SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                    FORM 10-Q

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


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

                                       or

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


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

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

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



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


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


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





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

                                [ X ] Yes [ ] No

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of August 8 , 1998:

Common Stock, $.10 par value, 116,491,167 shares outstanding
------------------------------------------------------------

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

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


<PAGE>


                              PUBLIC STORAGE, INC.

                                      INDEX



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

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

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

            Condensed Consolidated Statements of  Shareholders Equity
              for the Six Months Ended June 30, 1998                        3

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

            Notes to Condensed Consolidated Financial Statements          6 - 13

Item 2.     Management's Discussion and Analysis of
              Financial Condition and Results of Operations              14 - 24

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

Item 1.     Legal Proceedings                                               25

Item 6.     Exhibits and Reports on Form 8-K                                25


<PAGE>


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


<TABLE>
<CAPTION>

                                                                                        June 30,            December 31,
                                                                                         1998                   1997
                                                                                    ---------------       ---------------
          
                                                                                      (Unaudited)
                                     ASSETS
                                     ------

<S>                                                                                  <C>                   <C>          
Cash and cash equivalents....................................................        $    182,707          $      41,455

Real estate facilities, at cost:
   Land......................................................................             752,608                845,299
   Buildings.................................................................           2,000,806              2,232,230
                                                                                    ---------------       ---------------
                                                                                        2,753,414              3,077,529
   Accumulated depreciation..................................................            (361,758)              (378,248)
                                                                                    ---------------       ---------------
                                                                                        2,391,656              2,699,281
   Construction in process...................................................              69,542                 42,635
                                                                                    ---------------       ---------------
                                                                                        2,461,198              2,741,916
                                                                                    ---------------       ---------------

Investment in real estate entities...........................................             470,772                225,873

Intangible assets, net.......................................................             208,288                212,944

Mortgage notes receivable from affiliates....................................              47,937                 21,807

Other assets.................................................................              62,613                 67,650
                                                                                    ---------------       ---------------
              Total assets...................................................        $  3,433,515          $   3,311,645
                                                                                    ===============       ===============           

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


Revolving line of credit.....................................................        $          -          $       7,000
Notes payable................................................................              86,255                 96,558
Accrued and other liabilities................................................              62,276                 70,648
                                                                                    ---------------       ---------------
         Total liabilities...................................................             148,531                174,206
                                                                                    ---------------       ---------------
Minority interest............................................................             154,074                288,479

Commitments and contingencies

Shareholders' equity:

   Preferred Stock, $0.01 par value,  50,000,000 shares  authorized,  13,210,638
     shares  issued  and  outstanding  (13,261,984  issued  and  outstanding  at
     December 31, 1997), at liquidation preference:

         Cumulative Preferred Stock, issued in series........................             868,900                868,900
         Convertible Preferred Stock.........................................              52,027                 53,308

   Common stock, $0.10 par value,  200,000,000  shares  authorized,  114,188,964
     shares issued and outstanding (105,102,145 at December 31, 1997)........
                                                                                           11,420                 10,511
   Class B Common Stock, $0.10 par value, 7,000,000 shares authorized and
     issued..................................................................                 700                    700

   Paid-in capital...........................................................           2,170,616              1,903,782

   Cumulative net income.....................................................             680,632                575,069

   Cumulative distributions paid.............................................            (653,385)              (563,310)
                                                                                    ---------------       ---------------
         Total shareholders' equity..........................................           3,130,910              2,848,960
                                                                                    ---------------       ---------------
              Total liabilities and shareholders' equity.....................        $  3,433,515          $   3,311,645
                                                                                    ===============       ===============
</TABLE>
                            See accompanying notes.
                                       1


<PAGE>


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

                                   (Unaudited)


<TABLE>
<CAPTION>
                                                   For the Three Months Ended                For the Six Months Ended
                                                            June 30,                                 June 30,
                                                --------------------------------          --------------------------------
                                                     1998              1997                    1998               1997
                                                ---------------  ---------------          ---------------  ---------------
REVENUES:
  Rental income:
       <S>                                       <C>                 <C>                   <C>                 <C>      
       Self-storage facilities............       $ 119,887           $ 89,113              $ 231,565           $ 171,490
       Commercial properties..............           1,715              8,571                 19,396              16,168
       Portable self-storage..............           6,118              1,102                 11,289               1,574
  Equity earnings of real estate entities.           7,317              5,017                  9,936              10,238
  Facility management fee.................           1,652              2,891                  3,417               5,943
  Interest and other income...............           4,352              2,651                  8,004               4,672
                                                ---------------  ---------------          ---------------  ---------------
                                                   141,041            109,345                283,607             210,085
                                                ---------------  ---------------          ---------------  ---------------

EXPENSES:
  Cost of operations:
       Self-storage facilities............          35,892             26,284                 70,838              52,775
       Commercial properties..............             654              3,573                  6,502               6,757
       Portable self-storage..............          14,460              7,869                 29,513              10,690
  Cost of facility management.............             268                466                    554                 942
  Depreciation and amortization..........           25,192             20,703                 53,411              40,490
  General and administrative.............            2,226              1,655                  4,562               3,274
  Interest expense.......................              933              1,962                  2,095               3,559
                                                ---------------  ---------------          ---------------  ---------------
                                                    79,625             62,512                167,475             118,487
                                                ---------------  ---------------          ---------------  ---------------

   Income before minority interest........          61,416             46,833                116,132              91,598

   Minority interest in income............          (4,217)            (2,582)               (10,569)             (5,029)
                                                ---------------  ---------------          ---------------  ---------------

NET INCOME................................       $  57,199           $ 44,251              $ 105,563             $86,569
                                                ===============  ===============          ===============  ===============

NET INCOME ALLOCATION:
----------------------
  Allocable to preferred shareholders.....       $  20,129           $ 30,668              $  40,269             $49,818
  Allocable to common shareholders........          37,070             13,583                 65,294              36,751
                                                ---------------  ---------------          ---------------  ---------------
                                                 $  57,199           $ 44,251              $ 105,563             $86,569
                                                ===============  ===============          ===============  ===============

PER COMMON SHARE:
-----------------
  Net income per share - Basic............           $0.33              $0.14                  $0.58               $0.39
                                                ===============  ===============          ===============  ===============

  Net income per share - Diluted..........           $0.32              $0.14                  $0.58               $0.39
                                                ===============  ===============          ===============  ===============

  Weighted average common shares - 
       Basic..............................         113,970             97,524                111,731              93,326
                                                ===============  ===============          ===============  ===============

  Weighted average common shares - 
       Diluted............................         114,430             98,046                112,246              93,883
                                                ===============  ===============          ===============  ===============
</TABLE>
                            See accompanying notes.
                                       2


<PAGE>


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

                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                     Preferred Stock
                                                             ----------------------------
                                                                                                                Class B      
                                                               Cumulative                       Common          Common       
                                                                 Senior       Convertible       Stock           Stock        
                                                             -------------   -------------   -------------   -------------   
<S>                                                           <C>             <C>             <C>              <C>           
Balances at December 31, 1997........................         $  868,900      $   53,308      $   10,511       $     700     

Issuance of common stock:
     Public issuance (7,951,821 shares)..............                  -               -             794               -     
     Conversion of 8.25% Convertible Preferred Stock
        into common stock (86,249 shares)............                  -          (1,281)              9               -     
     Acquisition of investment in real estate
        entities and minority interest from
        affiliate (914,094 shares)...................                  -               -              92               -     
     In connection with mergers (433,526 shares).....                  -               -              44               -     
     Exercise of stock options (191,429 shares)......                  -               -              19               -     

Repurchase of Common Shares (490,300 shares) .......                   -               -             (49)              -     

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

Cash distributions:
   Cumulative Senior Preferred Stock.................                  -               -               -               -     
   8.25% Convertible Preferred Stock.................                  -               -               -               -     
   Common Stock......................................                  -               -               -               -     
                                                             -------------   -------------   -------------   -------------   

Balances at June 30, 1998............................         $  868,900      $   52,027      $   11,420        $    700     
                                                             =============   =============   =============   =============   
</TABLE>

<TABLE>
<CAPTION>
                                                                                                               Total
                                                               Paid-in       Cumulative      Cumulative     Shareholders'
                                                               Capital       Net Income     Distributions      Equity
                                                            -------------   -------------   -------------   --------------
<S>                                                           <C>            <C>             <C>            <C>          
Balances at December 31, 1997........................         $1,903,782     $  575,069      $  (563,310)   $   2,848,960

