2002,  2003 and 2004,  we  implemented a business plan which
included the closure of 43 of 55 containerized storage facilities that were open
at December 31,  2001.  The 43  facilities  are  hereinafter  referred to as the
"Closed Facilities."

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

         The following table summarizes the historical operations of the Eminent
Domain Facility, the Sold Commercial Facility and the Closed Facilities:

                                       56

<PAGE>

<TABLE>
<CAPTION>

DISCONTINUED OPERATIONS:
                                          Three Months Ended June 30,          Six Months Ended June 30,
                                        --------------------------------   ----------------------------------
                                         2005        2004       Change       2005        2004       Change
                                        ---------  ---------   ---------   ---------   ---------   ----------
                                            (Amounts in thousands)              (Amounts in thousands)
Rental income:
<S>                                     <C>          <C>       <C>          <C>          <C>         <C>
  Closed Facilities...............      $     -      $1,925    $ (1,925)    $    95      $4,527      $(4,432)
  Eminent Domain Facility.........          155         167         (12)        300         340          (40)
  Sold Commercial Facility........            -         105        (105)          -         174         (174)
                                        ---------  ---------   ---------   ---------   ---------   ----------
Total rental income...............          155       2,197      (2,042)        395       5,041       (4,646)
                                        ---------  ---------   ---------   ---------   ---------   ----------
Cost of operations:
  Closed Facilities...............            -      (1,797)      1,797        (194)     (4,022)       3,828
  Eminent Domain Facility.........          (96)        (45)        (51)       (175)        (93)         (82)
  Sold Commercial Facility........            -         (24)         24           -         (37)          37
                                        ---------  ---------   ---------   ---------   ---------   ----------
Total cost of operations..........          (96)     (1,866)      1,770        (369)     (4,152)       3,783
                                        ---------  ---------   ---------   ---------   ---------   ----------
Depreciation expense:
  Closed Facilities...............            -        (335)        335         (29)       (725)        696
  Eminent Domain Facility.........          (21)        (24)          3         (39)        (47)          8
  Sold Commercial Facility........            -         (24)         24           -         (49)         49
                                        ---------  ---------   ---------   ---------   ---------   ----------
Total depreciation ...............          (21)       (383)        362         (68)       (821)        753
                                        ---------  ---------   ---------   ---------   ---------   ----------
Other items.......................            -        (416)        416       1,143        (585)      1,728
                                        ---------  ---------   ---------   ---------   ---------   ----------
Net discontinued operations.......      $    38      $ (468)    $   506     $ 1,101      $ (517)    $ 1,618
                                        =========  =========   =========   =========   =========   ==========

</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.

         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.

                                       57

<PAGE>

<TABLE>
<CAPTION>

                                                                      Six Months Ended June 30,
                                                                    ------------------------------
                                                                        2005              2004
                                                                    --------------   -------------
                                                                        (Amounts in thousands)
<S>                                                                 <C>              <C>
Net cash provided by operating activities.......................    $    351,422     $    327,921

Allocable to minority interest (Preferred Units) - ongoing                (8,965)         (11,731)
distributions...................................................
Allocable to minority interest (Preferred Units) - special                     -           (8,000)
distribution (a)................................................
Allocable to minority interest (common equity)(b)...............         (11,816)         (11,877)
                                                                    --------------   -------------
Cash from operations allocable to our shareholders..............         330,641          296,313

Capital improvements to maintain our facilities.................          (9,370)          (9,644)
 Add back:  minority interest share of capital improvements to
    maintain facilities.........................................             121              203
                                                                    --------------   -------------
 Remaining operating cash flow available for distributions to our
    shareholders................................................         321,392          286,872

Distributions paid:
  Preferred stock dividends.....................................         (82,560)         (76,822)
  Equity Stock, Series A dividends..............................         (10,731)         (10,751)
  Distributions to Common shareholders..........................        (115,665)        (114,755)
                                                                    --------------   -------------
Cash available for principal payments on debt and reinvestment..    $    112,436     $     84,544
                                                                    ==============   =============

</TABLE>

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

(b)  Represents  operating cash flow allocable to the common  interests we don't
     own in the Consolidated Entities.

