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, 2006

                                       or

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

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

Commission File Number:  1-8389

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

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

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

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

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

                                 [X] Yes [ ] No

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

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


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

                                 [ ] Yes [X] No

Indicate the number of shares outstanding of the registrant's common stock, as
of August 8, 2006:

Common Stock, $.10 par value per share - 129,368,307 shares


<PAGE>


                              PUBLIC STORAGE, INC.

                                      INDEX


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

Item 1.   Financial Statements (Unaudited)

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

          Condensed Consolidated Statements of Income for the
             Three and Six Months Ended June 30, 2006 and 2005               2

          Condensed Consolidated Statement of Shareholders' Equity
             for the Six Months Ended June 30, 2006                          3

          Condensed Consolidated Statements of Cash Flows
             for the Six Months Ended June 30, 2006 and 2005             4 - 5

          Notes to Condensed Consolidated Financial Statements          6 - 36

Item 2.   Management's Discussion and Analysis of
             Financial Condition and Results of Operations             37 - 69

Item 3.   Quantitative and Qualitative Disclosures about Market Risk   69 - 70

Item 4.   Controls and Procedures                                           70

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

Item 1.   Legal Proceedings                                                 71

Item 1A.  Risk Factors                                                 71 - 77

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds  77 - 78

Item 6.   Exhibits                                                          78


<PAGE>

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

<TABLE>
<CAPTION>

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

<S>                                                                                 <C>                   <C>
Cash and cash equivalents....................................................       $     983,630         $    493,501
Real estate facilities, at cost:
   Land......................................................................           1,596,915            1,540,357
   Buildings.................................................................           4,550,764            4,390,127
                                                                                    ----------------      --------------
                                                                                        6,147,679            5,930,484
   Accumulated depreciation..................................................          (1,594,913)          (1,500,128)
                                                                                    ----------------      --------------
                                                                                        4,552,766            4,430,356
   Construction in process...................................................              19,695               54,472
                                                                                    ----------------      --------------
                                                                                        4,572,461            4,484,828

Investment in real estate entities...........................................             303,884              328,555
Goodwill (Note 2)............................................................             174,634              176,285
Other assets.................................................................              65,527               69,317
                                                                                    ----------------      --------------
              Total assets...................................................       $   6,100,136         $  5,552,486
                                                                                    ================      ==============
                       LIABILITIES AND SHAREHOLDERS' EQUITY

Notes payable................................................................       $     105,053         $    113,950
Debt to joint venture partner................................................              35,784               35,697
Preferred stock called for redemption........................................                   -              172,500
Accrued and other liabilities................................................             171,773              159,360
                                                                                    ----------------      --------------
         Total liabilities...................................................             312,610              481,507
Minority interest:
   Preferred partnership interests...........................................             325,000              225,000
   Other partnership interests...............................................              33,223               28,970
Commitments and contingencies (Note 14)
   Shareholders' equity:
   Cumulative Preferred Stock, $0.01 par value, 50,000,000 shares authorized,
     1,723,236 shares issued (in series) and outstanding, (1,698,336 at
     December 31, 2005) at liquidation preference............................           3,120,900            2,498,400

   Common Stock, $0.10 par value, 200,000,000 shares authorized, 128,210,747
     shares issued and outstanding (128,089,563 at December 31, 2005)........              12,821               12,809
   Equity Stock, Series A, $0.01 par value, 200,000,000 shares authorized,
     8,744.193 shares issued and outstanding.................................                   -                    -
   Paid-in capital...........................................................           2,415,673            2,430,671
   Cumulative net income.....................................................           3,432,344            3,189,266
   Cumulative distributions paid.............................................          (3,552,435)          (3,314,137)
                                                                                    ----------------      --------------
         Total shareholders' equity..........................................           5,429,303            4,817,009
                                                                                    ----------------      --------------
              Total liabilities and shareholders' equity.....................       $   6,100,136         $  5,552,486
                                                                                    ================      ==============
</TABLE>