Issuance of common stock:
     Public issuance (7,951,821 shares)..............            233,731             -                -           234,525
     Conversion of 8.25% Convertible Preferred Stock
        into common stock (86,249 shares)............              1,272             -                -                 -
     Acquisition of investment in real estate
        entities and minority interest from
        affiliate (914,094 shares)...................             28,110             -                -            28,202
     In connection with mergers (433,526 shares).....             13,773             -                -            13,817
     Exercise of stock options (191,429 shares)......              2,890             -                -             2,909

Repurchase of Common Shares (490,300 shares) .......             (12,942)            -                -           (12,991)

Net income...........................................                  -       105,563                -           105,563

Cash distributions:
   Cumulative Senior Preferred Stock.................                  -             -          (38,106)          (38,106)
   8.25% Convertible Preferred Stock.................                  -             -           (2,163)           (2,163)
   Common Stock......................................                  -             -          (49,806)          (49,806)
                                                            -------------   -------------   -------------   --------------

Balances at June 30, 1998............................         $2,170,616     $ 680,632      $  (653,385)    $   3,130,910
                                                            =============   =============   =============   ==============
</TABLE>
                            See accompanying notes.
                                       3


<PAGE>


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

                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                    For the Six Months Ended
                                                                                            June 30,
                                                                                ---------------------------------    
                                                                                     1998              1997
                                                                                ---------------  ----------------    
CASH FLOWS FROM OPERATING ACTIVITIES:
   <S>                                                                          <C>               <C>        
   Net income...........................................................        $   105,563       $    86,569
   Adjustments to reconcile  net income to net cash  provided by operating
     activities:
     Depreciation and amortization......................................             53,411            40,490
     Depreciation included in equity in earnings of real estate entities              6,639             6,697
     Minority interest in income........................................             10,569             5,029
                                                                                ---------------  ----------------    
         Total adjustments..............................................             70,619            52,216
                                                                                ---------------  ----------------    
             Net cash provided by operating activities..................            176,182           138,785
                                                                                ---------------  ----------------    

CASH FLOWS FROM INVESTING ACTIVITIES:
     Mortgage loans  to affiliates......................................            (33,000)                -
     Principal payments received on mortgage loans to affiliates........              4,375               556
     Capital improvements to real estate facilities.....................            (10,336)          (15,040)
     Construction in process............................................            (34,306)          (16,942)
     Investment in portable self-storage business.......................            (10,655)          (11,164)
     Acquisition of minority interests in consolidated real estate
       partnerships.....................................................            (10,816)          (10,416)
     Proceeds from liquidation of real estate investments...............             10,275                 -
     Reduction in cash due to a change in accounting method with
       respect to PS Business Parks, Inc. (Note 2)......................            (11,259)                -
     Refund of deposit on real estate purchase..........................             12,500                 -
     Acquisition of investment in real estate entities..................            (46,041)          (15,749)
     Acquisition of real estate facilities..............................            (47,392)                -
     Acquisition cost of business combinations..........................            (10,014)          (68,862)
     Other..............................................................                805             4,650
                                                                                ---------------  ----------------    
             Net cash used in investing activities......................           (185,864)         (132,967)
                                                                                ---------------  ----------------    

CASH FLOWS FROM FINANCING ACTIVITIES:
     Net paydown on revolving line of credit............................             (7,000)                -
     Principal payments on notes payable................................            (10,302)           (4,327)
     Net proceeds from the issuance of common stock.....................            237,434           127,282
     Repurchase the Company's common stock..............................            (12,991)                -
     Reimbursement for properties contributed to development
       joint venture....................................................                  -            21,285
     Distributions paid to shareholders.................................            (90,075)          (90,239)
     Distributions from operations to minority interests in real estate
       partnerships.....................................................            (17,596)           (9,522)
     Net reinvestment by minority interests in consolidated real estate
       partnerships.....................................................              3,864             1,764
     Issuance of equity interest (minority interests) in consolidated
       entity for cash..................................................             47,600                 -
                                                                                ---------------  ----------------    
Net cash provided by financing activities...............................            150,934            46,243
                                                                                ---------------  ----------------    

Net increase in cash and cash equivalents...............................            141,252            52,061
Cash and cash equivalents at the beginning of the period................             41,455            26,856
                                                                                ---------------  ----------------    
Cash and cash equivalents at the end of the period......................        $   182,707       $    78,917
                                                                                ===============  ================    
</TABLE>
                            See accompanying notes.
                                       4


<PAGE>


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


<TABLE>
<CAPTION>
                                                                                      For the Six Months Ended
                                                                                              June 30,
                                                                                  --------------------------------
                                                                                       1998              1997
                                                                                  ---------------  ---------------

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
<S>                                                                                <C>                <C>
Acquisition of real estate facilities in exchange for the assumption of
    notes payable and increase in minority interest........................        $   (18,753)       $         -

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

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

Assets and liabilities acquired with respect to business combinations:
    Real estate facilities.................................................            (81,295)          (413,597)
    Other assets...........................................................               (294)            (2,667)
    Accrued and other liabilities..........................................              2,366             11,342
    Minority interest......................................................             35,334             21,402

Reduction to investment in real estate entities:
    In connection with business combination................................             20,058                  -
    In connection with acquisition of real estate facilities...............                527                  -

Acquisition  of minority  interest  and real estate in exchange for common
    stock:
    Real estate facilities.................................................             (9,400)                 -
    Minority interest......................................................            (12,485)                 -

Issuance of common stock:
    In connection with the conversion of 8.25% convertible preferred stock.              1,281                855
    In connection with business combinations...............................             13,817                  -
    In connection with the conversion of mandatory  convertible preferred
      stock................................................................                  -             58,955
    To acquire interests in real estate entities...........................             17,133            212,000
    To acquire minority interest in consolidated real estate entities......             11,070                  -

Conversion of 8.25% convertible preferred stock............................             (1,281)              (855)

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

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

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

Change in accounting method with respect to PS Business Parks, Inc. (Note 2):
    Investments in real estate entities ...................................           (219,224)                 -
    Real estate facilities, net of accumulated depreciation................            433,446                  -
    Other assets...........................................................              2,048                  -
    Accrued and other liabilities..........................................            (10,106)                 -
    Notes payable .........................................................            (14,526)                 -
    Minority interest......................................................           (202,897)                 -

</TABLE>
                            See accompanying notes.
                                       5


<PAGE>


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


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

     Public Storage, Inc. (the "Company") is a California  corporation which was
organized  in 1980.  The Company is a fully  integrated,  self-administered  and
self-managed real estate investment trust ("REIT") that acquires, develops, owns
and operates self-storage  facilities which offer self-storage spaces for lease,
usually on a  month-to-month  basis,  for personal and business use. The Company
invests  in  real  estate  facilities   primarily  through  the  acquisition  of
wholly-owned  facilities  combined with the  acquisition of equity  interests in
real estate  entities  owning  real estate  facilities.  At June 30,  1998,  the
Company had direct and indirect equity interests in 1,181 properties  located in
38 states, including 1,083 self-storage facilities and 98 commercial properties.
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 real estate  investment  trust and a related
partnership (the REIT and partnership collectively referred to as "PSPB").

     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 central warehouses.  At June 30, 1998, PSPUD operated 57 facilities
in 16 states.

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

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

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

     The consolidated  financial statements include the accounts of the Company,
PSPUD, and 21 controlled  limited  partnerships (the  "Consolidated  Entities").
Collectively,  the Company and the Consolidated Entities own a total of 919 real
estate facilities,  consisting of 918 self-storage facilities and one commercial
property.

     At June 30,  1998,  the  Company  also has equity  investments  in 27 other
affiliated limited partnerships whose principal business is the ownership of 165
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
97 commercial  properties.  The Company's ownership interest in such real estate
entities  is less  than  50% of the  total  equity  interest  and the  Company's
investments in these entities are accounted for using the equity method.