         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 June
30, 2005,  internally  generated  retained  cash flows and proceeds from issuing
equity  securities.  In general,  our current strategy is to continue to finance
our growth with permanent capital; either common or preferred equity. We have in
the past used our $200 million line of credit as  temporary  "bridge"  financing
and repaid those amounts with internally  generated cash flows and proceeds from
the  placement of permanent  capital.  At June 30, 2005,  we had no  outstanding
borrowings under our $200 million bank line of credit.

         Over the past three  years,  we have  funded  substantially  all of our
acquisitions with permanent capital (both common and preferred  securities).  We
have elected to use preferred  securities as a form of leverage despite the fact
that the dividend rates of our preferred securities exceed the prevailing market
interest rates on conventional debt. We have chosen this method of financing for
the following  reasons:  (i) under the REIT structure,  a significant  amount of
operating  cash flow  needs to be  distributed  to our  shareholders,  making it
difficult  to repay debt with  operating  cash flow  alone,  (ii) our  perpetual
preferred  stock has no sinking fund  requirement  or maturity date and does not
require  redemption,  all of which eliminate any future refinancing risks, (iii)
after the end of a non-call  period,  we have the option to redeem the preferred
stock at any time,  which  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 June 30,  2005,  we had  mortgage  debt  outstanding  of $93.7
million (which encumbers 34 facilities with a book value of  approximately  $199
million) and unsecured debt in the amount of $22.4 million. We also have Debt to
Joint Venture Partner amounting to $35.6 million with respect to ten real estate
facilities with an aggregate book value of approximately $49 million.

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

                                       58

<PAGE>

         We believe that our size and financial flexibility enables us to access
capital when appropriate. Since the beginning of 2004 through August 5, 2005, we
have raised  approximately  $743 million of our Cumulative  Preferred Stock, and
used  approximately  $514  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 August 5, 2005 to
be  approximately   $169.3  million  per  year.  We  estimate  that  the  annual
distribution  requirement  with  respect  to  the  preferred  partnership  units
outstanding at June 30, 2005 to be approximately $14.4 million per year.

         During  the six  months  ended June 30,  2005,  we paid cash  dividends
totaling  $10,731,000 to the holders of our Equity Stock,  Series A, as compared
to  $10,751,000  for the same  period in 2004.  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  of not less than 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 June 30, 2005, we estimate the total regular distribution for the
third quarter of 2005 to be approximately $5.4 million.

         During the six months ended June 30, 2005, we paid  dividends  totaling
$115,665,000  ($0.90 per common  share) to the holders of our common  stock.  On
August 4, 2005,  our Board of Directors  increased the  quarterly  dividend from
$0.45 per share to $0.50 per share,  payable on September  29, 2005.  Based upon
shares  outstanding at August 5, 2005 and a quarterly  distribution of $0.50 per
share,  we  estimate  a dividend  payment  with  respect to our common  stock of
approximately $64.0 million for the third quarter of 2005.

         CAPITAL IMPROVEMENT  REQUIREMENTS:  For 2005, we budgeted approximately
$30 million for capital improvements. During the six months ended June 30, 2005,
we  incurred  capital  improvements  of  approximately  $9.4  million.   Capital
improvements  include  major  repairs or  replacements  to the  facilities  that
maintain the facilities' existing operating condition and visual appeal. Capital
improvements  do not include costs  relating to the  development or expansion of
facilities,  or expenditures associated with improving the visual and structural
appeal of our existing self-storage  facilities.  We expect capital expenditures
for 2006 to be higher than the capital expenditures we have budgeted for 2005.

         DEBT SERVICE  REQUIREMENTS:  We do not believe we have any  significant
refinancing  risks with respect to our debt, all of which is fixed rate. At June
30, 2005, we had total  outstanding  debt of approximately  $151.8 million.  See
Notes 7 and 8 to the consolidated financial statements for approximate principal
maturities of such borrowings.

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

         ACQUISITION AND DEVELOPMENT OF REAL ESTATE FACILITIES:  During 2005, 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.  For 2005, we do not anticipate that our joint
venture  partnerships  will fund additional  acquisitions  from third parties or
developments, all of which we expect to be funded entirely by the Company.

         In addition to the facilities acquired in the six months ended June 30,
2005, we acquired three additional  facilities for  approximately  $18.2 million
with 235,000 net  rentable  square feet between July 1, 2005 and August 5, 2005.
Also,  at August 5,  2005,  we are  under  contract  to  acquire  11  additional
facilities  (total  approximate  net  rentable  square  feet of  886,000)  at an
aggregate cost of  approximately  $119.4  million.  These  acquisitions  will be
funded  entirely  by us.  Each of these  contracts  is  subject  to  significant
contingencies,  and there is no assurance that any of these  facilities  will be
acquired.