                            See accompanying notes.
                                       1

<PAGE>

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

<TABLE>
<CAPTION>

                                                                                Three Months Ended               Six Months Ended
                                                                                     June 30,                        June 30,
                                                                            ---------------------------     ------------------------
                                                                               2006            2005             2006         2005
                                                                            ------------  -------------     ------------ -----------
Revenues:
   Rental income:
<S>                                                                          <C>           <C>              <C>          <C>
      Self-storage facilities...........................................     $ 262,398     $   235,255      $   513,910  $ 462,601
      Commercial properties.............................................         3,013           2,927            6,005      5,775
      Containerized storage facilities..................................         4,200           3,988            8,130      7,825
   Ancillary operations.................................................        18,369          17,198           33,543     31,216
   Interest and other income............................................        10,047           3,394           15,122      6,287
                                                                            ------------  -------------     ------------ -----------
                                                                               298,027         262,762          576,710    513,704
                                                                            ------------  -------------     ------------ -----------
Expenses:
  Cost of operations (excluding depreciation and amortization below):
      Self-storage facilities...........................................        89,425          80,402          177,160    162,046
      Commercial properties.............................................         1,235           1,043            2,583      2,170
      Containerized storage facilities..................................         4,219           3,274            7,529      6,016
      Ancillary operations..............................................        11,696          10,140           22,312     20,557
  Depreciation and amortization.........................................        48,626          48,240           98,675     96,178
  General and administrative............................................         6,975           6,128           13,754     11,269
  Interest expense......................................................         1,872           1,794            3,429      3,457
                                                                            ------------  -------------     ------------ -----------
                                                                               164,048         151,021          325,442    301,693
                                                                            ------------  -------------     ------------ -----------
Income from continuing operations before equity in earnings of real
   estate entities and minority interest in income......................       133,979         111,741          251,268    212,011
Equity in earnings of real estate entities (Note 5).....................         3,124           4,851            6,590     10,529
Minority interest in income:
  Preferred partnership interests:
     Based on ongoing distributions paid................................        (4,658)         (3,590)          (8,249)    (8,965)
     Allocation of redemption costs (Note 9)............................             -               -                -       (874)
  Other partnership interests...........................................        (4,070)         (4,878)          (7,638)    (9,273)
                                                                            ------------  -------------     ------------ -----------
Income from continuing operations.......................................       128,375         108,124          241,971    203,428
Cumulative effect of change in accounting principle (Note 12)...........             -               -              578          -
Gain on disposition of real estate assets...............................           466              53              466         53
Discontinued operations (Note 3)........................................            21              89               63      1,196
                                                                            ------------  -------------     ------------ -----------
Net income..............................................................     $ 128,862     $   108,266      $   243,078  $ 204,677
                                                                            ============  =============     ============ ===========
Net income allocation:
----------------------
   Allocable to preferred shareholders:
     Based on distributions paid........................................     $  52,376     $    42,147      $    98,991  $  82,560
     Based on redemptions of preferred stock (Note 2)...................             -               -                -      1,904
   Allocable to Equity Stock, Series A..................................         5,356           5,356           10,712     10,731
   Allocable to common shareholders.....................................        71,130          60,763          133,375    109,482
                                                                            ------------  -------------     ------------ -----------
                                                                             $ 128,862     $   108,266      $   243,078  $ 204,677
                                                                            ============  =============     ============ ===========
Net income per common share - basic
   Continuing operations................................................     $   0.55      $      0.47      $      1.04  $    0.84
   Discontinued operations..............................................            -                -                -       0.01
                                                                            ------------  -------------     ------------ -----------
                                                                             $   0.55      $      0.47      $      1.04  $    0.85
                                                                            ============  =============     ============ ===========
Net income per common share - diluted
   Continuing operations................................................     $   0.55      $      0.47      $      1.03  $    0.84
   Discontinued operations..............................................            -                -                -       0.01
                                                                            ------------  -------------     ------------ -----------
                                                                             $   0.55      $      0.47      $      1.03  $    0.85
                                                                            ============  =============     ============ ===========
Net income per depositary share of Equity Stock, Series A (basic and
   diluted).............................................................     $   0.61      $      0.61      $      1.23  $    1.23
                                                                            ============  =============     ============ ===========
Basic weighted average common shares outstanding........................       128,180         127,986          128,151    128,284
                                                                            ============  =============     ============ ===========
Diluted weighted average common shares outstanding......................       129,062         128,618          129,037    128,895
                                                                            ============  =============     ============ ===========
Weighted average shares of Equity Stock, Series A (basic and diluted)...         8,744           8,744            8,744      8,760
                                                                            ============  =============     ============ ===========
</TABLE>