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


                                       6


<PAGE>


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

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

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

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

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

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

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

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

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

     Intangible assets consist of property management  contracts  ($165,000,000)
and the cost over the fair value of net  tangible  and  identifiable  intangible
assets  ($67,726,000)  acquired in a 1995 merger with an  affiliate.  Intangible
assets are  amortized  by the  straight-line  method over 25 years.  At June 30,
1998,  intangible  assets are net of  accumulated  amortization  of  $24,438,000
($19,782,000 at December 31, 1997).  Included in depreciation  and  amortization
expense for the three and six months ended June 30, 1998 and 1997 is  $2,328,000
and $4,656,000, respectively, related to the amortization of intangible assets.

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

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

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

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

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

     In computing earnings per common share,  preferred stock dividends totaling
$20,129,000  and  $30,668,000 for the three months ended June 30, 1998 and 1997,
respectively,  and $40,269,000 and $49,818,000 for the six months ended June 30,
1998 and 1997, respectively, reduced income available to common stockholders.


                                       7


<PAGE>

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

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

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

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

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

     In January  1998,  the  Company  acquired  all of the  limited  partnership
interest in two affiliated partnerships.  As a result of the Company's increased
ownership  interest  and  control  of the  Partnership,  the  Company  began  to
consolidate  the  accounts of these  partnerships.  The total  consideration  of
$6,757,000 in this transaction  consists of $5,206,000 of cash and the Company's
pre-existing investment of $1,551,000.

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


<TABLE>
<CAPTION>
                                                 REIT           Partnership
                                                mergers         acquisitions         Total
                                              --------------   --------------    --------------
                                                          (Amounts in thousands)

<S>                                            <C>                <C>             <C>        
Real estate facilities..................       $    73,971        $   7,324       $    81,295
Other assets............................               271               23               294
Accrued liabilities.....................            (2,280)             (86)           (2,366)
Minority interest.......................           (34,830)            (504)          (35,334)
                                              --------------   --------------    --------------
                                               $    37,132        $   6,757       $    43,889
                                              ==============   ==============    ==============
</TABLE>


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

<TABLE>
<CAPTION>

                                                               Six Months Ended       Six Months Ended
(In  thousands,  except per share  data)                        June 30, 1998           June 30, 1997
-----------------------------------------------------------    ----------------       ----------------
<S>                                                              <C>                     <C>        
Revenues ..............................................          $   286,747             $   215,465
Net income.............................................          $   105,872             $    86,870
Net income per common share (Basic)....................          $      0.59             $      0.40
Net income per common share (Diluted)..................          $      0.58             $      0.40

</TABLE>


                                       8

<PAGE>


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

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

     Activity in real estate facilities during 1998 is as follows:

                                                                  In thousands
Operating facilities, at cost:
   Balance at December 31, 1997.............................     $  3,077,529
   Property acquisitions
     Business combinations (Note 3) ........................           81,295
     Other  acquisitions....................................           66,145
  Newly opened development facilities.......................            7,399
   Acquisition of minority interest.........................            9,400
  Capital improvements......................................           10,336
  Property dispositions  (PSBP).............................         (498,690)
                                                                ----------------
   Balance at June 30, 1998.................................        2,753,414
                                                                ----------------

Accumulated depreciation:
  Balance at December 31, 1997..............................         (378,248)
  Additions during the year.................................          (48,755)
  Property dispositions  (PSBP).............................           65,245
                                                                ----------------
   Balance at June 30, 1998.................................         (361,758)
                                                                ----------------

Construction in progress:
  Balance at December 31, 1997..............................           42,635
  Current development cost..................................           34,306
  Newly opened development facilities.......................           (7,399)
                                                                ----------------
   Balance at June 30, 1998.................................           69,542
                                                                ----------------

Total real estate facilities, net at June 30, 1998               $  2,461,198
                                                                ================

     Construction  in  progress at June 30,  1998  consists  of 11  self-storage
facilities  and 12  industrial  facilities  which  could be utilized as portable
self-storage  facilities.  Operating  facilities  include 2 facilities opened in
June 1998 which are for use by the  Company's  PSPUD  operations.  The Company's
policy  is to  capitalize  interest  incurred  on  debt  during  the  course  of
construction of its self-storage facilities and industrial facilities.  Interest
capitalized  during the three and six months ended June 30, 1998 was  $1,023,000
and $2,280,000,  respectively,  compared to $354,000 and $1,089,000 for the same
periods in 1997.

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

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

     The Company's  investment in real estate entities at June 30, 1998 consists
of (i) limited and general partnership  interests in approximately 27 affiliated
partnerships which principally own self-storage  facilities,  (ii) the Company's


                                       9

<PAGE>


ownership  interest in a joint venture  partnership  established  to develop and
operate  self-storage  facilities and (iii) the Company's  ownership interest in
PSBP. Such interests are accounted for using the equity method of accounting.

     In April 1997, the Company formed a joint venture  partnership with a state
pension fund to participate in the development of approximately  $220 million of
self-storage  facilities.  The Company  expects  that  substantially  all of its
self-storage  facility  development  activities  will be  conducted in the joint
venture partnership until the $220 million is fully committed. At June 30, 1998,
the Company had 11 self-storage facilities under construction,  upon approval of
the  facilities  by the joint  venture  partnership,  these  facilities  will be
transferred to the partnership.

     During the six months ended June 30, 1998, the Company recognized  earnings
from its investments totaling $9,936,000. Included in equity in earnings of real
estate entities for the six months ended June 30, 1998 is the Company's share of
depreciation  expense totaling  $6,639,000.  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 June 30, 1998 are as
follows:


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

 <S>                                         <C>                  <C>              <C>                 <C>       
 Rental income........................       $  41,712          $   1,886          $  35,824           $   79,422
 Other income                                      992                237                875                2,104
                                         ------------------  ------------------  ------------------  ------------------   
     Total revenues...................          42,704              2,123             36,699               81,526
                                         ------------------  ------------------  ------------------  ------------------   
 Cost of operations...................          11,736              1,285             10,982               24,003
 Depreciation.........................           5,318                638              6,556               12,512
 Other expenses.......................           7,056                 46              2,102                9,204
                                         ------------------  ------------------  ------------------  ------------------   
     Total expenses...................          24,110              1,969             19,640               45,719
                                         ------------------  ------------------  ------------------  ------------------   
 Net income before minority interest..          18,594                154             17,059               35,807
 Minority interest ...................               -                  -             (5,683)              (5,683)
                                         ------------------  ------------------  ------------------  ------------------   
     Net income.......................       $  18,594            $   154          $  11,376           $   30,124
                                         ==================  ==================  ==================  ==================   

 At June 30, 1998:
 -----------------

 Real estate, net ....................       $ 255,444          $  114,246        $  635,498        $1,005,188
 Total assets.........................       $ 307,746          $  125,148        $  675,766        $1,108,660
 Total liabilities....................       $  85,180          $    8,147        $   41,146        $  134,473
 Minority interest....................       $       -          $        -        $  151,225        $  151,225
 Total equity.........................       $ 222,566          $  117,001        $  483,395        $  822,962

 The Company's investment (book
     value) at June 30, 1998..........       $ 209,741          $   40,284        $  220,747        $  470,772

 The Company's effective ownership 
     interest at June 30, 1998.......              36%                 30%               39%               33%
     
</TABLE>

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

     As of June 30, 1998, the Company had no borrowings on its unsecured  credit
agreement with a group of commercial  banks.  The credit  agreement (the "Credit
Facility")  has a borrowing  limit of $150.0  million and an expiration  date of
July  31,  2001.  The  expiration  date  may be  extended  by one  year  on each
anniversary  of the credit  agreement.  Interest on  outstanding  borrowings  is
payable monthly.  At the option of the Company,  the rate of interest charged is
equal to (i) the prime rate or (ii) a rate  ranging  from the  London  Interbank
Offered Rate ("LIBOR") plus 0.40% to LIBOR plus 1.10% depending on the Company's
credit  ratings and coverage  ratios,  as defined.  In addition,  the Company is


                                       10


<PAGE>


required to pay a quarterly  commitment  fee of 0.250% (per  annum).  The Credit
Facility  allows the  Company,  at its option,  to request the group of banks to
propose the interest rate they would charge on specific borrowings not to exceed
$50 million.  However, in no case may the interest rate proposal be greater than
the amount provided by the Credit Facility.

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

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

     During the six months ended June 30,  1998,  the Company  reduced  minority
interest by  approximately  $12.5  million  (the  historical  book value of such
interests  in the  underlying  net  assets  of  the  partnerships)  through  the
acquisition of such interests for cash and through the issuance of common stock.
The excess of the cost over the  underlying  book value ($9.4  million) has been
allocated to real estate facilities in consolidation.

