SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                    FORM 10-Q

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

For the quarterly period ended March 31, 1999
                               --------------

                                       or

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

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

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

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


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

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


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


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

                                [ X ] Yes [ ] No

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of May 6, 1999:

Common Stock, $.10 par value, 128,537,968 shares outstanding
------------------------------------------------------------
Class B Common Stock, $.10 Par Value - 7,000,000 shares
-------------------------------------------------------
Equity Stock, Series A, $.01 Par Value - 225,000 shares
-------------------------------------------------------

<PAGE>

                              PUBLIC STORAGE, INC.

                                      INDEX


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

Item 1.  Financial Statements

         Condensed Consolidated Balance Sheets at
              March 31, 1999 and December 31, 1998                           1

         Condensed Consolidated Statements of Income for the
              Three Months Ended March 31, 1999 and 1998                     2

         Condensed Consolidated Statements of Shareholders' Equity
              for the Three Months Ended March 31, 1999                      3

         Condensed Consolidated Statements of Cash Flows
              for the Three Months Ended March 31, 1999 and 1998         4 - 5

         Notes to Condensed Consolidated Financial Statements           6 - 17

Item 2.  Management's Discussion and Analysis of
              Financial Condition and Results of Operations            18 - 29

PART II. OTHER INFORMATION (Items 2, 3, 4 and 5 are not applicable)
         -----------------

Item 1.  Legal Proceedings                                                  30

Item 6.  Exhibits and Reports on Form 8-K                                   30

<PAGE>

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

<TABLE>
<CAPTION>
                                                                              MARCH 31,          DECEMBER 31,
                                                                                1999                 1998
                                                                            --------------       --------------       
                                                                             (Unaudited)
                                ASSETS
                                ------
<S>                                                                         <C>                  <C>          
Cash and cash equivalents..........................................         $     102,575        $      51,225
Real estate facilities, at cost:
     Land..........................................................               981,445              803,226
     Buildings.....................................................             2,578,315            2,159,065
                                                                            --------------       --------------       
                                                                                3,559,760            2,962,291
     Accumulated depreciation......................................              (437,655)            (411,176)
                                                                            --------------       --------------       
                                                                                3,122,105            2,551,115
     Construction in process.......................................               121,740               83,138
                                                                            --------------       --------------       
                                                                                3,243,845            2,634,253

Investment in real estate entities.................................               451,846              450,513
Intangible assets, net.............................................               201,307              203,635
Notes receivable from affiliates...................................                39,490                5,415
Other assets.......................................................                71,428               58,863
                                                                            --------------       --------------       
              Total assets.........................................         $   4,110,491        $   3,403,904
                                                                            ==============       ==============       

                 LIABILITIES AND SHAREHOLDERS' EQUITY
                 ------------------------------------
Notes payable......................................................         $     180,845        $      81,426
Accrued and other liabilities......................................                88,872               63,813
                                                                            --------------       --------------       
              Total liabilities....................................               269,717              145,239

Minority interest..................................................               156,941              139,325

Commitments and contingencies

Shareholders' equity:
     Preferred Stock, $0.01 par value, 50,000,000 shares authorized,                                              
       11,138,850   shares  issued  and  outstanding   (11,129,650   
       issued  and outstanding at December 31, 1998), at liquidation
       preference:
         Cumulative Preferred Stock, issued in series..............             1,098,900              868,900

     Common stock, $0.10 par value, 200,000,000 shares authorized,      
       128,306,569 shares issued and outstanding (115,965,945 at                              
       December 31, 1998)..........................................                12,832               11,598
     Class B Common Stock, $0.10 par value, 7,000,000 shares
       authorized and issued.......................................                   700                  700
     Paid-in capital...............................................             2,499,744            2,178,465
     Cumulative net income.........................................               863,930              802,088
     Cumulative distributions paid.................................              (792,273)            (742,411)
                                                                            --------------       --------------       
         Total shareholders' equity................................             3,683,833            3,119,340
                                                                            --------------       --------------       
              Total liabilities and shareholders' equity...........         $   4,110,491        $   3,403,904
                                                                            ==============       ==============       
</TABLE>
                            See accompanying notes.
                                       1

<PAGE>

                              PUBLIC STORAGE, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                  (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                 For the Three Months Ended
                                                                                         March 31,
                                                                            ------------------------------------
                                                                                 1999                 1998
                                                                            ---------------      ---------------      
  REVENUES:
       <S>                                                                  <C>                  <C>    
       Rental income:
           Self-storage facilities...................................       $      129,029       $      111,678
           Commercial properties.....................................                1,914               17,681
           Portable self-storage.....................................                5,428                5,171
       Equity earnings of real estate entities.......................                8,122                2,619
       Facility management fee.......................................                1,414                1,765
       Interest and other income.....................................                2,363                3,652
                                                                            ---------------      ---------------      
                                                                                   148,270              142,566
  EXPENSES:
       Cost of operations:
           Self-storage facilities...................................               40,629               34,946
           Commercial properties.....................................                  638                5,848
           Portable self-storage.....................................                9,364               15,053
       Cost of facility management...................................                  255                  286
       Depreciation and amortization.................................               28,974               28,219
       General and administrative....................................                2,011                2,336
       Interest expense..............................................                1,204                1,162
                                                                            ---------------      ---------------      
                                                                                    83,075               87,850
                                                                            ---------------      ---------------      

       Income before minority interest...............................               65,195               54,716

       Minority interest in income...................................               (3,353)              (6,352)
                                                                            ---------------      ---------------      
  NET INCOME.........................................................       $       61,842       $       48,364
                                                                            ===============      ===============     

  NET INCOME ALLOCATION:
  ----------------------
       Allocable to preferred shareholders...........................       $       21,530       $       20,140
       Allocable to common shareholders..............................               40,312               28,224
                                                                            ---------------      ---------------      
                                                                            $       61,842       $       48,364
                                                                            ===============      ===============     
  PER COMMON SHARE:
  -----------------
       Net income per share - Basic..................................       $        0.34        $        0.26
                                                                            ===============      ===============     
       Net income per share - Diluted................................       $        0.34        $        0.26
                                                                            ===============      ===============     

       Weighted average common shares - Basic........................              118,624              109,466
                                                                            ===============      ===============     
       Weighted average common shares - Diluted......................              119,014              110,036
                                                                            ===============      ===============     
</TABLE>
                            See accompanying notes.
                                       2

<PAGE>

                              PUBLIC STORAGE, INC.
            CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                    FOR THE THREE MONTHS ENDED MARCH 31, 1999
                    (AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                              Cumulative   
                                                                Senior                     Class B                   
                                                              Preferred       Common       Common        Paid-in     
                                                                Stock          Stock        Stock        Capital     
                                                              ----------      -------      --------   ------------   
<S>                                                             <C>           <C>            <C>       <C>           
Balances at December 31, 1998..........................         $868,900      $11,598        $700      $2,178,465    

Issuance of common stock:
   In connection with merger (13,009,485 shares).......                -        1,301           -         345,922    
   Exercise of stock options (21,366 shares)...........                -            2           -             311    

Repurchase of common stock (690,227 shares) ...........                -          (69)          -         (17,509)   

Issuance of preferred stock:
   Public issuance (9,200 shares)......................          230,000            -           -          (7,445)   

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

Cash distributions:
   Cumulative Senior Preferred Stock (including $553,000               -            -           -               -    
     accrued at March 31, 1999)........................
   Common Stock........................................                -            -           -               -    
                                                              ----------      -------      --------   ------------   

Balances at March 31, 1999.............................       $1,098,900      $12,832        $700      $2,499,744    
                                                              ==========      =======      ========   ============   
</TABLE>

<TABLE>
<CAPTION>
                                                              
                                                                                                      Total
                                                                 Cumulative       Cumulative      Shareholders'
                                                                 Net Income     Distributions        Equity
                                                                ------------    -------------     -------------
<S>                                                               <C>            <C>              <C>       
Balances at December 31, 1998..........................           $802,088       $(742,411)       $3,119,340

Issuance of common stock:
   In connection with merger (13,009,485 shares).......                  -               -           347,223
   Exercise of stock options (21,366 shares)...........                  -               -               313

Repurchase of common stock (690,227 shares) ...........                  -               -           (17,578)

Issuance of preferred stock:
   Public issuance (9,200 shares)......................                  -               -           222,555

Net income.............................................             61,842               -            61,842

Cash distributions:
   Cumulative Senior Preferred Stock (including $553,000                 -         (21,530)          (21,530)
     accrued at March 31, 1999)........................
   Common Stock........................................                  -         (28,332)          (28,332)
                                                                ------------    -------------     -------------

Balances at March 31, 1999.............................           $863,930       $(792,273)       $3,683,833
                                                                ============    =============     =============
</TABLE>
                            See accompanying notes.
                                       3

<PAGE>

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

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                For the Three Months Ended
                                                                                        March 31,
                                                                            -----------------------------------       
                                                                                 1999                 1998
                                                                            --------------       --------------       
CASH FLOWS FROM OPERATING ACTIVITIES:
   <S>                                                                      <C>                  <C>          
   Net income......................................................         $      61,842        $      48,364
   Adjustments  to  reconcile  net  income  to net cash  provided  
     by  operating activities:
     Depreciation and amortization.................................                28,974               28,219
     Depreciation included in equity earnings of real estate
       entities....................................................                 4,129                1,865
     Minority interest in income...................................                 3,353                6,352
                                                                            --------------       --------------       
         Total adjustments.........................................                36,456               36,436
                                                                            --------------       --------------       
             Net cash provided by operating activities.............                98,298               84,800
                                                                            --------------       --------------       

CASH FLOWS FROM INVESTING ACTIVITIES:
     Principal payments received on notes receivable from
       affiliates..................................................                13,864                3,982
     Notes receivable from affiliates..............................               (41,200)                   -
     Capital improvements to real estate facilities................                (2,935)              (4,091)
     Construction in process.......................................               (31,309)             (19,422)
     Acquisition of minority interests in consolidated real estate
       partnerships................................................                (3,069)                (736)
     Acquisition of investment in real estate entities.............               (22,802)              (8,361)
     Acquisition of real estate facilities.........................                (5,255)             (39,704)
     Acquisition cost of business combinations.....................              (103,646)              (5,206)
     Refunded deposits to acquire real estate......................                     -               12,500
                                                                            --------------       --------------       
             Net cash used in investing activities.................              (196,352)             (61,038)
                                                                            --------------       --------------       