                                       59

<PAGE>

         On January 18,  2005,  we  acquired  an  interest  in the  Consolidated
Entities for cash  totaling  $4,366,000.  In addition,  on April 22, 2005,  in a
single  transaction  we acquired  an  additional  interest  in the  Consolidated
Entities for an aggregate of $32.4 million.

         As  described  more  fully  in Note 9 to our June  30,  2005  financial
statements,  on August 5,  2005,  we  acquired  the  third  party  institutional
investor's  interest in PSAC  Storage  Investors,  LLC for  approximately  $41.4
million in cash.  As we have  assumed the third party  institutional  investor's
rights in this  partnership,  we therefore  have the option,  which we intend to
exercise,  to acquire Mr.  Hughes  interest in PSAC  Storage  Investors,  LLC on
November 17, 2005 for approximately  $64.1 million in cash. As a result,  income
will cease to be allocated  to these  interests  as of the  respective  dates of
acquisition.

         At June  30,  2005  we have a  development  "pipeline"  of 48  projects
consisting of  self-storage  facilities,  conversion of space at facilities that
was  previously  used for  containerized  storage  and  expansions  to  existing
self-storage facilities with an aggregate estimated cost of approximately $237.5
million.  At June 30, 2005, we have acquired the land for 46 of these  projects,
which have an aggregate  estimated cost of  approximately  $223.2  million,  and
costs incurred as of June 30, 2005 of approximately $40.8 million. The remaining
facilities  represent  identified  sites where we have an  agreement in place to
acquire the land,  generally within one year. We anticipate that the development
of these projects will be funded solely by the Company.

         The development  and fill-up of these storage  facilities is subject to
significant  contingencies such as obtaining appropriate governmental approvals.
We  estimate  that the  amount  remaining  to be spent of  approximately  $196.2
million will be incurred over the next 24 months. The following table sets forth
certain information with respect to our development pipeline.

<TABLE>
<CAPTION>

DEVELOPMENT PIPELINE SUMMARY (as of June 30, 2005)
                                                    Number   Net        Total estimated  Costs incurred
                                                      of     rentable     development        through         Costs to
                                                   projects   sq. ft.        costs           6/30/05         complete
                                                   --------  ---------  ---------------  ---------------     ------------
                                                                  (Amounts in thousands, except number of projects)
  FACILITIES CURRENTLY UNDER CONSTRUCTION:
<S>                                                    <C>        <C>      <C>              <C>              <C>
    Self-storage facilities                            4          299      $   33,147       $   13,946       $   19,201
    Expansions and other enhancements to
     existing self-storage facilities                 12          701          33,230           10,060           23,170
                                                   --------  ---------  ---------------  ---------------     ------------
                                                      16        1,000          66,377           24,006           42,371

  FACILITIES AWAITING  CONSTRUCTION,  WHERE LAND
     IS ACQUIRED:
    Self-storage facilities                            2          196          37,145           15,688           21,457
    Expansions and other enhancements to
     existing self-storage facilities                 28        1,948         119,646            1,063          118,583
                                                   --------  ---------  ---------------  ---------------     ------------
                                                      30        2,144         156,791           16,751          140,040

  SELF-STORAGE FACILITIES AWAITING
    CONSTRUCTION, WHERE LAND HAS NOT YET BEEN
    ACQUIRED:
    Self-storage facilities                            1           60          10,865              484           10,381
    Expansions and other enhancements to
     existing self-storage facilities                  1           44           3,436               55            3,381
                                                   --------  ---------  ---------------  ---------------     ------------
                                                       2          104          14,301              539           13,762
                                                   --------  ---------  ---------------  ---------------     ------------
  TOTAL DEVELOPMENT PIPELINE                          48        3,248      $  237,469       $   41,296       $  196,173
                                                   ========  =========  ===============  ===============     ============

</TABLE>

                                       60

<PAGE>

         Included  in the 41  "expansions  and other  enhancements  of  existing
self-storage  facilities"  are 16 projects  associated  with the  conversion  of
industrial  space,  previously used by the  discontinued  containerized  storage
operations,  into self-storage  space. The total amount of self-storage space to
come on line from these 16 conversions is  approximately  1,215,000 net rentable
square feet of traditional  self-storage  space at a cost of  $45,333,000.  Also
included are enhancements  which, while they do not add significant  incremental
square  footage,  improve  the  visual  and  structural  appeal of our  existing
self-storage facilities.