     Minority  interest  was  increased  by $35.3  million  in  connection  with
business combinations,  representing the remaining partners' equity interests in
the aggregate net assets of the  partnerships.  Minority  interest was increased
$47.6  million in  connection  with the  issuance of common stock of PSBP in the
first quarter of 1998 and $1.2 million in  connection  with the  acquisition  of
real estate  facilities by PSBP in the first quarter of 1998.  Minority interest
was  reduced  by  approximately  $202.9  million  as a result  of the  change in
accounting method with respect to PSBP.

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

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

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


<TABLE>
<CAPTION>
                                                           At June 30, 1998              At December 31, 1997
                                                     -----------------------------  ------------------------------                
                                        Dividend        Shares         Carrying         Shares         Carrying
               Series                     Rate       Outstanding        Amount       Outstanding        Amount
------------------------------------  -------------  -------------  -------------   -------------    -------------
<S>                                       <C>          <C>           <C>               <C>           <C>         
Series A ..........................       10.000%      1,825,000     $ 45,625,000      1,825,000     $ 45,625,000
Series B ..........................        9.200%      2,386,000       59,650,000      2,386,000       59,650,000
Series C...........................    Adjustable      1,200,000       30,000,000      1,200,000       30,000,000
Series D...........................        9.500%      1,200,000       30,000,000      1,200,000       30,000,000
Series E...........................       10.000%      2,195,000       54,875,000      2,195,000       54,875,000
Series F...........................        9.750%      2,300,000       57,500,000      2,300,000       57,500,000
Series G ..........................        8.875%          6,900      172,500,000          6,900      172,500,000
Series H ..........................        8.450%          6,750      168,750,000          6,750      168,750,000
Series I ..........................        8.625%          4,000      100,000,000          4,000      100,000,000
Series J ..........................        8.000%          6,000      150,000,000          6,000      150,000,000
                                                     -------------  -------------   -------------    -------------
  Total  Senior Preferred Stock....                   11,129,650      868,900,000     11,129,650      868,900,000

Convertible........................        8.250%      2,080,988       52,027,000      2,132,334       53,308,000
                                                     -------------  -------------   -------------    -------------
                                                      13,210,638     $920,927,000     13,261,984     $922,208,000
                                                     =============  =============   =============    =============
</TABLE>


     The Series A through Series J stock  (collectively  the "Cumulative  Senior
Preferred Stock") have general preference rights with respect to liquidation and
quarterly  distributions.  With respect to the payment of dividends  and amounts
upon liquidation,  all of the Company's Convertible Preferred Stock ranks junior
to the Cumulative Senior Preferred Stock and any other shares of preferred stock
of the  Company  ranking  on a parity  with or senior to the  Cumulative  Senior
Preferred  Stock.  The  Convertible  Preferred  Stock ranks senior to the common


                                       11


<PAGE>


stock,  any additional  class of common stock and any series of preferred  stock
expressly made junior to the Convertible Preferred Stock.

     Holders of the Company's  preferred stock,  except under certain conditions
and as noted above,  will not be entitled to vote on most matters.  In the event
of a  cumulative  arrearage  equal to six  quarterly  dividends  or  failure  to
maintain a Debt Ratio (as  defined) of 50% or less,  holders of all  outstanding
series of preferred  stock (voting as a single class  without  regard to series)
will have the right to elect two  additional  members to serve on the  Company's
Board of Directors  until  events of default have been cured.  At June 30, 1998,
there were no dividends in arrears and the Debt Ratio was 2.5%.

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

     On June 1, 1998, the Company exercised its option to redeem the Convertible
Preferred  Stock for common  stock at the  conversion  rate of 1.6835  shares of
common  stock for each share of  Convertible  Preferred  Stock.  Pursuant to the
redemption, which was effective as of July 1, 1998, the Company issued 3,350,303
shares of common stock.

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

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

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

     During the first six months of 1998, the Company issued 7,951,821 shares of
common  stock  in  public  and  private  offerings,   raising  net  proceeds  of
approximately $234.5 million. In addition,  the Company issued 433,526 shares of
common stock ($13.8  million) in  connection  with the merger with an affiliated
REIT,  86,249 shares ($1.3  million) in connection  with  Convertible  Preferred
Stock  conversions,  914,094  shares  ($28.2  million)  in  connection  with the
acquisition  of  partnership  interests,  and 191,429  shares ($2.9  million) in
connection with the exercise of stock options.

     On June  12,  1998,  the  Company  announced  that the  Board of  Directors
authorized  the repurchase  from time to time of up to 10,000,000  shares of the
Company's   common  stock  on  the  open  market  or  in  privately   negotiated
transactions.  Through  June 30,  1998 the Company  has  repurchased  a total of
490,300  shares of common  stock at an  aggregate  cost of  approximately  $13.0
million.  From July 1, 1998 through August 10, 1998, the Company  repurchased an
additional   1,931,900   shares  of  common  stock  at  an  aggregate   cost  of
approximately $49.7 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


                                       12


<PAGE>


(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 $1.90
for the four consecutive calendar quarters ended June 30, 1998.

     Dividends
     ---------

     The  following  summarizes  dividends  paid  during the first six months of
1998:

                                           Distributions
                                           Per Share or           Total
                                         Depository Share     Distributions
                                        ------------------  ------------------
Series A..............................      $    1.250        $   2,280,000
Series B..............................      $    1.150            2,744,000
Series C..............................      $    0.844            1,012,000
Series D..............................      $    1.188            1,426,000
Series E..............................      $    1.250            2,744,000
Series F..............................      $    1.218            2,802,000
Series G..............................      $    1.109            7,656,000
Series H..............................      $    1.056            7,130,000
Series I..............................      $    1.078            4,312,000
Series J..............................      $    1.000            6,000,000
Convertible...........................      $    1.032            2,163,000
                                                            ------------------
                                                                 40,269,000
Common................................      $    0.440           49,806,000
                                                            ------------------
     Total dividends paid                                       $90,075,000
                                                            ==================

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

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

     On August 4,  1998,  the  Company  made an offer to acquire  Storage  Trust
Realty for $25 per common share,  or an aggregate of $407 million for the common
shares of Storage  Trust  Realty  that the  Company  does not now own,  plus the
assumption of approximately $163 million of Storage Trust debt.



                                       13


<PAGE>

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

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

     Net  income  for the  three  months  ended  June 30,  1998 was  $57,199,000
compared to $44,251,000 for the same period in 1997, representing an increase of
$12,948,000  or 29.3%.  Net income for the six  months  ended June 30,  1998 was
$105,563,000  compared to $86,569,000 for the same period in 1997,  representing
an increase of $18,994,000  or 21.9%.  The increases in net income for the three
and six months  ended June 30,  1998  compared  to the same  periods in 1997 was
primarily the result of improved  property  operations  and the  acquisition  of
additional  real estate  facilities and  partnership  interests  during 1997 and
1998,  offset partially by increased  start-up  operating losses in the portable
self-storage business.

     Net income  allocable to common  shareholders  was $37,070,000 or $0.32 per
common share on a diluted basis (based on 114,430,000  weighted  average diluted
shares) for the three  months  ended June 30, 1998  compared to  $13,583,000  or
$0.14 per common share on a diluted basis (based on 98,046,000  weighted average
diluted  shares) for the same period in 1997. In computing net income per common
share,  dividends  to the  Company's  preferred  shareholders  ($20,129,000  and
$30,668,000  for the  three  months  ended  June 30,  1998 and  1997)  have been
deducted from net income in  determining  net income  allocable to the Company's
common shareholders.

     Net income  allocable to common  shareholders  was $65,294,000 or $0.58 per
common share on a diluted basis (based upon 112,246,000 weighted average diluted
shares) for the six months ended June 30, 1998 compared to  $36,751,000 or $0.39
per common share on a diluted  basis  (based upon  93,883,000  weighted  average
diluted  shares) for the same period in 1997. In computing net income per common
share,  dividends  to the  Company's  preferred  shareholders  ($40,269,000  and
$49,818,000 for the six months ended June 30, 1998 and 1997,  respectively) have
been  deducted  from net  income in  determining  net  income  allocable  to the
Company's common shareholders.