CASH FLOWS FROM FINANCING ACTIVITIES:
     Repayment of borrowings on the line of credit.................                     -               (7,000)
     Principal payments on notes payable...........................                  (581)              (3,060)
     Net proceeds from the issuance of common stock................                   313              191,266
     Net proceeds from the issuance of preferred stock.............               222,555                    -
     Repurchase of common stock....................................               (17,578)                   -
     Distributions paid to shareholders............................               (49,309)             (44,720)
     Distributions from operations to minority interests in real
       estate entities.............................................                (5,664)             (10,557)
     Net reinvestment  (divestment) by minority interests in
       consolidated real estate entities...........................                (5,003)              51,003
     Other.........................................................                 4,671                1,043
                                                                            --------------       --------------       
              Net cash provided by financing activities............               149,404              177,975
                                                                            --------------       --------------       

Net increase in cash and cash equivalents..........................                51,350              201,737
Cash and cash equivalents at the beginning of the period...........                51,225               41,455
                                                                            --------------       --------------       
Cash and cash equivalents at the end of the period.................         $     102,575        $     243,192
                                                                            ==============       ==============       
</TABLE>
                            See accompanying notes.
                                        4

<PAGE>

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

                                   (UNAUDITED)

                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                For the Three Months Ended
                                                                                          March 31,
                                                                            ------------------------------------      
                                                                                  1999                 1998
                                                                            ---------------      ---------------      

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

 Business combinations:
     <S>                                                                    <C>                  <C>            
     Real estate facilities......................................           $     (596,266)      $      (58,329)
     Construction in process.....................................                  (11,449)
     Investment in real estate entities..........................                     (356)                   -
     Mortgage notes receivable...................................                   (6,739)                   -
     Other assets................................................                   (1,933)                (140)
     Accrued and other liabilities...............................                   15,651                1,604
     Minority interest...........................................                   27,009                  504
     Notes payable...............................................                  100,000                    -

 Reduction to investment in real estate entities in connection
   with business combinations....................................                   23,214               16,325

 Acquisition of real estate facilities in exchange for the
   assumption of notes payable and increase in minority interest.                        -              (15,731)

 Acquisition of minority interest and real estate in exchange 
   for common stock:
     Real estate facilities......................................                        -               (5,233)
     Minority interest...........................................                        -               (6,573)

 Issuance of common stock:
     In connection with a business combination...................                  347,223                    -
     In connection with the conversion of Convertible Preferred
       Stock.....................................................                        -                  623
     To acquire interests in real estate entities................                        -               17,133
     To acquire minority interest in consolidated real estate                            -
       entities..................................................                                        11,070

 Conversion of 8.25% convertible preferred stock.................                        -                 (623)
 Acquisition of investment in real estate entities...............                        -              (17,133)
 Assumption of note payable in connection with the acquisition
   of real estate facilities.....................................                        -               14,526
 Increase in minority interest in connection with the
   acquisition of real estate facilities.........................                        -                1,205

</TABLE>
                            See accompanying notes.
                                       5

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1999
                                   (UNAUDITED)


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

              Public Storage, Inc. (the "Company") is a California  corporation,
     which  was  organized  in  1980.   The  Company  is  a  fully   integrated,
     self-administered  and self-managed  real estate  investment trust ("REIT")
     that acquires,  develops,  owns and operates self-storage  facilities which
     offer self-storage spaces for lease, usually on a month-to-month basis, for
     personal and business  use. The Company  invests in real estate  facilities
     primarily through the acquisition of wholly owned facilities  combined with
     the  acquisition of equity  interests in real estate  entities  owning real
     estate  facilities.  At March 31, 1999, the Company had direct and indirect
     equity interests in 1,435 properties located in 38 states,  including 1,313
     self-storage  facilities,  115 commercial properties,  and seven industrial
     facilities for use in the operations of Public Storage Pickup and Delivery.
     All of the  self-storage  facilities  are operated by the Company under the
     "Public Storage" name,  while the commercial  properties are operated by PS
     Business  Parks,  Inc.,  an  affiliated  public  REIT,  and  its  operating
     partnership  (the REIT and  partnership  are  collectively  referred  to as
     "PSBP").

              In 1996 and 1997, the Company  organized Public Storage Pickup and
     Delivery,  Inc. as a separate  corporation and a related  partnership  (the
     corporation  and partnership  are  collectively  referred to as "PSPUD") to
     operate a portable  self-storage  business that rents storage containers to
     customers for storage generally in leased central warehouses.  At March 31,
     1999, PSPUD operated 42 facilities in 11 states.

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

     Basis of presentation
     ---------------------

              The  accompanying   unaudited  condensed   consolidated  financial
     statements  have  been  prepared  in  accordance  with  generally  accepted
     accounting   principles  for  interim   financial   information   and  with
     instructions  to Form 10-Q and Article 10 of Regulation  S-X.  Accordingly,
     they do not  include  all of the  information  and  footnotes  required  by
     generally accepted accounting principles for complete financial statements.
     The preparation of the consolidated financial statements in conformity with
     generally  accepted  accounting  principles  requires  management  to  make
     estimates  and  assumptions   that  affect  the  amounts  reported  in  the
     consolidated  financial  statements and accompanying  notes. Actual results
     could differ from estimates. In the opinion of management,  all adjustments
     (consisting of normal recurring accruals) necessary for a fair presentation
     have been included.  Operating results for the three months ended March 31,
     1999 are not necessarily indicative of the results that may be expected for
     the year ended  December 31, 1999.  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, 1998.

              The consolidated  financial statements include the accounts of the
     Company,  PSPUD,  and  22  controlled  limited  partnerships  including  an
     operating  partnership  owning 213 of the properties  acquired from Storage
     Trust   Realty,   Inc.   (collectively,   the   "Consolidated   Entities").
     Collectively,  the Company  and the  Consolidated  Entities  own a total of
     1,172 real estate facilities,  consisting of 1,164 self-storage facilities,
     one commercial property, and seven industrial facilities for use by PSPUD.

              At March 31, 1999,  the Company also has equity  investments in 28
     other  affiliated  limited  partnerships  whose  principal  business is the
     ownership of 149 self-storage facilities in aggregate, which are managed by
     the Company.  In addition,  the Company has an ownership  interest in PSBP,
     which owns and operates  114  commercial  properties.  The Company does not
     control these  entities;  accordingly,  the Company's  investments in these
     entities are accounted for using the equity method.

                                       6

<PAGE>

              From the time of PSBP's  formation  through  March 31,  1998,  the
     Company  consolidated  the  accounts of PSBP in its  financial  statements.
     During the second quarter of 1998, the Company's ownership interest in PSBP
     was  reduced  below  50% and,  accordingly,  the  Company  ceased to have a
     controlling interest in PSBP. As a result, the Company,  effective April 1,
     1998, no longer includes the accounts of PSBP in its consolidated financial
     statements  and has accounted for its  investment  using the equity method.
     The  consolidated  statement of income for the three months ended March 31,
     1998  includes the  consolidated  operating  results of PSBP.  Accordingly,
     commercial property operations for the periods after March 31, 1998 reflect
     only the commercial  property operations of facilities owned by the Company
     which  have both  self-storage  and  commercial  use  combined  at the same
     property location.

     Use of estimates
     ----------------

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

     Income taxes
     ------------

              For all taxable years  subsequent to 1980,  the Company  qualified
     and intends to continue to qualify as a REIT,  as defined in Section 856 of
     the  Internal  Revenue  Code.  As a REIT,  the Company is not taxed on that
     portion of its taxable  income which is  distributed  to its  shareholders,
     provided that the Company meets certain tests. The Company believes it will
     meet these tests  during 1999 and,  accordingly,  no  provision  for income
     taxes has been made in the accompanying financial statements.

     Financial instruments
     ---------------------

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

     Real estate facilities
     ----------------------

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

     Allowance for possible losses
     -----------------------------

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

     Intangible assets
     -----------------

              Intangible  assets  consist  of  property   management   contracts
     ($165,000,000)  and the  cost  over  the fair  value  of net  tangible  and
     identifiable  intangible assets ($67,726,000)  acquired.  Intangible assets
     are amortized by the straight-line method over 25 years. At March 31, 1999,
     intangible  assets  are  net of  accumulated  amortization  of  $31,419,000
     ($29,091,000  at  December  31,  1998).   Included  in   depreciation   and
     amortization  expense for the three months ended March 31, 1999 and 1998 is
     $2,328,000 related to the amortization of intangible assets.

                                       7

<PAGE>

     Revenue and expense recognition
     -------------------------------

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

     Environmental costs
     -------------------

              The Company's policy is to accrue environmental assessments and/or
     remediation cost when it is probable that such efforts will be required and
     the  related  costs can be  reasonably  estimated.  The  Company's  current
     practice is to conduct  environmental  investigations  in  connection  with
     property acquisitions.  As a result of environmental  investigations of its
     properties,  which commenced in 1995, the Company recorded an amount, which
     in  management's  best estimate  will be sufficient to satisfy  anticipated
     costs of known investigation and remediation  requirements.  Although there
     can be no  assurance,  the  Company  is  not  aware  of  any  environmental
     contamination  of  any  of  its  facilities  which  individually  or in the
     aggregate would be material to the Company's  overall  business,  financial
     condition, or results of operations.

     Net income per common share
     ---------------------------

              In 1997, the Financial Accounting Standards Board issued Statement
     No. 128,  Earning per Share.  Statement  128  replaced the  calculation  of
     primary  and fully  diluted net income per share with basic and diluted net
     income per share. Unlike primary net income per share, basic net income per
     share  excludes any dilutive  effects of options,  warrants or  convertible
     securities that are convertible into common shares of the Company.

              Diluted net income per common share is computed using the weighted
     average common shares  outstanding,  plus the impact of stock options.  The
     Class B Common Stock is not included in the determination of net income per
     common  share  because all  contingencies  required for the  conversion  to
     common stock have not been satisfied as of March 31, 1999. In addition, the
     inclusion of the Company's convertible preferred stock in the determination
     of net income per common share has been determined to be anti-dilutive  for
     the three months ended March 31, 1998.

              In computing earnings per common share,  preferred stock dividends
     totaling  $21,530,000  and $20,140,000 for the three months ended March 31,
     1999  and  1998,   respectively,   reduced   income   available  to  common
     shareholders.