                            See accompanying notes.
                                       2


<PAGE>

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

<TABLE>
<CAPTION>


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

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

Issuance of common stock in connection with:
   Exercise of employee stock options (94,166 shares).....             -                10            3,329
   Vesting of restricted stock (21,062 shares) ...........             -                 2               (2)

Stock-based compensation expense (Note 12) ...............             -                 -            1,082

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

Cash distributions:
   Cumulative preferred stock (Note 10)...................             -                 -                -
   Equity Stock, Series A ($1.23 per depositary share)....             -                 -                -
   Common Stock ($1.00 per share).........................             -                 -                -
                                                          ---------------    -------------   ---------------
Balance at June 30, 2006..................................  $  3,120,900      $     12,821     $  2,415,673
                                                          ===============    =============   ===============
</TABLE>

<TABLE>
<CAPTION>

                                                                                                     Total
                                                             Cumulative Net      Cumulative      Shareholders'
                                                                 Income        Distributions         Equity
                                                             ---------------   --------------    --------------
<S>                                                           <C>               <C>               <C>
Balance at December 31, 2005..............................    $   3,189,266     $ (3,314,137)     $  4,817,009

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

Issuance of common stock in connection with:
   Exercise of employee stock options (94,166 shares).....                -                -             3,339
   Vesting of restricted stock (21,062 shares) ...........                -                -                 -

Stock-based compensation expense (Note 12) ...............                -                -             1,082

Net income................................................          243,078                -           243,078

Cash distributions:
   Cumulative preferred stock (Note 10)...................                -          (98,991)          (98,991)
   Equity Stock, Series A ($1.23 per depositary share)....                -          (10,712)          (10,712)
   Common Stock ($1.00 per share).........................                -         (128,595)         (128,595)
                                                             ---------------   --------------    --------------
Balance at June 30, 2006..................................     $  3,432,344     $ (3,552,435)     $  5,429,303
                                                             ===============   ==============    ==============
</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,
                                                                                    -----------------------------
                                                                                         2006             2005
                                                                                    -------------    ------------
Cash flows from operating activities:
<S>                                                                                  <C>             <C>
   Net income...............................................................         $  243,078      $  204,677
   Adjustments to reconcile net income to net cash provided by operating
     activities:
    Amortization of note premium (Note 7)...................................               (474)           (515)
    Excess of effective interest over cash interest paid on debt to joint
       venture partner (Note 8) ............................................                 87              86
    Gain on sales of real estate facilities, net ...........................               (466)            (53)
    Depreciation and amortization...........................................             98,675          96,178
    Equity in earnings of real estate entities..............................             (6,590)        (10,529)
    Distributions received from the real estate entities (Note 5)...........             10,415          11,496
    Minority interest in income.............................................             15,887          19,112
    Depreciation and gain on sale associated with
       discontinued operations (Note 3).....................................                 41          (1,034)
    Other operating activities..............................................              6,747          16,442
                                                                                    -------------    ------------
       Total adjustments....................................................            124,322         131,183
                                                                                    -------------    ------------
       Net cash provided by operating activities............................            367,400         335,860
                                                                                    -------------    ------------
Cash flows from investing activities:
    Capital improvements to real estate facilities .........................            (23,449)         (9,370)
    Construction in process.................................................            (37,936)        (26,220)
    Acquisition of minority interests (Note 9)..............................                  -         (36,798)
    Acquisition of real estate facilities...................................            (98,954)        (82,456)
    Consolidation of partnerships (Note 2)..................................              2,865               -
    Proceeds from the sales of real estate and real estate investments......              5,436           2,214
    Proceeds from sales of held-to-maturity investments (Note 2)............              7,743           2,038
    Acquisition of held-to-maturity debt securities.........................                  -          (9,998)
    Other investing activities..............................................                  -            (670)
                                                                                    -------------    ------------
       Net cash used in investing activities................................           (144,295)       (161,260)
                                                                                    -------------    ------------
Cash flows from financing activities:
    Principal payments on notes payable.....................................            (13,013)        (12,943)
    Net proceeds from issuances of common stock.............................              3,339           5,443
    Net proceeds from issuances of cumulative preferred stock...............            603,093         267,148
    Repurchases of common stock.............................................                  -          (4,990)
    Redemption of cumulative preferred stock................................           (172,500)       (112,392)
    Redemption of preferred partnership interests...........................                  -         (85,000)
    Issuance of preferred partnership interests.............................            100,000               -
    Distributions paid to shareholders......................................           (238,298)       (208,956)
    Distributions paid to holders of preferred partnership interests
       Note 9)..............................................................             (8,249)         (8,965)
    Distributions paid to other minority interests..........................             (7,348)         (9,198)
    Net proceeds from financing through acquisition joint venture (Note 8)..                  -          19,429
                                                                                    -------------    ------------
       Net cash provided by (used in) financing activities..................            267,024        (150,424)
                                                                                    -------------    ------------
Net decrease in cash and cash equivalents...................................            490,129          24,176
Cash and cash equivalents at the beginning of the year......................            493,501         366,255
                                                                                    -------------    ------------
Cash and cash equivalents at the end of the period..........................         $  983,630      $  390,431
                                                                                    =============    ============
</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,
                                                                                    -----------------------------
                                                                                         2006             2005
                                                                                    -------------    ------------