     Net income allocable to common shareholders has been negatively impacted by
operating losses generated from the portable self-storage business of $8,342,000
or approximately  $0.07 per common share on a diluted basis for the three months
ended June 30, 1998,  compared to $6,767,000 or  approximately  $0.07 per common
share on a diluted  basis for the same  period in 1997.  Losses on the  portable
self-storage business for the six months ended June 30, 1998 were $18,224,000 or
approximately  $0.16 per common share,  compared to $9,116,000 or  approximately
$0.10 per common share for the same period in 1997.

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


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

     Rental  income and cost of  operations  have  increased  for the six months
ended June 30, 1998  compared  to the same  period in 1997 due to the  Company's
merger and acquisition activities throughout 1997 and 1998. As a result of these
activities,  the number of  facilities  included in the  Company's  consolidated
financial  statements has increased from 872 at June 30, 1997 to 919 at June 30,
1998.


                                       14


<PAGE>


     SELF-STORAGE OPERATIONS:  The Company's self-storage operations account for
over 90% of the total property  operations and represent the largest  comparison
variances  from period to period.  The following  table  outlines the historical
operating results of self-storage operations.

     SUMMARY OF SELF-STORAGE OPERATIONS - HISTORICAL
     -----------------------------------------------

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

       Rental income
           <S>                               <C>              <C>               <C>         <C>          <C>              <C> 
           Pre - 1997 Acquisitions.........    $  91,754        $  84,793         8.2%        $  179,132   $  167,018        7.3%
           1997 and 1998 acquisitions             28,133            4,320                         52,433        4,472
                                               -----------      -----------    ------------  ------------- ------------  ----------
                                                 119,887           89,113        34.5%           231,565      171,490       35.0%
                                               -----------      -----------    ------------  ------------- ------------  ----------

       Cost of Operations
           Pre - 1997 Acquisitions.........       27,381           25,184         8.7%            54,606       51,569        5.9%
           1997 and 1998 acquisitions              8,511            1,100                         16,232        1,206
                                               -----------      -----------    ------------  ------------- ------------  ----------
                                                  35,892           26,284        36.6%            70,838       52,775       34.2%
                                               -----------      -----------    ------------  ------------- ------------  ----------

       Net operating income
           Pre - 1997 Acquisitions.........       64,373           59,609         8.0%           124,526      115,449        7.9%
           1997 and 1998 acquisitions             19,622            3,220                         36,201        3,266
                                               -----------      -----------    ------------  ------------- ------------  ---------
                                               $  83,995        $  62,829        33.7%        $  160,727   $  118,715       35.4%
                                               ===========      ===========    ============  ============= ============  ==========
       Net rentable square feet (at
           the end of the period, in              55,028           49,506        11.2%            55,028       49,506       11.2%
           000's)...........................

       Number of facilities (at the 
           end of the period)...............         918              822        11.7%               918          822       11.7%

       PRE - 1997 ACQUISITIONS:

       Weighted average annualized realized 
          rent per occupied square foot......      $9.36            $8.76         6.8%             $9.24        $8.76        5.5%
       Weighted average annualized 
           scheduled rent per square foot....      $9.72            $9.36         3.8%             $9.60        $9.36        2.6%
       Weighted average occupancy
           for the period....................      92.5%            91.4%         1.1%             91.8%        90.2%        1.6%

</TABLE>


     Rental  income  for  the  three  months  ended  June  30,  1998  are net of
promotional  discounts  totaling  $4.0 million  compared to $3.8 million for the
same period in 1997.  Rental  income for the six months  ended June 30, 1998 are
net of promotional  discounts totaling $7.7 million compared to $6.3 million for
the same period in 1997.  In addition,  included in cost of  operations  for the
three  months  ended  June 30,  1998 are  costs  associated  with the  telephone
reservation center and advertising totaling $1,825,000, compared to $363,000 for
the same period in 1997. Included in cost of operations for the six months ended
June 30, 1998 are costs  associated  with the telephone  reservation  center and
advertising totaling  $3,074,000,  compared to $1,053,000 for the same period in
1997.

     In 1997 and through  June 30,  1998,  the  Company  acquired a total of 197
storage  facilities,  of which 190 were existing mature facilities obtained from
affiliated  entities  and  managed  by  the  Company,  2  were  newly  developed
facilities and 5 were third party  acquisitions of existing  mature  facilities.
Accordingly,  the Company has  knowledge  of the  historical  operations  of the
existing mature  facilities  obtained from affiliates  prior to when the Company
acquired the facilities.  The following table summarizes the pro forma operating
results  of  all  of  the  Company's  self-storage  facilities,   excluding  the
development facilities summarized in the table which follows,  assuming that the
Company owned all of the facilities as of January 1, 1997:


                                       15


<PAGE>


     PRO FORMA SUMMARY OF SELF-STORAGE OPERATIONS:
     ---------------------------------------------

<TABLE>
<CAPTION>
                                   Three months ended June 30,                   Six months ended June 30,
                                  -----------------------------                  --------------------------                         
                                     1998          1997           Change             1998         1997         Change
                                  -----------   -----------    ------------      ------------- ------------  ----------
                                          Pro forma                                       Pro forma
                                                                  (Amounts in thousands)
<S>                               <C>            <C>               <C>            <C>            <C>              <C> 
Rental income.................    $ 119,464      $ 110,168         8.4%           $ 233,118      $ 217,033        7.4%

Cost of operations............       35,749         33,257         7.5%              71,258         67,724        5.2%
                                  -----------   -----------    ------------      ------------- ------------  ----------
Net operating income..........    $  83,715      $  76,911         8.8%           $ 161,860      $ 149,309        8.4%
                                  ===========   ===========    ============      ============= ============  ==========
</TABLE>

     The above table  excludes the property  operations of the  Company's  newly
developed  properties  (2  opened  in 1997 and 4 opened  in 1996)  which  are in
various  stages of "fill-up." The aggregate  development  cost of the facilities
totaled $23 million.  The historical  property  operations with respect to these
facilities are as follows:

<TABLE>
<CAPTION>
                                   Three months ended June 30,                   Six months ended June 30,
                                  -----------------------------                  --------------------------                         
                                     1998          1997           Change             1998         1997         Change
                                  -----------   -----------    ------------      ------------- ------------  ----------
                                                                  (Amounts in thousands)
<S>                                   <C>            <C>          <C>               <C>              <C>        <C>   
Rental income.................        $ 822          $ 425        93.4%             $ 1,533        $ 681       125.1%

Cost of operations............          267            235        13.6%                 547          445        22.9%
                                  -----------   -----------    ------------      ------------- ------------  ----------
Net operating income..........       $  555         $  190       192.1%               $ 986        $ 236       317.8%
                                  ===========   ===========    ============      ============= ============  ==========
</TABLE>

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

     As of June 30, 1998,  the  Development  Joint  Venture had 15  self-storage
facilities  operating and 12 facilities  under  development.  The six facilities
(364,000 net rentable  square feet) which have been  developed and opened by the
Development  Joint Venture or the Company  between  January 1, 1996 and April 1,
1997  have  average  occupancies  of 91% at June  30,  1998.  The 12  facilities
(699,000 net rentable square feet) which opened between April 1,1997 and June 1,
1998 have been open an average of 8 months, and have average occupancies of 59%.
These statistics exclude three development properties opened at the end of June,
1998.