         UNSOLICITED PROPOSAL TO ACQUIRE SHURGARD STORAGE CENTERS: In July 2005,
we made an unsolicited  proposal for the combination of the Company and Shurgard
Storage  Centers,  Inc.  (NYSE:SHU)  through a merger in which each share of SHU
common  stock would be  exchanged  for .80 shares of our common  stock.  SHU has
rejected our  proposal,  and there is no assurance  that any  agreement  will be
reached.  If  completed  on the  terms of our  proposal,  the  merger  would (1)
increase the number of shares of our common stock from approximately 127,975,653
to 165,302,255,  (2) increase the liquidation  preference of our preferred stock
from   $2,320,900,000  to   $2,457,150,000   and  (3)  increase  our  debt  from
approximately   $151,757,000  to  an  estimated   $1,848,150,000   (assuming  no
prepayment). Our estimate of SHU's debt, preferred and common shares outstanding
is from SHU's March 31, 2005 balance sheet  included in its quarterly  report on
form 10-Q for the period ended March 31, 2005.

         SHU  has  reported  that  it is a real  estate  investment  trust  that
operates  approximately  630  self-storage  facilities  in the United States and
Europe.

         REPURCHASES  OF THE  COMPANY'S  COMMON STOCK:  The  Company's  Board of
Directors authorized the repurchase from time to time of up to 25,000,000 shares
of our common stock on the open market or in privately negotiated  transactions.
For the six months  ended June 30, 2005,  we  repurchased  84,000  shares of our
common stock for approximately $4,990,000.

         From  the  initial   authorization  through  June  30,  2005,  we  have
repurchased a total of 22,201,720 shares of common stock at an aggregate cost of
approximately $567.1 million.

ITEM 2A.   RISK FACTORS

         In addition to the other information in our Form 10-Q and our Form 10-K
for the year ended December 31, 2004, you should consider the following factors
in evaluating the Company:

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

         At August 5, 2005,  the Hughes  family owned  approximately  36% of our
outstanding  shares of common  stock.  Consequently,  the  Hughes  family  could
control  matters  submitted to a vote of our  shareholders,  including  electing
directors, amending our organizational documents, dissolving and approving other
extraordinary transactions, such as a takeover attempt, even though such actions
may not be favorable to the other common shareholders.

PROVISIONS IN OUR ORGANIZATIONAL DOCUMENTS MAY PREVENT CHANGES IN CONTROL.

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

                                       61

<PAGE>

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

         You will be  subject  to the risk  that we may not  qualify  as a REIT.
REITs  are  subject  to  a  range  of  complex  organizational  and  operational
requirements.  As a REIT,  we must  distribute  at least 90% of our REIT taxable
income to our shareholders.  Other  restrictions apply to our income and assets.
Our REIT status is also  dependent  upon the ongoing  qualification  of PSB as a
REIT, as a result of our substantial ownership interest in that company.

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

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

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

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

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

WE 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.

WE AND OUR SHAREHOLDERS ARE SUBJECT TO FINANCING RISKS.

         Debt increases the risk of loss. In making real estate investments,  we
may borrow money,  which  increases the risk of loss. At June 30, 2005, our debt
of $151.8 million was 2.9% of our total assets.

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

                                       62

<PAGE>

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  that  other  real  estate  companies  may use
third-party  insurers  for. This results in a higher risk of losses that are not
covered by  third-party  insurance  contracts,  as  described  in Note 14 to our
consolidated  financial  statements at June 30, 2005 under  "Insurance  and Loss
Exposure."

         There is significant competition among self-storage facilities and from
other storage alternatives.  Most of our properties are self-storage facilities,
which  generated  93% of our revenue for the three  months  ended June 30, 2005.
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

                                       63

<PAGE>

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,  2001,  we have  opened  49  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 $516.7  million.  In  addition,  at June 30, 2005 we had 48 projects in
development  that are  expected to be completed  in  approximately  the next two
years.  These  48  projects  have  total  estimated  costs  of  $237.5  million.
Construction  delays  due to  weather,  unforeseen  site  conditions,  personnel
problems,  and other factors,  as well as cost overruns,  would adversely affect
our  profitability.  Delays in the rent-up of newly  developed  facilities  as a
result  of  competition  or  other  factors  would  also  adversely  impact  our
profitability.