     Stock-based compensation
     ------------------------

              In October  1995,  the FASB  issued SFAS No. 123  "Accounting  for
     Stock-Based  Compensation"  ("Statement  123") which provides  companies an
     alternative to accounting for stock-based  compensation as prescribed under
     APB Opinion No. 25 (APB 25). Statement 123 encourages, but does not require
     companies to recognize  expense for stock-based  awards based on their fair
     value at date of grant.  Statement  123 allows  companies  to  continue  to
     follow  existing  accounting  rules  (intrinsic  value method under APB 25)
     provided  that  pro-forma  disclosures  are  made of what  net  income  and
     earnings per share would have been had the new fair value method been used.
     The Company has elected to adopt the disclosure  requirements  of Statement
     123 but will continue to account for stock-based compensation under APB 25.

     Reclassifications
     -----------------

              Certain  reclassifications  have  been  made  to the  consolidated
     financial statements for 1998 in order to conform to the 1999 presentation.

                                       8

<PAGE>

3.   Merger with Storage Trust Realty, Inc.
     --------------------------------------

              On March 12, 1999, the Company completed a merger transaction with
     Storage Trust Realty,  Inc. ("Storage  Trust").  As a result of the merger,
     the Company acquired interests in 215 self-storage facilities located in 16
     states totaling  approximately  12 million net rentable square feet. In the
     merger,  each share of  beneficial  interest of Storage Trust was exchanged
     for 0.86 shares of the  Company's  common stock  (approximately  13,009,485
     shares of the  Company's  common  stock were  issued and  approximately  an
     additional  1,011,963  shares were reserved for issuance upon conversion of
     limited  partnership units in Storage Trust's operating  partnership).  The
     aggregate  acquisition cost of the merger was  approximately  $574 million,
     consisting of the issuance of the Company's  common stock of  approximately
     $347 million, cash of approximately $104 million, the assumption of debt in
     the amount of $100 million,  and the Company's  pre-existing  investment in
     Storage Trust of approximately $23 million.

              The merger was structured as a tax-free  transaction and accounted
     for  using  the  purchase  method.  Accordingly,  allocations  of the total
     acquisition  cost to the net assets  acquired were made based upon the fair
     value of such assets and liabilities assumed, as follows:

                                                            In thousands
                                                          ---------------
          Real estate facilities..................          $  596,266
          Construction in process.................              11,449
          Investment in real estate entities......                 356
          Mortgage note receivable................               6,739
          Other assets............................               1,933
          Accrued liabilities.....................             (15,651)
          Minority interest.......................             (27,009)
                                                          ---------------
                                                            $  574,083
                                                          ===============

              The historical  operating results of the above merger prior to the
     date of the  merger  has not  been  included  in the  Company's  historical
     operating  results.  Pro forma selected financial data for the three months
     ended March 31, 1999 and 1998 as though the above merger had been effective
     at January 1, 1998 are as follows:

                                        Three Months Ended    Three Months Ended
(In thousands, except per share data)     March 31, 1999        March 31, 1998
--------------------------------------- ------------------    ------------------

Revenues...............................      $165,414             $162,012
Net income.............................       $65,771              $52,878
Net income per common share (Basic)....        $0.34                $0.27
Net income per common share (Diluted)..        $0.34                $0.27

              The pro forma data does not purport to be indicative of operations
     that would have  occurred had the merger  occurred at the beginning of each
     period or future  results of operations  of the Company.  Certain pro forma
     adjustments  were made to the  combined  historical  amounts to reflect (i)
     expected  reductions in general and administrative  expenses,  (ii) certain
     significant  acquisitions  made by Storage Trust in 1998,  (iii)  estimated
     increased  interest  costs to finance the cash  portion of the  acquisition
     cost, and (iv) estimated increased depreciation expense.

                                       9

<PAGE>

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

              Activity in real estate facilities during 1999 is as follows:

                                                              In thousands
                                                            ---------------
Operating facilities, at cost
  Balance at December 31, 1998......................        $    2,962,291
  Property acquisitions - merger with Storage Trust.               596,266
  Facility contributed to joint venture.............               (11,194)
  Property acquisitions - third party purchases.....                 5,255
  Developed facility................................                 4,156
  Acquisition of minority interest..................                   989
  Partial condemnation of facility..................                  (938)
  Capital improvements..............................                 2,935
                                                            ---------------
  Balance at March 31, 1999.........................             3,559,760
                                                            ---------------

Accumulated depreciation:
  Balance at December 31, 1998......................              (411,176)
  Additions during the year.........................               (26,646)
  Partial condemnation of facility..................                   167
                                                            ---------------
  Balance at March 31, 1999.........................              (437,655)
                                                            ---------------

Construction in progress:
  Balance at December 31, 1998......................                83,138
  Current development...............................                31,309
  Property acquisitions - merger with Storage Trust.                11,449
  Developed facility................................                (4,156)
                                                            ---------------
  Balance at March 31, 1999.........................               121,740
                                                            ---------------

  Total real estate facilities......................        $    3,243,845
                                                            ===============

              Construction  in  progress  at  March  31,  1999  consists  of  32
     self-storage  facilities, 8 expansions of existing self-storage facilities,
     and  8   industrial   facilities   which  could  be  utilized  as  portable
     self-storage facilities.  The developed facility is an industrial facility.
     The Company's policy is to capitalize  interest incurred on debt during the
     course of  construction  of its  self-storage  and  industrial  facilities.
     Interest  capitalized  during the three  months  ended  March 31,  1999 was
     $958,000 compared to $1,257,000 for the same period in 1998.

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

              At  March  31,  1999,  the  Company's  investment  in real  estate
     entities  consists  of (i) limited and  general  partnership  interests  in
     approximately   27   affiliated   partnerships,   which   principally   own
     self-storage  facilities,  (ii) the Company's ownership interest in a joint
     venture,  established  to develop and operate  self-storage  facilities and
     (iii)  the  Company's  ownership  interest  in  PSBP.  Such  interests  are
     accounted for using the equity method of accounting.

              In April 1997, the Company formed a joint venture partnership with
     an  institutional  investor  (the "Joint  Venture") to  participate  in the
     development of approximately $220 million of self-storage  facilities.  The
     Joint Venture has opened a total of 28 facilities with a total cost of $142

                                       10

<PAGE>

     million at March 31, 1999,  and has 6 projects in process with an aggregate
     cost  incurred  to  date  of  approximately  $22.4  million  ($6.7  million
     estimated to complete) at March 31, 1999.

              The Joint Venture is currently reviewing an additional 15 projects
     ($30.5 million incurred at March 31, 1999, with remaining costs to complete
     of $32.6  million).  Upon approval of these  additional 15 facilities,  the
     Joint  Venture  will be fully  committed.  These 15  projects  include  one
     completed  facility and two facilities for which  construction  has not yet
     begun.  At March 31,  1999,  approximately  $25.8  million is  included  in
     construction in process and approximately  $4.7 million is included in real
     estate  facilities with respect to these 15 projects;  upon approval by the
     joint venture,  these  construction  costs will be transferred to the Joint
     Venture.

              During  the  three  months  ended  March  31,  1999,  the  Company
     recognized earnings from its investments totaling  $8,122,000.  Included in
     equity in earnings of real estate entities for the three months ended March
     31,  1999  is  the  Company's  share  of  depreciation   expense   totaling
     $4,129,000.  Summarized  combined financial data (based on historical cost)
     with  respect to those  unconsolidated  real  estate  entities in which the
     Company had an ownership interest at March 31, 1999 are as follows:

<TABLE>
<CAPTION>
                                                         For the three months ended March 31, 1999
                                          ---------------------------------------------------------------------
                                                Other           Development
                                          Equity Investments   Joint Venture          PSBP             Total
                                          ------------------   --------------       ----------        ---------
                                                                   (Amounts in thousands)

<S>                                             <C>               <C>               <C>               <C>      
Rental income.........................          $  16,679         $  2,742          $  29,117         $  48,538
Other income..........................                405              137                134               676
                                          ------------------   --------------       ----------        ---------
Total revenues........................             17,084            2,879             29,251            49,214
                                          ------------------   --------------       ----------        ---------

Cost of operations....................              5,646            1,469              8,399            15,514
Depreciation..........................              2,154              870              6,733             9,757
Other expenses........................              1,648               33              1,711             3,392
                                          ------------------   --------------       ----------        ---------
Total expenses........................              9,448            2,372             16,843            28,663
                                          ------------------   --------------       ----------        ---------

Net income before minority interest...              7,636              507             12,408            20,551
Minority interest ....................                  -                -             (2,966)           (2,966)
                                          ------------------   --------------       ----------        ---------
Net income............................          $   7,636        $     507          $   9,442         $  17,585
                                          ==================   ==============       ==========        =========

At March 31, 1999:
Real estate, net .....................          $ 167,940        $ 161,988          $ 722,349        $1,052,277
Total assets..........................            215,387          172,967            729,614         1,117,968
Total liabilities.....................             75,725           13,544             81,673           170,942
Minority interest.....................                  -                -            154,858           154,858
Total equity..........................            139,662          159,423            493,083           792,168

The Company's investment (book value)
  at March 31, 1999...................          $ 167,079        $  47,827          $ 236,940         $ 451,846

The Company's effective average
  ownership interest at March 31, 1999             37%                30%               41%                34%

</TABLE>

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

              As of  March  31,  1999,  the  Company  had no  borrowings  on its
     unsecured  credit  agreement with a group of commercial  banks.  The credit

                                       11

<PAGE>

     agreement (the "Credit Facility") has a borrowing limit of $150 million and
     an expiration date of July 31, 2001. The expiration date may be extended by
     one  year  on  each  anniversary  of  the  credit  agreement.  Interest  on
     outstanding  borrowings is payable  monthly.  At the option of the Company,
     the rate of interest  charged is equal to (i) the prime rate or (ii) a rate
     ranging  from the London  Interbank  Offered Rate  ("LIBOR")  plus 0.40% to
     LIBOR plus 1.10%  depending on the  Company's  credit  ratings and coverage
     ratios, as defined. In addition, the Company is required to pay a quarterly
     commitment  fee of 0.250% (per  annum) of the unused  portion of the Credit
     Facility. The Credit Facility allows the Company, at its option, to request
     the  group of banks to  propose  the  interest  rate they  would  charge on
     specific borrowings not to exceed $50 million.  However, in no case may the
     interest  rate  proposal be greater than the amount  provided by the Credit
     Facility.