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


                                       16


<PAGE>

     COMMERCIAL PROPERTY OPERATIONS - HISTORICAL
     -------------------------------------------

<TABLE>
<CAPTION>
                                   Three months ended June 30,                   Six months ended June 30,
                                  -----------------------------                  --------------------------                         
                                     1998          1997           Change             1998         1997         Change
                                  -----------   -----------    ------------      ------------- ------------  ----------
                                                                  (Amounts in thousands)

<S>                                <C>            <C>            <C>              <C>            <C>             <C>  
Rental income.................     $  1,715       $  8,571       (80.0)%          $  19,396      $  16,168       20.0%
Cost of operations............          654          3,573       (81.7)%              6,502          6,757       (3.8)%
                                  -----------   -----------    ------------      ------------- ------------  ----------
Net operating income..........     $  1,061       $  4,998       (78.8)%          $  12,894      $   9,411       37.0%
                                  ===========   ===========    ============      ============= ============  ==========
</TABLE>

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

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

     PRO FORMA SUMMARY OF COMMERCIAL OPERATIONS:
     -------------------------------------------

<TABLE>
<CAPTION>
                                   Three months ended June 30,                   Six months ended June 30,
                                  -----------------------------                  --------------------------                         
                                     1998          1997           Change             1998         1997         Change
                                  -----------   -----------    ------------      ------------- ------------  ----------
                                                                  (Amounts in thousands)

<S>                                  <C>            <C>            <C>              <C>            <C>             <C>  
Rental income.................       $1,715         $1,656         3.6%              $3,381         $3,172        6.6%

Cost of operations............          654            634         3.2%               1,334          1,317        1.3%
                                  -----------   -----------    ------------      ------------- ------------  ----------
Net operating income..........       $1,061         $1,022         3.8%              $2,047         $1,855       10.4%
                                  ===========   ===========    ============      ============= ============  ==========
</TABLE>

     EQUITY IN EARNINGS OF REAL ESTATE ENTITIES: In addition to its ownership of
12,105,428  common shares and operating  partnership  units in PSBP, the Company
had general and limited partnership interests in 27 limited partnerships at June
30, 1998 (PSBP and the limited partnerships are collectively  referred to as the
"Unconsolidated  Entities"). Due to the Company's limited ownership interest and
control of these  entities,  the Company  does not  consolidate  the accounts of
these  entities  for  financial  reporting  purposes,   and  accounts  for  such
investments using the equity method.

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


                                       17


<PAGE>


     HISTORICAL SUMMARY:
     -------------------
<TABLE>
<CAPTION>
                                   Three months ended June 30,                   Six months ended June 30,
                                  -----------------------------                  --------------------------                         
                                     1998          1997           Change             1998         1997         Change
                                  -----------   -----------    ------------      ------------- ------------  ----------
                                                                  (Amounts in thousands)

<S>                                <C>           <C>            <C>                <C>            <C>          <C>  
 Property operations:
     PSBP.....................     $7,444        $     -          $7,444           $7,444        $     -       $7,444
     Development Joint Venture        119            (18)            137              180            (18)         198
     Other partnerships.......      5,829          8,701          (2,872)          10,668         17,965       (7,297)
                                  -----------   -----------    ------------      ------------- ------------  ----------
                                   13,392          8,683           4,709           18,292         17,947          345
                                  -----------   -----------    ------------      ------------- ------------  ----------

 Depreciation:
     PSBP.....................     (2,395)             -          (2,395)          (2,395)             -       (2,395)
     Development Joint Venture       (111)           (12)            (99)            (191)           (12)        (179)
     Other partnerships.......     (2,267)        (3,056)            789           (4,053)        (6,685)       2,632
                                  -----------   -----------    ------------      ------------- ------------  ----------
                                   (4,773)        (3,068)         (1,705)          (6,639)        (6,697)          58
                                  -----------   -----------    ------------      ------------- ------------  ----------

 Other: (1)
     PSBP.....................       (501)             -            (501)            (501)             -         (501)
     Development Joint Venture         27             18               9               58             18           40
     Other partnerships.......       (828)          (616)           (212)          (1,274)        (1,030)        (244)
                                  -----------   -----------    ------------      ------------- ------------  ----------
                                   (1,302)          (598)           (704)          (1,717)        (1,012)        (705)
                                  -----------   -----------    ------------      ------------- ------------  ----------

 Total equity in earnings of
   real estate entities.......     $7,317         $5,017          $2,300           $9,936        $10,238        ($302)
                                  ===========   ===========    ============      ============= ============  ==========
</TABLE>

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

     Equity in earnings  of real estate  entities  increased  $2,300,000  in the
three  months  ended June 30, 1998 from the same period in 1997.  This  increase
includes  the  impact of the  Company's  change  in  accounting  method  for its
investment in PSBP,  where the  Company's  share of earnings of PSBP after March
31,  1998 is  reflected  in equity in earnings  of real  estate  entities.  This
increase was partially  offset by the impact of affiliated  REIT mergers and the
acquisition of partnership  interests  which occurred in 1997 and 1998 resulting
in the consolidation of additional ownership entities.

     Equity in earnings of real estate  entities  decreased  $302,000 in the six
months ended June 30, 1998 from the same period in 1997. This decrease  reflects
the  aforementioned  REIT mergers and  acquisitions of partnership  interests in
1997 and 1998,  offset by the impact of the  change in  accounting  method  with
respect to PSBP.

     PORTABLE  SELF-STORAGE   BUSINESS:   Public  Storage  Pick-up  &  Delivery,
("PSPUD")  incurred  approximately  $8.3 million of operating  losses during the
second  quarter of 1998  compared  to  operating  losses of  approximately  $6.8
million during the second quarter of 1997. As previously announced,  the Company
believes that the quarterly losses from the PSPUD  operations  peaked during the
third  quarter  of 1997.  Operating  losses of PSPUD  were  approximately  $12.1
million for the third quarter of 1997,  $10.5 million for the fourth  quarter of
1997, and $9.9 million for the first quarter of 1998. The Company  believes this
trend of decreasing  operating losses will continue as PSPUD's revenues continue
to increase.

     The number of occupied  containers  at PSPUD's  facilities  increased  from
41,645 at April 30, 1998 to 56,597 at July 31,  1998.  The  occupancy  levels of
facilities  open for more than  thirteen  months  (the same group of  facilities
reported in the last quarter)  ranged from 20% to 82%  (averaging  47%) at April
30, 1998 compared with 22% to 94% (averaging 57%) at July 31, 1998.

     The  rate  of  fill-up   varies  from   facility  to   facility.   As  with
mini-warehouses,  the Company believes that the portable  self-storage  business
experiences  some seasonal  fluctuations  in occupancy  levels with  occupancies
generally  higher in the summer months than the winter  months.  There can be no
assurances as to the level of PSPUD's expansion,  level of gross rentals,  level
of move-outs or profitability.


                                       18


<PAGE>


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

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

     During  the three  months  ended  June 30,  1998,  the  Company's  property
management  operations  generated net operating income of $1,384,000 on revenues
of $1,652,000  and expenses of $268,000 as compared to net  operating  income of
$2,425,000  on revenues of $2,891,000  and expenses of $466,000  during the same
period in 1997.  During  the six  months  ended  June 30,  1998,  the  Company's
property management  operations  generated net operating income of $2,863,000 on
revenues of  $3,417,000  and  expenses of $554,000 as compared to net  operating
income of $5,001,000 on revenues of $5,943,000  and expenses of $942,000  during
the same period in 1997. The decreases in property management operations are due
to the Company's acquisition of facilities which it previously managed for third
parties and  affiliated  entities for a fee, as well as the Company's  change in
accounting method with respect to its investment in PSBP.

     INTEREST AND OTHER INCOME: The Company has developed additional  businesses
through  affiliates,  via a retail expansion program and a truck rental program.
The net results of these two  businesses  are presented  along with interest and
other  income,  as "interest and other  income." The  components of interest and
other income are detailed as follows:

<TABLE>
<CAPTION>
                                               Three months ended June 30,                      Six months ended June 30,
                                        ------------------------------------------      -----------------------------------------
                                           1998          1997        Dollar Change          1998         1997       Dollar Change
                                        -----------   -----------    -------------      ------------- ------------  -------------
                                                                        (Amounts in thousands)
 Sales of Packaging Material and Truck Rental Income:
 ----------------------------------------------------

 <S>                                      <C>         <C>             <C>                  <C>         <C>          <C>     
 Revenues...........................      $  2,189    $  1,303        $   886              $  3,671    $  2,153     $  1,518
 Cost of operations.................        (1,842)     (1,183)          (659)               (3,133)     (1,702)      (1,431)
                                        -----------   -----------    -------------      ------------- ------------  -------------
      Net operating income..........           347         120            227                   538         451           87
 Interest and other income..........         4,005       2,531          1,474                 7,466       4,221        3,245
                                        -----------   -----------    -------------      ------------- ------------  -------------
   Total interest and other income..      $  4,352    $  2,651       $  1,701              $  8,004    $  4,672     $  3,332
                                        ===========   ===========    =============      ============= ============  =============
</TABLE>

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

     DEPRECIATION AND  AMORTIZATION:  Depreciation and amortization  expense has
increased $4,489,000, to $25,192,000 for the three months ended June 30, 1998 as
compared  to  $20,703,000  for  the  same  period  in  1997.   Depreciation  and
amortization  expense has  increased  $12,921,000,  to  $53,411,000  for the six
months  ended June 30, 1998 as compared  to  $40,490,000  for the same period in
1997.  These increases are principally due to the acquisition of additional real
estate facilities during 1997 and 1998, offset partially by the Company's change
in accounting method with respect to its investment in PSBP.