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

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

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

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

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

         B. Wayne  Hughes,  Chairman of the Board,  and his family (the  "Hughes
Family") have ownership interests in, and operate, approximately 40 self-storage
facilities  in Canada under the name  "Public  Storage." We currently do not own

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<PAGE>

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.

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

         The Company, through subsidiaries, continues to reinsure risks relating
to loss of goods stored by tenants in the self-storage facilities in Canada. The
Company had acquired the tenant insurance  business on December 31, 2001 through
its acquisition of PSIC. During the six months ended June 30, 2005, and the full
years ended December 31, 2004 and 2003, PSIC received $526,000,  $1,069,000, and
$1,017,000,  respectively,  in reinsurance premiums attributable to the Canadian
Facilities.  PSIC has no contractual right to provide tenant  reinsurance to the
Canadian Facilities and there is no assurance that these premiums will continue.

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

OUR CONTAINERIZED STORAGE BUSINESS HAS INCURRED OPERATING LOSSES.

         Public  Storage  Pickup & Delivery  ("PSPUD")  was organized in 1996 to
operate a containerized storage business. We own all of the economic interest of
PSPUD.  Since  PSPUD  will  operate  profitably  only if it can  succeed  in the
relatively new field of containerized  storage,  we cannot provide any assurance
as to its  profitability.  PSPUD  incurred an operating  loss of  $10,058,000 in
2002, and generated  operating  profits of $2,543,000 in 2003,  $684,000 in 2004
and $647,000 for the six months ended June 30, 2005. Since 2002, PSPUD closed or
consolidated  all but 12  facilities  that  were  deemed  not  strategic  to our
business plan.

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

                                       65

<PAGE>

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.

2003 TAX LEGISLATION COULD ADVERSELY AFFECT THE PRICE OF OUR STOCK.

         Tax legislation  enacted in 2003 generally reduces the maximum tax rate
for dividends  payable to  individuals  to 15% through 2008.  Dividends  paid by
REITs, however,  generally continue to be taxed at the normal rate applicable to
the individual recipient, rather than the preferential rates applicable to other
dividends.  Although this  legislation does not adversely affect the taxation of
REITs or dividends paid by REITs, the more favorable rates applicable to regular
corporate  dividends  could  cause  investors  who are  individuals  to perceive
investments in REITs to be relatively less  attractive  than  investments in the
stocks of non-REIT corporations that pay dividends, which could adversely affect
the value of the stock of REITs, including our common stock.

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

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

OUR UNSOLICITED BID FOR SHU MAY NOT BE SUCCESSFUL AND IF IT IS WE MAY BE SUBJECT
TO ADDITIONAL RISKS.

         We have  made an  unsolicited  proposal  for SHU which  SHU's  board of
directors  rejected.  This  transaction  may  result  in  significant  costs and
attention of management  and there is no assurance  that any  agreement  will be
reached.

         If we do reach an  agreement  with  SHU and the  acquisition  of SHU is
consummated,  then we may be subject to  additional  risks,  including,  without
limitation,  difficulties  in the integration of operations,  technologies,  and
personnel of SHU,  diversion of management's  attention away from other business
concerns, the assumption of additional debt and expenses, risks of international
operations and exposure to any undisclosed or unknown  potential  liabilities of
SHU.  In  addition,  we have  assumed  based on Public  Filings,  that SHU would
qualify as a REIT, however, if SHU fails to qualify as a REIT, we might lose our
REIT status and incur significant tax liabilities.

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 June  30,  2005,  our  debt as a  percentage  of total
shareholders' equity (based on book values) was 3.3%.

         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 Q - January 19, 2006,  Series R - September  28, 2006,
Series S - October 31, 2006,  Series T - January 18,  2007,  Series U - February
19, 2007,  Series V - September 30, 2007, Series W - October 6, 2008, Series X -
November 13, 2008,  Series Y - January 2, 2009, Series Z - March 5, 2009, Series
A - March 31,  2009,  Series B - June 30, 2009,  Series C - September  13, 2009,
Series D -  February  28,  2010 and Series E - April 27,  2010.  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  $151.8  million  at June 30,  2005.  All of the  Company's  debt  bears
interest  at  fixed  rates.  See  Notes  7 and 8 to the  consolidated  financial
statements at June 30, 2005 for  approximate  principal  maturities of the notes
payable at June 30, 2005.