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

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

              In  connection  with  the  merger  with  Storage  Trust,  minority
     interest increased by approximately $27 million,  reflecting the fair value
     of 1,011,963  operating  partnership  units ("OP Units") in Storage Trust's
     operating partnership owned by minority interests. OP Units are convertible
     on a one-for-one basis (subject to certain  limitations) into common shares
     of the Company at the option of the unitholder. Minority interest in income
     with respect to OP Units  reflects the OP Units' share of the net income of
     the Company,  with net income allocated to minority  interests with respect
     to OP Units on a per unit basis equal to diluted earnings per common share.

              In addition,  during the three  months  ended March 31, 1999,  the
     Company reduced minority interest by approximately $2.1 million through the
     acquisition of such interests for cash.

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

     Preferred stock
     ---------------

              At March 31,  1999 and  December  31,  1998,  the  Company had the
following series of Preferred Stock outstanding:

                                       12

<PAGE>

<TABLE>
<CAPTION>
                                                      At March 31, 1999            At December 31, 1998
                                                 ----------------------------    --------------------------
                                     Dividend      Shares         Carrying         Shares        Carrying
              Series                   Rate      Outstanding       Amount        Outstanding      Amount
----------------------------------  -----------  ------------ ---------------    -----------   ------------
<S>                                    <C>         <C>         <C>                <C>          <C>         
Series A .......................       10.000%     1,825,000   $  45,625,000      1,825,000    $ 45,625,000
Series B .......................        9.200%     2,386,000      59,650,000      2,386,000      59,650,000
Series C........................     Adjustable    1,200,000      30,000,000      1,200,000      30,000,000
Series D........................        9.500%     1,200,000      30,000,000      1,200,000      30,000,000
Series E........................       10.000%     2,195,000      54,875,000      2,195,000      54,875,000
Series F........................        9.750%     2,300,000      57,500,000      2,300,000      57,500,000
Series G .......................        8.875%         6,900     172,500,000          6,900     172,500,000
Series H .......................        8.450%         6,750     168,750,000          6,750     168,750,000
Series I .......................        8.625%         4,000     100,000,000          4,000     100,000,000
Series J .......................        8.000%         6,000     150,000,000          6,000     150,000,000
Series K .......................        8.250%         4,600     115,000,000              -               -
Series L .......................        8.250%         4,600     115,000,000              -               -
                                                 ------------ ---------------    -----------   ------------
Total  Cumulative  Senior 
Preferred Stock.................                  11,138,850  $1,098,900,000     11,129,650    $868,900,000
                                                 ============ ===============    ===========   ============
</TABLE>

              On January 19,  1999,  the Company  issued 4.6 million  depositary
     shares  (each  representing  1/1,000  of a share) of its  Preferred  Stock,
     Series K, raising net proceeds of  approximately  $111.3 million.  On March
     10,  1999,  the  Company  issued  4.6  million   depositary   shares  (each
     representing  1/1,000 of a share) of its Preferred Stock, Series L, raising
     net proceeds of approximately $111.3 million.

              Holders of the Company's  preferred  stock will not be entitled to
     vote on most matters,  except under certain  conditions and as noted above.
     In the event of a cumulative  arrearage equal to six quarterly dividends or
     failure by the  Company to  maintain  a Debt Ratio (as  defined)  of 50% or
     less, the 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 all
     events  of  default  have been  cured.  At March 31,  1999,  there  were no
     dividends in arrears and the Debt Ratio was 4.4%.

              Except  under  certain   conditions   relating  to  the  Company's
     qualification  as a REIT,  the Senior  Preferred  Stock are not  redeemable
     prior to the following  dates:  Series A - September  30, 2002,  Series B -
     March 31, 2003,  Series C - September  30, 1999,  Series D - September  30,
     2004,  Series E - January 31, 2005,  Series F - April 30, 2005,  Series G -
     December  31,  2000,  Series H - January 31,  2001,  Series I - October 31,
     2001,  Series J - August 31, 2002, Series K - January 19, 2004 and Series L
     - March 10, 2004. On or after the respective  dates,  each of the series of
     Senior Preferred Stock will be redeemable, at the option of the Company, in
     whole or in part, at $25 per share (or depositary  share in the case of the
     Series G,  Series H,  Series I,  Series J, Series K and Series L), plus any
     accrued and unpaid dividends.

     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  give  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.

              In June 1997, the Company contributed $22,500,000 (225,000 shares)
     of its Equity Stock,  Series A ("Equity  Stock") to a partnership  in which
     the Company is the general partner.  As a result of this contribution,  the

                                       13

<PAGE>

     Company  obtained a controlling  interest in the  Partnership  and began to
     consolidate  the accounts of the Partnership and therefore the equity stock
     is  eliminated  in  consolidation.  The Equity Stock ranks on a parity with
     Common Stock and junior to the Company's  Cumulative Senior Preferred Stock
     with respect to general  preference rights and has a liquidation  amount of
     ten times the amount paid to each Common  Share up to a maximum of $100 per
     share.  Quarterly  distributions per share on the Equity Stock are equal to
     the lesser of (i) 10 times the amount paid per Common Stock or (ii) $2.20.

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

              During the three months ended March 31, 1999,  the Company  issued
     13,009,485  shares of  common  stock in  connection  with the  merger  with
     Storage  Trust and 21,366  shares of common  stock in  connection  with the
     exercise of stock options.

              In June 1998,  the  Company's  Board of Directors  authorized  the
     repurchase  from time to time of up to  10,000,000  shares of the Company's
     common  stock on the open market or in privately  negotiated  transactions.
     During the quarter ended March 31, 1999, the Company repurchased a total of
     690,227 shares, for a total aggregate cost of approximately  $17.6 million.
     Through  March 31, 1999,  the Company has  repurchased a total of 3,509,627
     shares  of  common  stock  (of  the  10,000,000  shares  authorized)  at an
     aggregate cost of approximately $89.9 million.

     Class B Common Stock
     --------------------

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

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

              For these purposes, FFO per share of Common Stock (as defined) was
     $2.21 for the four consecutive calendar quarters ended March 31, 1999.

     Dividends
     ---------

              The  following  summarizes  dividends  paid during the first three
     months of 1999:

                                       14

<PAGE>

                                        Distributions Per
                                            Share or
                                        Depositary Share    Total Distributions
                                        ------------------  -------------------
Series A..........................            $0.625            $1,140,000
Series B..........................            $0.575             1,372,000
Series C..........................            $0.422               506,000
Series D..........................            $0.594               713,000
Series E..........................            $0.625             1,372,000
Series F..........................            $0.609             1,401,000
Series G..........................            $0.555             3,828,000
Series H..........................            $0.528             3,565,000
Series I..........................            $0.539             2,156,000
Series J..........................            $0.500             3,000,000
Series K .........................            $0.418             1,924,000
                                                            -------------------
                                                                20,977,000
Common............................            $0.220            28,332,000
                                                            -------------------
   Total dividends paid...........                             $49,309,000
                                                            ===================

              At March 31, 1999, the Company accrued  distributions with respect
     to the Series L  preferred  stock for the period  from the date of issuance
     through  March 31, 1999  totaling  $553,000  which will be paid on June 30,
     1999.

              The  dividend  rate on the Series C Preferred  Stock for the first
     quarter of 1999 was equal to 6.75% per annum.  The dividend  rate per annum
     will be adjusted quarterly and will be equal to the highest of one of three
     U.S. Treasury indices (Treasury Bill Rate, Ten Year Constant Maturity Rate,
     or Thirty Year Constant  Maturity Rate)  multiplied by 110%.  However,  the
     dividend  rate for any dividend  period will neither be less than 6.75% per
     annum nor greater than 10.75%.  The  dividend  rate for the quarter  ending
     June 30, 1999 will be equal to 6.75% per annum.

10.  Segment Information
     -------------------

              In July 1997,  the FASB issued  Statement of Financial  Accounting
     Standards No. 131, "Disclosures about Segments of an Enterprise and Related
     Information"  ("FAS 131"),  which  establishes  standards  for the way that
     public business  enterprises report  information about operating  segments.
     This statement is effective for financial  statements for periods beginning
     after  December 15, 1997.  The Company has adopted this standard  effective
     for the year  ended  December  31,  1998.  For  information  regarding  the
     description  of  each  reportable   segment,   policies   relating  to  the
     measurement  of segment profit or loss,  and segment  assets,  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, 1998.

              The Company's  income  statement  provides most of the information
     required in order to determine  the  performance  of each of the  Company's
     three  segments.  The following  tables  reconcile the  performance of each
     segment,   in  terms  of  segment  revenues  and  segment  income,  to  the
     consolidated  revenues and net income of the Company.  It further  provides
     detail of the segment  components of the income statement item,  "Equity in
     earnings of real estate entities."

                                       15

<PAGE>

<TABLE>
<CAPTION>
                                                                    Three months ended
                                                                         March 31,
                                                                 -----------------------
                                                                    1999         1998       Change
                                                                 ----------- -----------   ----------
                                                                    (Dollar amounts in thousands)
RECONCILIATION OF REVENUES BY SEGMENT:
--------------------------------------

Self storage
------------
  <S>                                                            <C>         <C>           <C>      
  Self-storage property rentals............................      $  129,029  $  111,678    $  17,351
  Facility management......................................           1,414       1,667         (253)
  Equity in earnings - self storage property operations....           4,233       4,672         (439)
                                                                 ----------- -----------   ----------
      Self storage segment revenues........................         134,676     118,017       16,659
                                                                 ----------- -----------   ----------
Portable self storage .....................................           5,428       5,171          257
---------------------                                            ----------- -----------   ----------

Commercial  properties
----------  ----------
  Commercial property rentals..............................           1,914      17,681      (15,767)
  Facility management......................................               -          98          (98)
  Equity in earnings - commercial property operations......           8,456         126        8,330
                                                                 ----------- -----------   ----------
      Commercial properties  segment revenues..............          10,370      17,905       (7,535)
                                                                 ----------- -----------   ----------

Other items not allocated to segments:
--------------------------------------
  Equity in earnings - Depreciation (self storage) ........          (1,458)     (1,723)         265
  Equity in earnings - Depreciation (commercial properties)          (2,670)        (40)      (2,630)
  Equity in earnings - general and administrative and other            (439)       (416)         (23)
  Interest and other income................................           2,363       3,652       (1,289)
                                                                 ----------- -----------   ----------
      Total other items not allocated to segments..........          (2,204)      1,473       (3,677)
                                                                 ----------- -----------   ----------

      Total revenues.......................................      $  148,270  $  142,566     $  5,704
                                                                 =========== ===========   ==========
</TABLE>
                                       16