     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
June 30, 1998 was $4,217,000 compared to $2,582,000 for the same period in 1997.
Minority  interest  in  income  for the six  months  ended  June  30,  1998  was
$10,569,000 compared to $5,029,000 for the same period in 1997.


                                       19


<PAGE>


     The  increases  in  minority  interest  in  income  are the  result  of the
Company's  acquisition of sufficient ownership interest (but not 100% ownership)
and control in fourteen  partnerships  allowing the inclusion of the accounts of
these partnerships in the Company's  consolidated  financial statements combined
with improved  property  operations for those partnership  already  consolidated
with the Company  whereby the  minority  interest  participate  in the  improved
operations through increased  earnings.  However,  these increases are partially
offset by the effect of the Company's  change in accounting  method with respect
to its investment in PSBP whereby the minority interest with respect to PSBP was
removed from the Company's consolidated financial statements.

     SUPPLEMENTAL PROPERTY DATA

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

<TABLE>
<CAPTION>
                                               Number of Facilities in which the      Net Rentable Square Footage
                                               Company has an ownership interest             (in thousands)
                                             ------------------------------------  ---------------------------------
                                              Self-Storage Commercial              Self-Storage Commercial
                                               Facilities  Properties    Total      Facilities  Properties   Total
                                             ------------- ---------- -----------  ------------ ---------- ---------

<S>                                                 <C>          <C>      <C>         <C>           <C>      <C>   
 Wholly-owned facilities                            595          1        596         36,261        9        36,270
 Facilities owned  by   Consolidated        
     Partnerships                                   323          -        323         18,767        -        18,767
                                             ------------- ---------- -----------  ------------ ---------- ---------
     Total consolidated facilities                  918          1        919         55,028        9        55,037

 Facilities owned by Unconsolidated Entities        165         97        262          9,592     10,208      19,800
                                             ------------- ---------- -----------  ------------ ---------- ---------

  Total facilities in which the Company has
    an ownership interest                         1,083         98      1,181         64,620     10,217      74,837
                                             ============= ========== ===========  ============ ========== =========
</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 985 (57.6 million net rentable square feet)
of the  1,083  self-storage  facilities  (herein  referred  to as  "Same  Store"
self-storage  facilities)  which have been operated  under the "Public  Storage"
name for at least the past  three  years.  At June 30,  1998,  the  Company  had
ownership  interests  in a total of 1,083  mini-warehouse  facilities.  Of these
1,083 properties,  985 or 91% of the mini-warehouses  have been in operation and
managed by Public  Storage,  Inc.  since January 1, 1994.  The  following  table
summarizes the operating results of these 985 properties:


                                       20


<PAGE>

     SAME STORE MINI-WAREHOUSE FACILITIES (985 FACILITIES):
     ------------------------------------------------------
     (historical property operations)

<TABLE>
<CAPTION>
                                       Three months ended June 30,                 Six months ended June 30,
                                ------------------------------------------  ------------------------------------------
                                   1998            1997         Change         1998            1997         Change
                                ------------   ------------   ------------  ------------   ------------  -------------
                                                             (Amounts in thousands)
<S>                              <C>             <C>              <C>        <C>            <C>             <C> 
Rental income...............     $130,887        $120,205         8.9%       $255,192       $236,883        7.7%
Cost of operations (includes
  an imputed 6% property
  management fee)...........       45,394          41,946         8.2%         90,262         85,231        5.9%
                                ------------   ------------   ------------  ------------   ------------  -------------
Net operating income........      $85,493         $78,259         9.2%       $164,930       $151,652        8.8%
                                ============   ============   ============  ============   ============  =============

Gross profit margin (1).....        65.3%          65.1%          0.2%         64.6%          64.0%         0.6%

 ......................................................................................................................
Weighted Average:
-----------------
  Occupancy during the
     period.................        92.8%          91.8%          1.0%         92.1%          90.7%         1.4%

  Annualized realized rent
     per sq. ft. for                $9.82          $9.08          8.1%         $9.56          $9.00         6.2%
     period.(2).............

  Annualized scheduled rent
     per sq. ft. for period.       $10.32          $9.84          4.9%        $10.08          $9.84         2.4%

</TABLE>

1.   Assumes payment of property  management  fees on all facilities,  including
     those facilities owned by the Company for which effective November 16, 1995
     no fee is paid.

2.   Gross profit margin is computed by dividing  property net operating  income
     (which  excludes  depreciation   expense)  by  rental  revenues.   Cost  of
     operations  include a 6% management fee. The gross profit margin  excluding
     the property  management fee was 71.3% and 71.1% for the three months ended
     June 30,  1998 and  1997,  respectively;  and  70.6%  and 70.0% for the six
     months ended June 30, 1998 and 1997, respectively.

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

     Rental income for the Same Store facilities included promotional  discounts
totaling $4.2 for the three months ended June 30, 1998, compared to $5.4 million
for the same  period  in 1997.  Rental  income  for the  Same  Store  facilities
included  promotional  discounts totaling $8.4 for the six months ended June 30,
1998,  compared  to $8.8  million  for the  same  period  in  1997.  Promotional
discounts  are  attributable  to  promotional  activities  offered  through  the
national telephone reservation center.

     Cost of operations  for the three months ended June 30, 1998  increased due
to (i) advertising and promotion,  which increased $1.5 million due primarily to
the Company's national telephone  reservations center and television advertising
in certain  markets and (ii) property taxes,  which increased $0.8 million,  due
primarily to higher  assessments.  Cost of  operations  for the six months ended
June 30, 1998 increased due to (i)  advertising  and promotion,  which increased
$2.5 million due  primarily to the  Company's  national  telephone  reservations
center and television  advertising in certain  markets and (ii) property  taxes,
which increased $1.6 million, due primarily to higher assessments.

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

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


                                       21


<PAGE>

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

     Net cash provided by operations (as determined in accordance with generally
accepted accounting  principles)  reflects the cash generated from the Company's
business before distributions to various equity holders, including the preferred
shareholders,  capital expenditures or mandatory principal payments on debt. Net
cash provided by operations has increased to $176,182,000  from $138,785,000 for
the six months ended June 30, 1998 and 1997, respectively.

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

<TABLE>
<CAPTION>
                                                                          For the Six Months Ended June 30,
                                                                      -----------------------------------------
                                                                            1998                     1997
                                                                      -------------------    ------------------
                                                                             (Amounts in thousands)
<S>                                                                       <C>                     <C>      
 Net income...................................................            $ 105,563               $  86,569
 Depreciation and amortization................................               53,411                  40,490
 Depreciation    from    unconsolidated    real   estate                      
   investments................................................                6,639                   6,697
 Minority interest in income..................................               10,569                   5,029
                                                                      -------------------    ------------------
   Net cash provided by operating activities..................              176,182                 138,785

 Distributions from operations to minority interests
   (funds from operations allocable to minority                             
   interests) ................................................              (17,596)                 (9,522)
 Cash from operations/FFO available to the Company's
   shareholders...............................................              158,586                 129,263
 Less: preferred stock dividends (A)..........................              (40,269)                (36,406)
                                                                      -------------------    ------------------
 Cash from operations/FFO available to common                               
   shareholders...............................................              118,317                  92,857
 Capital improvements to maintain facilities..................              (10,336)                (15,040)
 Add back: minority interest share of capital                                   
   improvements...............................................                  915                     775
                                                                      -------------------    ------------------
 Funds available for principal payments on debt, common
   dividends and reinvestment.................................              108,896                  78,592
 Cash distributions to common shareholders....................              (49,806)                (40,421)
                                                                      -------------------    ------------------
 Funds available for principal payments on debt and
   investment.................................................            $  59,090               $  38,171
                                                                      ===================    ==================
</TABLE>

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

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

     FFO  increased  to  $158,586,000  for the six months  ended  June 30,  1998
compared to  $129,263,000  for the same period in 1997.  FFO  applicable  to the
common  shareholders  (after deducting  preferred stock dividends)  increased to
$118,317,000  for the six months ended June 30, 1998 compared to $92,857,000 for
the same period in 1997.  FFO is used by many  financial  analysts in evaluating
REITs. The Company defines FFO as net income (loss) (computed in accordance with
GAAP) before (i) gain (loss) on disposition of real estate, adjusted as follows:
(i) plus  depreciation  and  amortization,  and (ii)  less FFO  attributable  to
minority  interest.  The National  Association of Real Estate Investment Trusts,
Inc. ("NAREIT") definition of FFO does not specifically address the treatment of
minority interest in the  determination of FFO. In the case of the Company,  FFO
represents  amounts  attributable to its  shareholders  after deducting  amounts
attributable  to the minority  interests.  FFO does not take into  consideration
scheduled  principal payments on debt, capital  improvements,  distributions and
other obligations of the Company. Accordingly, FFO is a supplemental performance
measure and is not a substitute  for the  Company's  cash flow or net income (as
discussed  above)  as  a  measure  of  the  Company's   liquidity  or  operating
performance.