Supplemental schedule of non-cash investing and financing activities:
<S>                                                                                  <C>             <C>
    Real estate acquired in exchange for assumption of mortgage note...........      $   (4,590)     $        -
    Mortgage note assumed in connection with acquisition of real estate........           4,590               -
    Consolidation of entities pursuant to Emerging Issues Task Force Topic 04-5
     (Note 2):
       Minority interest.......................................................           3,963               -
       Real estate facilities..................................................         (22,459)              -
       Investments.............................................................          20,687               -
       Other Assets............................................................            (167)              -
       Accrued and Other Liabilities...........................................             841               -
    Retirement of common stock and Equity Stock, Series A, received as a
    distribution from affiliated entities (Note 5):
       Common stock............................................................               -             (64)
       Additional paid-in capital..............................................               -         (11,125)
       Investment in real estate entities......................................               -          11,189

</TABLE>

                            See accompanying notes.
                                       5

<PAGE>

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

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

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

            At June 30,  2006,  we had direct and indirect  equity  interests in
     1,516 self-storage  facilities located in 37 states and operating under the
     "Public Storage" name. We also have direct and indirect equity interests in
     approximately  19 million  net  rentable  square feet of  commercial  space
     located in 10 states.

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

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

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

            Certain  amounts  previously  reported  have  been  reclassified  to
     conform  to the June 30,  2006  presentation.  In  previous  presentations,
     intangible  assets were reported  separately from goodwill on the Company's
     consolidated  balance sheet. We have now reclassified the intangible assets
     to goodwill  (see  "Goodwill and  Intangible  Assets"  below).  In previous
     presentations,  net income from our truck rental,  merchandise  sales,  and
     property  management  operations  were included on a net basis in "Interest
     and other income" in our consolidated  statements of income. In our current
     presentation, revenues with respect to each of these operations, along with
     revenues from our tenant  reinsurance  operations,  are included  under the
     caption "Revenues: Ancillary operations" and the related cost of operations
     are included in "Expenses:  Cost of operations - Ancillary  operations"  on
     our  accompanying  condensed  consolidated  statements  of income.  Certain
     reclassifications  have also been made  from  previous  presentations  as a
     result of discontinued operations (See Note 3).