<PAGE>

<TABLE>
<CAPTION>
                                                                     Three months ended
                                                                          March 31,
                                                                  -----------------------
                                                                     1999        1998        Change
                                                                  ----------- -----------   ----------
                                                                     (Dollar amounts in thousands)
RECONCILIATION OF NET INCOME BY SEGMENT:
----------------------------------------

Self storage
------------
  <S>                                                              <C>         <C>          <C>     
  Self-storage properties .................................        $  88,400   $  76,732    $ 11,668
  Facility management......................................            1,159       1,393        (234)
  Equity in earnings - self storage property operations....            4,233       4,672        (439)
                                                                  ----------- -----------   ----------
      Total self storage segment net income................           93,792      82,797      10,995
                                                                  ----------- -----------   ----------

Portable self storage                                                 (3,936)     (9,882)      5,946
---------------------                                             ----------- -----------   ----------

Commercial  properties
----------------------

  Commercial properties....................................            1,276      11,833     (10,557)
  Facility management......................................                -          86         (86)
  Equity in earnings - commercial property operations......            8,456         126       8,330
                                                                  ----------- -----------   ----------
      Total commercial property segment net income........             9,732      12,045      (2,313)
                                                                  ----------- -----------   ----------

Other items not allocated to segments:
--------------------------------------
  Equity in earnings - depreciation (self-storage) ........           (1,458)     (1,723)        265
  Equity in earnings - depreciation (commercial properties)           (2,670)        (40)     (2,630)
  Equity in earnings - general and administrative and other             (439)       (416)        (23)
  Depreciation - self storage..............................          (28,550)    (25,113)     (3,437)
  Depreciation - commercial properties.....................             (424)     (3,106)      2,682
  Interest and other income................................            2,363       3,652      (1,289)
  General and administrative...............................           (2,011)     (2,336)        325
  Interest expense.........................................           (1,204)     (1,162)        (42)
  Minority interest in income..............................           (3,353)     (6,352)      2,999
                                                                  ----------- -----------   ----------
      Total other items not allocated to segments..........          (37,746)    (36,596)     (1,150)
                                                                  ----------- -----------   ----------

      Total net income ....................................        $  61,842   $  48,364      13,478
                                                                  =========== ===========   ==========
</TABLE>

11.      Subsequent Event
         ----------------

              Effective  April 30, 1999, the Company  disposed of six properties
     acquired in the merger with Storage Trust for an aggregate of approximately
     $10.5  million and granted the acquiror an option  exercisable  in December
     1999  to  acquire  an  additional  eight  properties  for an  aggregate  of
     approximately  $18.8  million.  The  Company  is now  leasing  these  eight
     properties to the acquiror.

                                       17

<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 the Company's 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 21F 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 the actual  results and  performance of the
Company  to be  materially  different  from  those  expressed  or implied in the
forward looking statements.  Such factors include the impact of competition from
new and existing self-storage and commercial facilities which could impact rents
and occupancy  levels at the  Company's  facilities;  the  Company's  ability to
evaluate,  finance,  and integrate  acquired and developed  properties  into the
Company's existing  operations;  the Company's ability to effectively compete in
the markets that it does business in; 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;  the acceptance by
consumers of the Pickup and  Delivery  concept;  the impact of general  economic
conditions upon rental rates and occupancy  levels at the Company's  facilities;
and the availability of permanent capital at attractive rates.

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

         Net income for the three  months  ended March 31, 1999 was  $61,842,000
compared to $48,364,000 for the same period in 1998, representing an increase of
$13,478,000  or 27.9%.  The increase in net income was  primarily  the result of
improved  property  operations,   the  acquisition  of  additional  real  estate
investments  during 1998 and 1999, and reduced  operating losses from the Pickup
and Delivery portable self-storage business.

         Net income  allocable to the common  shareholders  was  $40,312,000  or
$0.34 per common share on a diluted basis (based on 119,014,000 weighted average
diluted  shares)  for  the  three  months  ended  March  31,  1999  compared  to
$28,224,000  or $0.26 per common share on a diluted basis (based on  110,036,000
weighted  average  diluted shares) for the same period in 1998. In computing net
income per common  share,  dividends  to the  Company's  preferred  shareholders
($21,530,000 and $20,140,000 for the three months ended March 31, 1999 and 1998,
respectively)  have been  deducted  from net  income in  determining  net income
allocable to the  Company's  common  shareholders.  Net income  allocable to the
common  shareholders has been negatively  impacted by operating losses generated
from the Company's  portable  self-storage  business,  which were  $3,936,000 or
approximately  $0.03 per common share on a diluted  basis,  for the three months
ended March 31, 1999 and $9,882,000,  or approximately $0.09 per common share on
a diluted basis, for the three months ended March 31, 1998.

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

         Rental  income  and cost of  operations  have  increased  for the three
months  ended  March 31,  1999  compared  to the same  period in 1998 due to the
Company's merger and acquisition  activities  throughout 1998 and 1999. This was
offset  partially by the  deconsolidation  of PSBP whereby the accounts of PSBP,
effective April 1, 1998, were no longer  consolidated with the Company's and the
Company began to account for its investment in PSBP using the equity method.  As
a result of these  items,  the number of  facilities  included in the  Company's
consolidated  financial  statements  has increased from 975 at March 31, 1998 to
1,165 at March 31, 1999.

         SELF-STORAGE  OPERATIONS:  The following table summarizes the operating
results (before  depreciation) of (i) the 890  self-storage  facilities that the
Company  owned as of  December  31, 1997 (the  "Consistent  Group") and (ii) all
other  facilities  for which  operations  were not  reflected  in the  Company's
financial  statements  for the three  months  ended  March 31, 1999 and the same
period in 1998 (the "Other Facilities"):

                                       18

<PAGE>


SELF-STORAGE OPERATIONS:                       Three months ended
------------------------                            March   31,       
                                               ---------------------  Percentage
                                                 1999        1998       Change
                                               --------   ----------   ---------
                                                (Dollar amounts in thousands)
Rental income:
--------------
  Consistent Group.........................    $117,446    $ 110,914        5.9%
  Other Facilities.........................      11,583          764    1,416.1%
                                               --------   ----------   ---------
                                                129,029      111,678       15.5%
                                               --------   ----------   ---------

Cost of operations:
-------------------
  Consistent Group.........................      36,785       34,646        6.2%
  Other Facilities.........................       3,844          300    1,181.3%
                                               --------   ----------   ---------
                                                 40,629       34,946       16.3%
                                               --------   ----------   ---------

Net operating income:
---------------------
  Consistent Group.........................      80,661       76,268        5.8%
  Other Facilities.........................       7,739          464    1,567.9%
                                               --------   ----------   ---------
                                                $88,400      $76,732       15.2%
                                               ========   ==========   =========

Consistent Group data:
----------------------
  Gross margin.............................      68.7%        68.8%       (0.1)%
  Weighted average :
     Occupancy.............................      90.9%        91.0%       (0.1)%
     Realized annual rent per square foot..      $9.83        $9.28         5.9%
     Scheduled annual rent per square foot.     $10.19        $9.80         4.0%

Number of facilities:
  Consistent group.........................       890          890          -
  Other Facilities.........................       274           19      1,342.1%

Net rentable sq. ft.:
  Consistent group.........................    53,327       53,327          -
  Other Facilities.........................    15,553        1,162      1,238.5%


         Rental  income  for the three  months  ended  March 31,  1999 is net of
promotional  discounts  totaling  $4.2 million  compared to $3.9 million for the
same period in 1998. In addition,  included in cost of operations  for the three
months ended March 31, 1999 are costs associated with the telephone  reservation
center and advertising  totaling $1.9 million,  compared to $1.2 million for the
same period in 1998.

         In 1998 and through March 31, 1999, the Company acquired a total of 274
self-storage  facilities,  of which 58 were existing mature facilities  obtained
from affiliated  entities and managed by the Company,  one was a newly developed
facility, 2 were third party acquisitions of existing mature facilities, and 213
were acquired in connection  with the Storage  Trust  merger.  Accordingly,  the
Company has  knowledge  of the  historical  operations  of the  existing  mature
facilities  obtained  from  affiliates  prior to when the Company  acquired  the
facilities.  The following table  summarizes the pro forma operating  results of
the  Company's  stabilized  self-storage  facilities  that it owned at March 31,
1999,  excluding the 213  facilities  acquired in the merger with Storage Trust,
assuming that the Company owned these facilities as of January 1, 1998:

                                       19

<PAGE>

  PRO FORMA SUMMARY OF SELF-STORAGE               Three months ended
  ---------------------------------                    March 31,
     OPERATIONS:                                 ---------------------
     -----------                                   1999        1998      Change
                                                 ---------   ---------   -------
                                                    (Amounts in thousands)
  Rental income................................  $ 125,007   $ 118,189      5.8%
  Cost of operations...........................     39,193      37,069      5.7%
                                                 ---------   ---------   -------
  Net operating income.........................  $  85,814   $  81,120      5.8%
                                                 =========   =========   =======

         The above table excludes the property  operations of the 213 properties
acquired  in the  Storage  Trust  merger  and the  Company's  7 newly  developed
properties  (one  opened in 1998,  two  opened in 1997 and four  opened in 1996)
which are in various  stages of  "fill-up."  The aggregate  development  cost of
these seven properties totaled approximately $27.8 million.

         COMMERCIAL  PROPERTY  OPERATIONS:.  The following  table sets forth the
commercial property operations included in the Company's financial statements:

  COMMERCIAL PROPERTY OPERATIONS-                 Three months ended
  -------------------------------                      March 31,
     HISTORICAL                                  ---------------------
     ----------                                    1999        1998      Change
                                                 ---------   ---------  --------
                                                    (Amounts in thousands)
Rental income..............................     $  1,914      $17,681    (89.2)%
Cost of operations.........................          638        5,848    (89.1)%
                                                 ---------   ---------  --------
Net operating income.......................     $  1,276      $11,833    (89.2)%
                                                 =========   =========  ========

         During  the  second  quarter  of 1998,  the  Company  ceased  to have a
controlling interest in PSBP. As a result,  effective April 1, 1998, the Company
no longer includes the accounts of PSBP in its consolidated financial statements
and has  accounted  for its  investment  during the three months ended March 31,
1999 using the equity method (see "Equity in earnings of real estate entities").
The income  statement  for the three  months  ended March 31, 1998  includes the
consolidated  operating  results of PSBP.  The  significant  decrease  in rental
income and cost of operations for the three months ended March 31, 1999 reflects
the Company's deconsolidation of PSBP.