                                       22


<PAGE>


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

     Over the past four years, the Company's  distribution policy has enabled it
to retain  significant  funds (after capital  improvements)  to make  additional
investments and debt  reductions.  During the first six months of 1998 and 1997,
the Company distributed to common shareholders  approximately 45.7% and 51.4% of
its FFO available to common  shareholders,  respectively,  allowing it to retain
approximately  $59.1 million and $38.2 million,  respectively,  after satisfying
its capital improvements and dividend requirements.

     DISTRIBUTION REQUIREMENTS: During the first six months of 1998, the Company
paid  dividends  totaling  $38,106,000  to the holders of the  Company's  Senior
Preferred Stock,  $2,163,000 to the holders of the Convertible  Preferred Stock,
and  $49,806,000  to the holders of Common Stock.  On June 1, 1998,  the Company
exercised its option to redeem the Convertible Preferred Stock for common stock,
and the  redemption was effective July 1, 1998.  Distribution  requirements  for
fiscal 1998 with respect to the Senior Preferred Stock and Convertible Preferred
Stock (prior to the redemption) will be approximately $78 million.

     CAPITAL  IMPROVEMENT  REQUIREMENTS:  During 1998,  the Company has budgeted
approximately  $23.0  million  for  capital  improvements  for its  self-storage
facilities.  The minority interests' share of the estimated capital improvements
is approximately $3.5 million.  During the first six months of 1998, the Company
incurred capital  improvements of approximately $10.3 million, of which $857,000
was for PSBP in the first  quarter of 1998 and the  remainder was for all of the
Company's other facilities.

     DEBT  SERVICE  REQUIREMENTS:  The  Company  does  not  believe  it has  any
significant refinancing risks with respect to its mortgage debt, all of which is
at a fixed rate.  At June 30,  1998,  the Company  had total  outstanding  notes
payable of $86.3 million.  Approximate  principal maturities of notes payable at
June 30, 1998 are as follows:

                                                  Fixed Rate
                                                 Mortgage Debt
                           7.08% Unsecured     (Weighted average
                            Senior Notes         rate of 10.0%)         Total
                          -----------------  --------------------   ------------
                                            (Amounts in thousands)
1998 (remainder of)           $   3,625           $   1,117          $   4,742
1999                              8,000               6,398             14,398
2000                              8,750               2,622             11,372
2001                              9,500               2,910             12,410
2002                              9,750               3,229             12,979
Thereafter                       10,000              20,354             30,354
                          -----------------  --------------------   ------------
                              $  49,625           $  36,630          $  86,255
                          =================  ====================   ============

     EXTERNAL  FINANCING:  Despite the Company's  ability to retain a portion of
its  internally  generated  cash flow,  the  Company's  growth  strategies  have
required the Company to seek  external  financing.  The Company has an unsecured
$150.0 million  revolving credit facility with a group of banks which it uses as
a temporary  source of acquisition  financing.  The Company,  however,  seeks to
ultimately  finance all  acquisitions  with permanent  sources of capital.  As a
result,  the Company  has raised  capital  through  the public  issuance of both
common  and  preferred  stock  which  was  used to  repay  borrowings  and  make
additional investments in real estate assets. The Company believes that its size
and  financial   flexibility  enable  it  to  access  capital  for  growth  when
appropriate.  The Company's financial profile is characterized by a low level of
debt to total capitalization,  increasing net income,  increasing cash flow from
operations,  and a conservative dividend payout ratio with respect to the common
stock. The Company's credit ratings on its Senior Preferred Stock by each of the
three major  credit  agencies are Baa2 by Moody's and BBB+ by Standard and Poors
and Duff & Phelps.


                                       23


<PAGE>


     The Company's  portfolio of real estate  facilities  remains  substantially
unencumbered.  At June 30,  1998,  the  Company  had debt  outstanding  of $86.3
million and had  consolidated  real estate  facilities with a book value of $2.5
billion.  The Company,  however,  has been averse to financing its  acquisitions
with debt and generally  will only increase its mortgage  borrowing  through the
assumption of pre-existing debt on acquired real estate facilities.

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

     During the first six months of 1998, the Company issued 7,951,821 shares of
common  stock,  respectively,  in public  and  private  offerings,  raising  net
proceeds of approximately $234.5 million. An additional 914,094 shares of common
stock were issued in connection  with the  acquisition  of  investments  in real
estate entities during the first quarter of 1998, and 433,526 shares were issued
in  connection  with the merger of an  affiliated  REIT with the  Company in May
1998.

     REPURCHASES  OF THE  COMPANY'S  COMMON  STOCK:  June 12, 1998,  the Company
announced that the Board of Directors  authorized  the  repurchase  from time to
time of up to 10,000,000 shares of the Company's common stock on the open market
or in privately negotiated  transactions.  Through June 30, 1998 the Company has
repurchased  a total of 490,300  shares of common stock at an aggregate  cost of
$13.0  million.  In the third  quarter  through  August 10,  1998,  the  Company
repurchased an additional  1,931,900 shares of common stock at an aggregate cost
of approximately $49.7 million.

     MERGER  PROPOSAL FOR STORAGE  TRUST,  INC.: On August 4, 1998,  the Company
made an offer to acquire  Storage Trust Realty for $25 per common  share,  or an
aggregate of $407 million for the common shares of Storage Trust Realty that the
Company does not now own, plus the assumption of  approximately  $163 million in
Storage Trust debt.

     DEVELOPMENT  ACTIVITIES:  In April 1997, the Company formed a joint venture
partnership  with a state  pension fund to  participate  in the  development  of
approximately $220 million of self-storage facilities.  The Company expects that
substantially all of its self-storage  development  activities will be conducted
in the joint venture partnership until the $220 million is fully committed.  The
partnership is expected to be fully committed by the end of August 1998. At June
30,  1998,  the joint  venture  partnership  had  completed  construction  on 15
self-storage facilities  (approximately 895,000 net rentable square feet) with a
total  cost  of  approximately  $77.8  million,  and  had  12  facilities  under
construction  (approximately 766,000 net rentable square feet) with an aggregate
cost  incurred  to date of  approximately  $38.1  million  and total  additional
estimated cost to complete of $18.0 million. In addition,  at June 30, 1998, the
Company had 11 facilities under construction (approximately 662,000 net rentable
square  feet) with an aggregate  cost  incurred to date of  approximately  $26.7
million and total additional  estimated cost to complete of $26.5 million.  Upon
approval by the joint venture partnership,  the facilities under construction by
the  Company  will  be  transferred  to  the  joint  venture  partnership.   The
partnership  is funded  solely with equity  capital  consisting  of 30% from the
Company and 70% from the state pension fund.

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

     As a REIT,  the Company is not taxed on that portion of its taxable  income
which is  distributed  to its  shareholders  provided  that at least  95% of its
taxable  income is so  distributed  prior to filing of the Company's tax return.
The Company has satisfied the REIT distribution requirement since 1980.


                                       24


<PAGE>


PART II. OTHER INFORMATION

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

          Public Storage, Inc. v AT&T Corporation, et. al., U. S. District Court
          ------------------------------------------------                      
          for Central District of California ( Filed May 20, 1998)

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

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

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

          (a) The following Exhibits are included herein:

               (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 April 23,
               1998,  pursuant to Item 5, which filed certain exhibits  relating
               to the Company's  public  offering of 1,582,218  shares of common
               stock.


                                       25


<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:  August 14, 1998

                                       PUBLIC STORAGE, INC.


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


                                       26