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

            Entities  in  which  we have an  interest  are  first  evaluated  to
     determine  whether,  in  accordance  with the  provisions  of the Financial
     Accounting  Standards  Board's  Interpretation  No. 46R,  "Consolidation of
     Variable Interest  Entities," they represent  Variable  Interest  Entities.
     Variable  Interest  Entities  in which we are the primary  beneficiary  are
     consolidated.  Entities  that are not Variable  Interest  Entities  that we

                                       6

<PAGE>

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

     control are consolidated.  For purposes of determining control, when we are
     the general  partner,  we are considered to control the partnership  unless
     the limited  partners  possess  substantial  "kick-out" or  "participative"
     rights  as  defined  in  Emerging   Issues  Task  Force  Statement  04-5  -
     "Determining  whether a general partner or the general partners as a group,
     controls a limited  partnership or similar entity when the limited partners
     have certain rights" ("EITF 04-5"). All significant  intercompany  balances
     and transactions have been eliminated.

            In accordance with the guidance of EITF 04-5,  effective  January 1,
     2006 we commenced  consolidating the accounts of three partnerships that we
     previously  accounted  for on the equity  method.  Our  investment in these
     entities totaling  $20,687,000 was allocated to the real estate facilities,
     cash, other assets,  liabilities,  and minority interests of these entities
     as described in the table below (amounts in thousands).

                                        Total
                                     -----------
    Real estate facilities.....      $   22,459
    Cash.......................           2,865
    Other assets...............             167
    Accrued and other liabilities          (841)
    Minority interest .........          (3,963)
                                     -----------
                                     $   20,687
                                     ===========

            We have  determined that we have no Variable  Interest  Entities for
     any  periods  presented.  We  control 37  entities  and,  accordingly,  the
     consolidated  financial  statements  include the accounts of these entities
     (the   "Consolidated   Entities")   as  well  as  those  of  the   Company.
     Collectively,  the Company  and the  Consolidated  Entities  own a total of
     1,523 real estate facilities,  consisting of 1,516 self-storage facilities,
     three industrial  facilities used by the containerized  storage  operations
     and four commercial properties.

            At  June  30,  2006,  we had  equity  investments  in  five  limited
     partnerships in which we do not have a controlling interest.  These limited
     partnerships collectively own 22 self-storage facilities, which are managed
     by the Company. In addition,  at June 30, 2006, we own approximately 45% of
     the common equity of PS Business Parks, Inc.  ("PSB"),  which has interests
     in approximately  18.2 million net rentable square feet of commercial space
     at June 30, 2006.  Our  investment  in these limited  partnerships  and PSB
     (collectively,  the "Unconsolidated  Entities") are accounted for using the
     equity method.

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

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

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

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

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

            We have estimated the fair value of our financial  instruments using
     available  market  information  and  appropriate  valuation  methodologies.

                                       7

<PAGE>

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

     Considerable  judgment is required in  interpreting  market data to develop
     estimates  of market  value.  Accordingly,  estimated  fair  values are not
     necessarily  indicative  of the  amounts  that could be realized in current
     market exchanges.

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

            Due  to  the  short   period  to  maturity  of  our  cash  and  cash
     equivalents,  accounts receivable,  other financial instruments included in
     other assets,  and accrued and other  liabilities,  the carrying  values as
     presented on the  consolidated  balance sheets are reasonable  estimates of
     fair value.  At June 30, 2006,  we believe  that the carrying  value of our
     notes payable is, in aggregate,  approximately $1 million higher than their
     fair value.

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

            Included  in  cash  and  cash   equivalents  at  June  30,  2006  is
     $23,809,000  ($18,962,000  at  December  31,  2005)  held  by  our  captive
     insurance  entities.  Other  assets at June 30,  2006  include  investments
     totaling $12,095,000 ($19,838,000 at December 31, 2005) in held-to-maturity
     Federal  government  agency  securities  stated at  amortized  cost,  which
     approximates fair value.  Insurance and other regulations place significant
     restrictions on our ability to withdraw these funds for purposes other than
     insurance activities.