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

  PRO FORMA SUMMARY OF COMMERCIAL                 Three months ended
  -------------------------------                      March 31,
     OPERATIONS:                                 ---------------------
     -----------                                   1999        1998      Change
                                                 ---------   ---------  --------
                                                    (Amounts in thousands)
Rental income.................................. $  1,914     $  1,746     9.6%
Cost of operations.............................      638          715   (10.7)%
                                                 ---------   ---------  --------
Net operating income........................... $  1,276     $  1,031    23.8%
                                                 =========   =========  =======-

         EQUITY  IN  EARNINGS  OF  REAL  ESTATE  ENTITIES:  In  addition  to its
ownership  of equity  interests  in PSBP,  the  Company  had general and limited
partnership  interests in 28 limited  partnerships at March 31, 1999.  (PSBP and
the limited  partnerships  are collectively  referred to as the  "Unconsolidated
Entities"). Due to the Company's limited ownership interest and control of these
entities,  the Company does not  consolidate  the accounts of these entities for
financial reporting purposes, and accounts for such investments using the equity
method.

         Equity in earnings of real estate  entities  for the three months ended
March 31, 1999 consists of the  Company's  pro rata share of the  Unconsolidated
Entities  based upon the  Company's  ownership  interest for the period.  In the
aggregate,   the  Unconsolidated  Entities  own  a  total  of  263  real  estate
facilities,  149 of which are self-storage facilities.  The following table sets

                                       20

<PAGE>

forth the  significant  components of the  Company's  equity in earnings of real
estate entities:


  HISTORICAL SUMMARY:                             Three months ended
  -------------------                                  March 31,
                                                 --------------------    Dollar
                                                   1999        1998      Change
                                                 ---------  ---------  ---------
                                                    (Amounts in thousands)
Property operations:
  PSBP...................................        $ 8,422    $     -    $  8,422
  Development Joint Venture..............            346          -         346
  Other investments - self storage.......          3,887      4,672        (785)
  Other investments - commercial properties           34        126         (92)
                                                 ---------  ---------  ---------
                                                  12,689      4,798       7,891
                                                 ---------  ---------  ---------
Depreciation:
  PSBP...................................         (2,667)         -      (2,667)
  Development Joint Venture..............           (261)         -        (261)
  Other investments - self storage ......         (1,197)    (1,723)        526
  Other investments - commercial properties           (3)       (40)         37
                                                 ---------  ---------  ---------
                                                  (4,128)    (1,763)     (2,365)
                                                 ---------  ---------  ---------
Other: (1)
  PSBP...................................           (826)         -        (826)
  Development Joint Venture..............             22          -          22
  Other investments......................            365       (416)        781
                                                 ---------  ---------  ---------
                                                    (439)      (416)        (23)
                                                 ---------  ---------  ---------

Total equity in earnings of real estate
entities.................................        $ 8,122    $ 2,619     $  5,503
                                                 =========  =========  =========

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

         The  increase  in 1999  earnings  compared to 1998 is  principally  the
result of the  deconsolidation  of PSBP whereby the accounts of PSBP,  effective
April 1, 1998,  were no longer  consolidated  with the Company's and the Company
began to account for its investment in PSBP using the equity method.

         PORTABLE SELF-STORAGE OPERATIONS:  At March 31, 1999, PSPUD operated 42
facilities  in 11 states.  Due to the  start-up  nature of the  business,  PSPUD
incurred operating losses totaling  approximately  $3,936,000 and $9,882,000 for
the three  months  ended March 31, 1999 and 1998,  respectively,  summarized  as
follows.

  PORTABLE SELF-STORAGE:                           Three months ended
  ----------------------                               March 31,
                                                 --------------------    Dollar
                                                   1999        1998      Change
                                                 ---------  ---------  ---------
                                                    (Amounts in thousands)

Rental and other income ................         $ 5,428    $  5,171       $257
                                                 ---------  ---------  ---------
Cost of operations:
    Direct operating costs..............           7,409       9,481     (2,072)
    Marketing and advertising...........             422       3,558     (3,136)
    Depreciation........................           1,182         891        291
    General and administrative..........             351       1,123       (772)
                                                 ---------  ---------  ---------
       Total cost of operations.........           9,364      15,053     (5,689)
                                                 ---------  ---------  ---------
Operating losses........................         $(3,936)   $ (9,882)   $ 5,946
                                                 =========  =========  =========

         Included  in direct  operating  costs  above are $2.8  million and $3.2
million,  respectively,  with  respect to facility  leases for the three  months
ended March 31, 1999 and 1998, respectively.

         The  Company   believes  that  the  quarterly  losses  from  the  PSPUD
operations  peaked during the third quarter of 1997.  PSPUD's  operating  losses
were  approximately  $12.1 million for the third quarter of 1997,  $10.5 million

                                       21

<PAGE>

for the fourth quarter of 1997, $9.9 million for the first quarter of 1998, $8.3
million for the second  quarter of 1998,  $6.9 million for the third  quarter of
1998,  $5.9 million in the fourth quarter of 1998 and, $3.9 million in the first
quarter of 1999. The Company believes this trend of decreasing  operating losses
will continue with increases in PSPUD's revenues.

         Until the PSPUD facilities are operating profitably, PSPUD's operations
are expected to continue to  adversely  impact the  Company's  earnings and cash
flow.  PSPUD  believes  that its  business  is likely to be more  successful  in
certain  markets than in others.  There can be no  assurances as to the level of
PSPUD's expansion, level of gross rentals, level of move-outs or profitability.

PROPERTY MANAGEMENT OPERATIONS
--------------------------------------------------------------------------------

         At March 31, 1999, the Company managed 184 self-storage facilities (149
owned by  Unconsolidated  Entities  and 35 owned by third  parties)  pursuant to
property  management  contracts.  The property  management  contracts  generally
provide  for  compensation  equal  to 6% of  gross  revenues  of the  facilities
managed.

  PROPERTY MANAGEMENT OPERATIONS:            Three months ended
  -------------------------------                March 31,
                                           --------------------    Dollar
                                             1999        1998      Change
                                           ---------  ---------  ---------
                                              (Amounts in thousands)

Facility management fees:
    Self-storage.................           $1,414      $1,667     $ (253)
    Commercial properties........                -          98        (98)
                                           ---------  ---------  ---------
                                             1,414       1,765       (351)
                                           ---------  ---------  ---------
Cost of operations:
    Self-storage.................              255         274        (19)
    Commercial properties........                -          12        (12)
                                           ---------  ---------  ---------
                                               255         286        (31)
                                           ---------  ---------  ---------
Net operating income:
    Self-storage.................            1,159       1,393       (234)
    Commercial properties........                -          86        (86)
                                           ---------  ---------  ---------
                                            $1,159      $1,479     $ (320)
                                           =========  =========  =========

         Since March 31, 1998, the Company  completed  several  acquisitions  of
self-storage facilities from affiliated entities and, as a result,  self-storage
properties  which were managed by the Company  became owned  facilities  and the
related management fee income with respect to these facilities ceased. Since the
Company  has  acquired in the past,  and may  continue to seek to acquire in the
future,  self-storage facilities owned by Unconsolidated Entities, the company's
facility  management  income and related cost of operations  should  continue to
decrease.

         The  decrease  in  property  management   operations  with  respect  to
commercial properties for 1999 as compared to 1998 is due to the deconsolidation
of PSBP, which eliminated  commercial  properties management fee income and cost
of operations after April 1, 1998.

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

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

                                       22

<PAGE>
                                             Three months ended
                                                 March 31,
                                           --------------------  
                                             1999        1998       Change
                                           ---------  ---------    ---------
                                              (Amounts in thousands)

Sales of packaging material and truck 
 rental income:
   Revenues.............................   $ 2,135     $ 1,482     $    653
   Cost of operations...................     1,810       1,291         (519)
                                           ---------  ---------    ---------
     Net operating income...............       325         191          134
Interest and other income...............     2,038       3,461       (1,423)
                                           ---------  ---------    ---------
  Total interest and other income.......   $ 2,363     $ 3,652     $ (1,289)
                                           =========  =========    =========

         Interest and other income  principally  consists of interest  earned on
cash balances and interest related to mortgage notes receivable. The decrease in
interest  income for the three months ended March 31, 1999  compared to the same
periods in 1998 is  primarily  due to decreased  interest  income on excess cash
balances.

         DEPRECIATION AND  AMORTIZATION:  Depreciation and amortization  expense
has increased  $755,000 to $28,974,000 for the three months ended March 31, 1999
as compared to  $28,219,000  for the same period in 1998.  These  increases  are
principally due to the acquisition of additional real estate  facilities  during
1998 and 1999,  offset partially by the  deconsolidation  of PSBP.  Amortization
expense with  respect to  intangible  assets  totaled  $2,328,000  for the three
months ended March 31, 1999 and 1998.

         MINORITY INTEREST IN INCOME: Minority interest in income represents the
income allocable to equity interests in the Consolidated Entities, which are not
owned by the  Company.  Minority  interest in income for the three  months ended
March 31,  1999 was  $3,353,000  compared to  $6,352,000  for the same period in
1998.

         The decrease in minority  interest in income is primarily the result of
the  deconsolidation of PSBP, whereby the minority interest with respect to PSBP
after March 31,  1998 was  removed  from the  Company's  consolidated  financial
statements.