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<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.

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<PAGE>

PART II.   OTHER INFORMATION

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

         The  information set forth under the heading "Legal Matters" in Note 14
to the  Consolidated  Financial  Statements in this Form 10-Q is incorporated by
reference in this Item 1.

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

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

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

ISSUER PURCHASES OF EQUITY SECURITIES:

<TABLE>
<CAPTION>
                                                                         Total Number of      Maximum Number of
                                                                       Shares Purchased as     Shares that May
                                        Total Number                     Part of Publicly     Yet Be Purchased
                                         of Shares     Average Price    Announced Plans or   Under the Plans or
Period Covered                           Purchased     Paid per Share        Programs             Programs
-------------------------------         -------------  --------------  --------------------  ------------------
<S>                                                <C>   <C>                  <C>                  <C>
April 1 through April 30, 2005                     -     $     -              22,169,720           2,830,280

May 1 through May 31, 2005                         -           -              22,169,720           2,830,280

June 1 through June 30, 2005                  32,000          63.09           22,201,720           2,798,280
                                         -------------  --------------
    Total                                     32,000     $    63.09
                                         =============  ==============

</TABLE>

         See Notes 9 and 10 to the consolidated financial statements for
additional information on repurchases and redemptions of equity securities.

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<PAGE>

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

         The Company held its annual meeting of shareholders on May 5, 2005, 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:

                                         Total Votes
                            ----------------------------------------
          Name              Total Votes For     Total Votes Withheld
----------------------      -----------------   --------------------
B. Wayne Hughes                  118,766,327             1,177,347
Ronald L. Havner, Jr.            118,800,612             1,143,062
Harvey Lenkin                    118,800,133             1,143,541
Robert J. Abernethy              118,714,403             1,229,271
Dann V. Angeloff                 115,104,258             4,839,056
William C. Baker                 104,571,755            15,371,919
John T. Evans                    119,230,644               713,030
Uri P. Harkham                   118,787,914             1,155,760
B. Wayne Hughes, Jr.             115,650,409             4,293,265
Daniel C. Staton                 119,235,152               708,522


2.   The   shareholders   approved   adoption  of  the  Public   Storage,   Inc.
     Performance-Based  Compensation Plan. There were 106,959,902 votes cast for
     the plan;  5,096,589 votes cast against the Plan;  584,952 votes abstained;
     and 7,302,231 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, 2005.  There were  118,375,958  votes cast for  ratification;
     1,390,744 votes cast against ratification; and 176,972 votes abstained.

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<PAGE>

ITEM 6.  EXHIBITS

3.1      Certificate of  Determination  for 6.75%  Cumulative  Preferred  Stock,
         Series E. Filed with  Registrant's  Form 8-A Registration  Statement on
         April 25, 2005  relating  to the  Depositary  Shares Each  Representing
         1/1,000 of a Share of 6.75% Cumulative  Preferred  Stock,  Series E and
         incorporated herein by reference.

10.1     Deposit  Agreement  dated  as  of  April  27,  2005  among  Registrant,
         Equiserve  Inc.,  Equiserve  Trust  Company N.A. and the holders of the
         depositary  receipts evidencing the Depositary Shares Each Representing
         1/1,000 of a Share of 6.75% Cumulative Preferred Stock, Series E. Filed
         with  Registrant's  Form 8-A  Registration  Statement on April 25, 2005
         relating to the Depositary Shares Each Representing  1/1,000 of a Share
         of 6.75% Cumulative  Preferred Stock,  Series E and incorporated herein
         by reference.

10.2*    Consulting Agreement dated as of June 30, 2005. Filed with Registrant's
         Current Report on Form 8-K dated July 1, 2005 and  incorporated  herein
         by reference.

10.3*    Public Storage,  Inc.  Performance Based  Compensation Plan for Covered
         Employees. Filed with Registrant's Current Report on Form 8-K dated May
         11, 2005 and incorporated herein by reference.

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

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

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

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

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


         * Compensatory benefit plan or arrangement or management contract.


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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: August 9, 2005

                        PUBLIC STORAGE, INC.

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

                                       71