SUPPLEMENTAL PROPERTY DATA AND TRENDS
--------------------------------------------------------------------------------

         At March 31,  1999,  there were  approximately  51  ownership  entities
owning in aggregate  1,313  self-storage  facilities,  including the  facilities
which  the  Company  owns  and/or  operates.  At March  31,  1999,  149 of these
facilities were owned by the Unconsolidated  Entities,  in which the Company has
an ownership  interest and uses the equity method of  accounting.  The remaining
1,164  facilities are owned by the Company and  Consolidated  Entities,  many of
which were acquired  through  business  combinations,  including the merger with
Storage  Trust,  during  1999 and  1998.  The  following  table  summarizes  the
Company's  investment in real estate facilities as of March 31, 1999,  excluding
the seven real estate facilities used in PSPUD's operations:

<TABLE>
<CAPTION>
                                                Number of Facilities in which the      Net Rentable Square Footage
                                                Company has an ownership interest             (in thousands)
                                               -----------------------------------  ----------------------------------
                                               Self-Storage  Commercial             Self-Storage Commercial
                                                Facilities   Properties    Total     Facilities  Properties    Total
                                               ------------------------- ---------  ------------------------ ---------
<S>                                                  <C>            <C>       <C>      <C>              <C>    <C>   
Wholly-owned facilities....................          628            1         629      38,445           9      38,454
Facilities owned by Consolidated Entities..          536            -         536      30,435           -      30,435
                                               -------------  ---------- ---------  -----------  ----------- ---------
    Total consolidated facilities..........        1,164            1       1,165      68,880           9      68,889
Facilities owned by Unconsolidated Entities          149          114         263       8,634      11,269      19,903
                                               -------------  ---------- ---------  -----------  ----------- ---------
    Total  facilities  in which  the  
      Company has an ownership interest....        1,313          115       1,428      77,514      11,278      88,792
                                               =============  ========== =========  ===========  =========== =========
</TABLE>

         In order to evaluate how the Company's overall portfolio has performed,
management  analyzes  the  operating   performance  of  a  consistent  group  of
self-storage facilities representing 984 (57.5 million net rentable square feet)
of the  1,313  self-storage  facilities  (herein  referred  to as  "Same  Store"
self-storage  facilities).  The 984  facilities  represent a pool of properties,

                                       23

<PAGE>

which have been operated under the "Public Storage" name, at a stabilized level,
by the Company since  January 1, 1994.  From time to time,  the Company  removes
facilities  from the  "Same  Store"  pool as a  result  of  expansions  or other
activities,  which make such  facilities'  results  not  comparable  to previous
periods. The Same Store group of properties includes 861 consolidated facilities
and 123  facilities  owned  by  Unconsolidated  Entities.  The  following  table
summarizes the  pre-depreciation  historical operating results of the Same Store
self-storage facilities:

SAME STORE SELF-STORAGE FACILITIES:          Three months ended
-----------------------------------              March 31,           
(historical property operations)           -----------------------   Percentage
                                             1999         1998         Change
                                           ---------    ----------   ----------
                                                  (Amounts in thousands,
                                               except rent per square foot)

Rental income.......................       $ 131,709    $ 124,211       6.0%
Cost of operations (includes an
  imputed 6% property management fee)
  (1)...............................          47,422       44,816       5.8%
                                           ---------    ----------   ----------
Net operating income................       $  84,287    $  79,395       6.2%
                                           =========    ==========   ==========

Gross profit margin (2).............           64.0%        63.9%       0.1%

WEIGHTED AVERAGE:
  Occupancy.........................           91.3%        91.5%      (0.2)%
  Realized annual rent per sq. ft (3)         $10.04      $  9.44       6.4%
  Scheduled annual rent per sq. ft (3)        $10.45       $10.00       4.5%
--------------------------------------------------------------------------------

1.       Assumes  payment  of  property   management  fees  on  all  facilities,
         including  those  facilities  owned by the  Company for which no fee is
         paid. Cost of operations consists of the following:

   Three months ended March 31,                     1999            1998
   ----------------------------                   -------         -------
     Payroll expense                              $11,738         $11,044
     Property taxes                                12,656          12,487
     Imputed 6% property management fees            7,903           7,453
     Advertising                                    2,046           1,646
     Telephone  reservation center costs            1,991           1,358
     Other                                         11,088          10,828
                                                  -------         ------- 
                                                  $47,422         $44,816
                                                  =======         =======

2.       Gross  profit  margin is computed by dividing  property  net  operating
         income  (before  depreciation  expense)  by  rental  revenues.  Cost of
         operations  includes  a 6%  management  fee.  The gross  profit  margin
         excluding  the  facility  management  fee was 70.0%,  and 69.9% for the
         three   months   ended   March  31,   1999  and   1998,   respectively.
         
3.       Realized  rent per square  foot as  presented  throughout  this  report
         represents  the  actual  revenue  earned  per  occupied   square  foot.
         Management  believes this is a more relevant measure than the scheduled
         rental rates,  since scheduled rates can be discounted  through the use
         of promotions.

         Rental  income  for the  Same  Store  facilities  included  promotional
discounts totaling $4,143,000 for the three months ended March 31, 1999 compared
to $4,249,000 for the same period in 1998.

         During the year ended  December  31, 1998 as compared to the year ended
December 31, 1997, the Same Store  facilities  exhibited growth in rental income
and net  operating  income  of 7.6%  and  8.2%,  respectively,  as a  result  of
increased  realized  rents  and  occupancies.  The  Company  does not  expect to
maintain  this  growth  rate  in  1999 as it  does  not  anticipate  significant
increases in occupancies  and  anticipates  smaller  increases in realized rents
than it experienced in 1998.

                                       24

<PAGE>

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

         The Company believes that its internally generated net cash provided by
operating  activities  will  continue to be  sufficient to enable it to meet its
operating  expenses,   capital  improvements,   debt  service  requirements  and
distributions to shareholders for the foreseeable future.

         Operating as a real estate  investment  trust  ("REIT"),  the Company's
ability to retain cash flow for  reinvestment  is  restricted.  In order for the
Company to maintain its REIT status, a substantial portion of its operating cash
flow must be used to make  distributions to its shareholders  (see "REIT STATUS"
below). However, despite the significant distribution requirements,  the Company
has been able to retain a  significant  amount of its operating  cash flow.  The
following table summarizes the Company's ability to pay the minority  interests'
distributions,   its  dividends  to  the  preferred   shareholders  and  capital
improvements  to maintain  the  facilities  through the use of cash  provided by
operating  activities.  The  remaining  cash flow  generated is available to the
Company to make both scheduled and optional  principal  payments on debt and for
reinvestment.

                                                     For the three months ended
                                                             March 31,
                                                     ---------------------------
                                                         1999           1998
                                                     ------------   ------------
                                                       (Amounts in thousands)
Net income........................................... $  61,842       $  48,364
Depreciation and amortization........................    28,974          28,219
Depreciation from Unconsolidated Entities............     4,129           1,865
Minority interest in income..........................     3,353           6,352
                                                     ------------   ------------
  Net cash provided by operating activities..........    98,298          84,800

Distributions from operations to minority interests..    (5,664)        (10,557)
                                                     ------------   ------------
Cash from operations allocable to the Company's 
  shareholders.......................................    92,634          74,243

Less: preferred stock dividends......................   (21,530)        (20,140)
                                                     ------------   ------------
Cash from operations available to common 
  shareholders.......................................    71,104          54,103

Capital improvements to maintain facilities:.........    (2,935)         (4,090)
Add back: minority interest share of capital 
  improvements to maintain facilities................       192             558
                                                     ------------   ------------
Funds available for principal payments on debt, 
  common dividends and reinvestment..................    68,361          50,571

Cash distributions to common shareholders............   (28,332)        (24,580)
                                                     ------------   ------------
Funds available for principal payments on debt
  and reinvestment................................... $  40,029       $  25,991
                                                     ============   ============

         The Company expects to fund its growth  strategies with cash on hand at
March 31, 1999,  internally generated retained cash flows, proceeds from issuing
equity  securities and borrowings  under its $150 million credit  facility.  The
Company  intends  to repay  amounts  borrowed  under the  credit  facility  from
undistributed  operating  cash  flow or,  as market  conditions  permit  and are
determined to be  advantageous,  from the public or private  placement of equity
securities.

         The Company's portfolio of real estate facilities remains substantially
unencumbered.  At March 31, 1999,  the Company had mortgage debt  outstanding of
$34.8 million and had consolidated  real estate  facilities with a book value of
$3.2 billion.  The Company has been reluctant to finance its  acquisitions  with
debt and  generally  will only  increase  its  mortgage  borrowing  through  the
assumption of pre-existing debt on acquired real estate facilities.

         During the first  quarter of 1999,  the  Company  issued a total of 9.2
million  depositary  shares  (each  representing  1/1,000  of a  share)  of  its
Preferred Stock,  Series K and L, raising net proceeds of  approximately  $222.6
million.  Proceeds of the offerings were utilized to pay related costs of $103.6
million in connection with the Storage Trust merger. The remaining proceeds will
be utilized to fund the Company's development  activities,  PSPUD activities and
acquisition activities.

                                       25

<PAGE>

         DISTRIBUTION  REQUIREMENTS:  The  Company's  conservative  distribution
policy  has been the  principal  reason  for the  Company's  ability  to  retain
significant  operating  cash  flows  which  have  been  used to make  additional
investments  and reduce  debt.  During the three months ended March 31, 1999 and
1998, the Company  distributed to common  shareholders  approximately  39.8% and
45.4% of its cash available from  operations  allocable to common  shareholders,
respectively.

         During the three months ended March 31,1999, the Company paid dividends
totaling  $20,977,000 to the holders of the Company's Senior Preferred Stock and
$28,332,000 to the holders of Common Stock. In addition,  at March 31, 1999, the
Company accrued  distributions  with respect to the Series L preferred stock for
the period from the date of issuance  through March 31, 1999  totaling  $553,000
which  will  be paid on  June  30,  1999.  The  Company  estimates  the  regular
distribution requirements for fiscal 1999 with respect to Senior Preferred Stock
outstanding at December 31, 1998 to be approximately $76.2 million. With respect
to the preferred stock issued in January and March 1999, the annual distribution
requirement is approximately  $19.0 million.  Distributions  with respect to the
common  stock will be  determined  based upon the  Company's  REIT  distribution
requirements  after taking into  consideration  distributions  to the  Company's
preferred shareholders.

         The  Company  expects  to make a special  cash  distribution  to common
shareholders in 1999 assuming a continuation of its increasing  level of taxable
income.

         CAPITAL  IMPROVEMENT  REQUIREMENTS:  During 1999, the Company  budgeted
approximately  $20.1  million for capital  improvements  ($19.5  million for its
self-storage  facilities and $0.6 million for its commercial  space),  excluding
amounts to be incurred  with respect to the  facilities  acquired in the Storage
Trust merger. The minority interests' share of the budgeted capital improvements
is approximately $1.5 million. During the three months ended March 31, 1999, the
Company  incurred  capital   improvements  of  approximately  $2.9  million.  In
addition, the Company expects to spend over the next 18 months approximately $15
million in property improvements to the properties acquired in the Storage Trust
merger.

         DEBT  SERVICE  REQUIREMENTS:  The  Company  does not believe it has any
significant refinancing risks with respect to its mortgage debt, all of which is
fixed rate. At March 31, 1999, the Company had total  outstanding  notes payable
of  approximately  $180,845,000.  In connection  with the March 1999 merger with
Storage Trust, the Company assumed $100 million of notes payable.
Approximate  principal  maturities  of notes  payable  at March 31,  1999 are as
follows:

                                   Unsecured      Fixed Rate
                                 Senior Notes    Mortgage Debt       Total
                                 -------------   -------------   -------------  
                                              (Amounts in thousands)
                                   
  1999 (remainder of)............   $  8,000       $     5,817     $   13,817
  2000...........................      8,750             2,622         11,372
  2001...........................      9,500             2,910         12,410
  2002...........................     24,450             3,229         27,679
  2003...........................     35,900             3,584         39,484
  Thereafter.....................     59,400            16,683         76,083
                                 -------------   -------------   -------------  
                                    $146,000       $    34,845     $  180,845
                                 =============   =============   =============  
  Weighted Average Rate                 7.4%             10.4%           8.0%
                                 =============   =============   =============  
                              
         REPURCHASES OF THE COMPANY'S COMMON STOCK: As previously announced, the
Company's  Board of Directors  authorized the repurchase from time to time of up
to  10,000,000  shares of the  Company's  common  stock on the open market or in
privately  negotiated  transactions.  In the quarter  ended March 31, 1999,  the
Company  repurchased a total of 690,227  shares,  for a total  aggregate cost of
approximately  $17.6 million.  Cumulatively  since the repurchase  announcement,
through March 31, 1999, the Company has repurchased a total of 3,509,627  shares
of  common  stock  at  an  aggregate  cost  of   approximately   $89.9  million.

                                       26

<PAGE>

         DEVELOPMENT OF SELF-STORAGE  FACILITIES:  As previously  announced,  in
April 1997,  the Company and an  institutional  investor  formed a joint venture
partnership  for the purpose of  developing  up to $220 million of  self-storage
facilities. The joint venture is funded solely with equity capital consisting of
30% from the  Company and 70% from the  institutional  investor.  The  Company's
share of the cost of the real estate in the joint venture is approximately $49.4
million at March 31, 1999.

         During the quarter ended March 31, 1999, the joint venture opened three
new self storage  facilities  that it had developed  (approximately  191,000 net
rentable sq. ft.). In addition, one project that was completed by the Company in
August 1998 was  contributed to the joint venture in the quarter ended March 31,
1999. As of March 31, 1999, the joint venture had 28 operating facilities,  with
1,711,000 net rentable square feet and total  development costs of approximately
$142.3  million.  As of March  31,  1999,  the joint  venture  is  developing  6
additional projects  (approximately  409,000 net rentable square feet) that were
in process,  with total costs incurred of $22.4 million and estimated  remaining
costs to complete of $6.7 million.

         The joint  venture is  reviewing  the final 15 projects  (approximately
959,000 net rentable sq. ft), and upon  approval the joint venture will be fully
committed.  These  projects  are  currently  being  developed  (one of  these 15
projects has already been opened,  and  construction has not yet begun on two of
these projects) by the Company until they are approved by the joint venture.  As
of March 31, 1999,  the Company has incurred  total  development  costs of $30.5
million (estimated remaining costs to complete of $32.7 million) with respect to
these 15 projects.

         Excluding the  aforementioned  15 properties that are being reviewed by
the joint venture and the aforementioned 6 properties that the joint venture was
developing,  the Company is  developing 20  additional  self storage  facilities
(1,199,000 net rentable square feet) with total incurred costs at March 31, 1999
of $30.2 million (estimated  remaining costs to complete of $56.0 million),  and
has identified 23 additional  self-storage facilities for development (1,321,000
net rentable square feet),  with total estimated  costs of  approximately  $93.9
million. These projects are subject to significant contingencies.

         REIT STATUS: The Company believes that it has operated,  and intends to
continue to operate, in such a manner as to qualify as a REIT under the Internal
Revenue Code of 1986, but no assurance can be given that it will at all times so
qualify.  To the extent that the Company continues to qualify as a REIT, it will
not be taxed,  with certain  limited  exceptions,  on the taxable income that is
distributed  to its  shareholders,  provided  that at least  95% of its  taxable
income is so  distributed  prior to  filing of the  Company's  tax  return.  The
Company has satisfied the REIT distribution requirement since 1980.

         FUNDS FROM  OPERATIONS:  Total funds from operations or "FFO" increased
to $92,634,000 for the three months ended March 31, 1999 compared to $74,243,000
for the same  period  in 1998.  FFO  available  to  common  shareholders  (after
deducting  preferred  stock  dividends)  increased to $71,104,000  for the three
months ended March 31, 1999 compared to $54,103,000 for the same period in 1998.
FFO means net income or (loss)  (computed in accordance with generally  accepted
accounting  principles)  before:  (i) gain or (loss) on early  extinguishment of
debt,  (ii)  minority  interest  in  income  and  (iii)  gain or  (loss)  on the
disposition  of real  estate,  adjusted as follows:  (i) plus  depreciation  and
amortization  (including  the  Company's  pro-rata  share  of  depreciation  and
amortization  of  unconsolidated  equity  interests and  amortization  of assets
acquired in a merger,  including property  management  agreements and goodwill),
and (ii) less FFO attributable to minority interest.

         FFO is a supplemental  performance  measure for equity REITs as defined
by the National  Association of Real Estate Investment Trusts, Inc.  ("NAREIT").
The NAREIT  definition does not  specifically  address the treatment of minority
interest in the  determination  of FFO or the treatment of the  amortization  of
property  management  agreements and goodwill.  In the case of the Company,  FFO
represents  amounts  attributable to its  shareholders  after deducting  amounts
attributable   to  the  minority   interests  and  before   deductions  for  the
amortization of property  management  agreements and goodwill.  FFO is presented
because  management,  as well as many industry  analysts  consider FFO to be one
measure of the  performance  of the Company and it is used in  establishing  the
terms of the Class B Common Stock. FFO does not take into consideration  capital

                                       27

<PAGE>

improvements,  scheduled  principal  payments on debt,  distributions  and other
obligations  of  the  Company.  Accordingly,  FFO is not a  substitute  for  the
Company's  cash flow or net  income  (as  discussed  above) as a measure  of the
Company's liquidity or operating performance. FFO is not comparable to similarly
entitled  items  reported  by other  REITs  that do not define it exactly as the
Company defines it.

         IMPACT OF YEAR 2000
         -------------------

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

         The Company has two phases in its process  with  respect to each of its
systems; i) assessment,  whereby the Company evaluates whether the system is Y2K
compliant and identifies the plan of action with respect to remediating  any Y2K
issues identified and ii) implementation, whereby the Company completes the plan
of action prepared in the assessment  phase and verifies that Y2K compliance has
been achieved.

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

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

         The Company  exchanges  electronic data with certain outside vendors in
the banking and payroll  processing areas. The Company has been advised by these
vendors that their systems are or will be Year 2000 compliant, but has requested
a Year 2000 compliance  certification  from these  entities.  The Company is not
aware of any other vendors, suppliers, or other external agents with a Y2K Issue
that would materially impact the Company's results of operations,  liquidity, or
capital resources.  However,  the Company has no means of ensuring that external
agents  will be Year 2000  compliant,  and there  can be no  assurance  that the
Company has  identified  all such  external  agents.  The  inability of external
agents to complete their Year 2000 compliance  process in a timely fashion could
materially  impact the Company.  The effect of non-compliance by external agents
is not determinable.

         The  cost of the  Company's  year  2000  compliance  activities  (which
primarily  consists of the costs of new systems) is  estimated at  approximately
$4.3  million,  of which  approximately  $3.5 million has been incurred to date.
These costs are capitalized. The Company's year 2000 compliance efforts have not
resulted in any significant deferrals in other information system projects.

         The costs of the projects and the date on which the Company  expects to
achieve Year 2000 Compliance are based upon  management's  best  estimates,  and
were derived utilizing  numerous  assumptions of future events.  There can be no
assurance that these estimates will be achieved, and actual results could differ
materially  from those  anticipated.  There can be no assurance that the Company
has identified all potential Y2K Issues either within the Company or at external

                                       28

<PAGE>

agents.  In addition,  the impact of the Y2K issue on governmental  entities and
utility  providers  and  the  resultant  impact  on  the  Company,  as  well  as
disruptions  in the general  economy,  may be material but cannot be  reasonably
determined or quantified.

                                       29

<PAGE>

PART II.  OTHER INFORMATION

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

ANDERSON V. PUBLIC STORAGE,  INC., San Francisco Superior Court (filed September
19, 1997)
GRANT V. PUBLIC STORAGE, INC., San Diego Superior Court (filed October 6, 1997)
WREN V. PUBLIC  STORAGE,  INC., San Francisco  Superior Court (filed October 16,
1997)

         Each of the plaintiffs in these cases is suing the Company on behalf of
a  purported  class of  California  tenants who rented  storage  spaces from the
Company and contends that the Company's  fees for late payments under its rental
agreements  for  storage  space  constitutes   unlawful  "penalties"  under  the
liquidated damages  provisions of California law and under  California's  unfair
business practices act. None of the plaintiffs has assigned any dollar amount to
the claims.

         In February 1998,  the lower court  dismissed the Anderson case, but in
May 1999 the  court of  appeal  reversed  the  lower  court's  dismissal  of the
plantiff's claim under the California unfair business practices act and affirmed
the dismissal  under the liquidated  damages  provisions of California  law. The
Company is  continuing  to  vigorously  contest  the  claims in all three  legal
proceedings.

         In addition,  the Company is a party to various claims,  complaints and
other legal  actions that have arisen in the normal course of business from time
to time. The Company believes the outcome of these pending legal proceedings, in
the  aggregate,  will not have a material  adverse  effect on the  operations or
financial position of the Company.

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

         (a)  The following Exhibits are included herein:

           ( 3)  Amendment to Bylaws Adopted on May 6, 1999

           (11)  Statement re: Computation of Earnings per Share

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

           (27)  Financial Data Schedule

         (b)  Reports on Form 8-K

           The  Company  filed a Current  Report on Form 8-K dated  January  13,
           1999,  pursuant to Item 5, which filed certain  exhibits  relating to
           the Company's public offering of Depositary  Shares each representing
           1/1,000 of a share of 8 1/4% Cumulative Preferred Stock, Series K.

           The Company  filed a Current  Report on Form 8-K dated March 4, 1999,
           pursuant  to Item 5, which  filed  certain  exhibits  relating to the
           Company's  public  offering of  Depositary  Shares each  representing
           1/1,000 of a share of 8 1/4% Cumulative Preferred Stock, Series L.

                                       30

<PAGE>

                                   SIGNATURES

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


                         DATED:  May 17, 1999

                         PUBLIC STORAGE, INC.


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

                                       31