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

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

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

            In January 2004, we entered into a joint venture partnership with an
     institutional  investor for the purpose of acquiring up to  $125,000,000 of
     existing  self-storage  properties  in the United States from third parties
     (the "Acquisition Joint Venture").  The Acquisition Joint Venture is funded
     entirely  with equity  consisting  of 30% from the Company and 70% from the
     institutional  investor.  For a six-month  period beginning 54 months after
     formation,  we have the right to acquire our partner's  interest based upon
     the market value of the properties.  If we do not exercise our option,  our
     partner  can elect to purchase  our  interest  in the  properties  during a
     six-month period commencing upon expiration of our six-month option period.
     If our partner fails to exercise its option,  the Acquisition Joint Venture
     will be  liquidated  and the proceeds will be  distributed  to the partners
     according to the joint venture agreement.

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

            During the year ended  December  31,  2004,  the  Acquisition  Joint
     Venture acquired two facilities directly from third parties at an aggregate
     cost of  $9,086,000.  We account for our  investment  with respect to these

                                       8

<PAGE>

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

     facilities  using the equity method,  with our pro rata share of the income
     from  these  facilities  recorded  as "Equity in  earnings  of real  estate
     entities" on our accompanying condensed consolidated  statements of income.
     See Note 5 for further discussion of these amounts.

            In December 2004, we sold seven facilities to the Acquisition  Joint
     Venture for an aggregate of $22,993,000.  During the first quarter of 2005,
     we sold an interest in three additional facilities to the Acquisition Joint
     Venture  for  an  aggregate  of  approximately  $27,755,000.   Due  to  our
     continuing  interest in these  facilities and the  likelihood  that we will
     exercise our option to acquire our partner's  interest,  we have  accounted
     for our partner's investment  ($35,784,000 and $35,697,000 at June 30, 2006
     and December 31, 2005,  respectively) in these facilities as, in substance,
     debt financing. Accordingly, our partner's investment with respect to these
     ten  facilities  is  accounted  for  as a  liability  on  our  accompanying
     condensed  consolidated  balance  sheets  under the caption  "Debt to joint
     venture  partner," with our partner's  share of operations  with respect to
     these ten facilities  accounted for as interest expense on our accompanying
     condensed  consolidated  statements  of income.  On a quarterly  basis,  we
     review  the fair  value of this  liability,  and to the  extent  fair value
     exceeds the carrying value of the liability,  an adjustment will be made to
     increase the liability to fair value; no adjustments  were necessary during
     2005 or for the six months ended June 30, 2006 (See Note 8).

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

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

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

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

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

            We  utilize  the  Fair  Value  Method  (as  defined  in Note  12) of
     accounting for our employee stock options. Restricted stock unit expense is
     recorded over the relevant vesting period.  See Note 12 for a discussion of
     our accounting with respect to employee stock options and restricted  stock
     units.

                                       9

<PAGE>

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

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

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

            Included in depreciation and amortization  expense for the three and
     six months ended June 30, 2006, is $1,441,000 and $2,280,000, respectively,
     compared to $1,851,000 and $3,783,000,  respectively,  for the same periods
     in 2005, related to depreciation of other assets.

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

            Accrued and other liabilities consist primarily of real and personal
     property tax accruals,  prepayments of rents,  trade  payables,  losses and
     loss adjustment  liabilities from our insurance programs (described below),
     and accrued  interest.  Prepaid rent totaled  $27,708,000  at June 30, 2006
     ($26,145,000 at December 31, 2005).

            STOR-Re  Mutual  Insurance  Company,  Inc.  ("STOR-Re"),   which  is
     consolidated with the Company, was formed in 1994 as an association captive
     insurance  company  owned by the Company  and  affiliates  of the  Company.
     STOR-Re provides  limited  property and liability  insurance to the Company
     and its affiliates for losses incurred during policy periods prior to April
     1, 2004, and was succeeded by PS Insurance Company Hawaii, Ltd. ("PSIC-H"),
     a  wholly-owned  subsidiary of the Company with respect to these  insurance
     activities  for policy  periods  following  March 31, 2004. We also utilize
     other  insurance  carriers  to provide  property  and  liability  insurance
     coverage  in  excess  of  STOR-Re's  and  PSIC-H's  limitations  which  are
     described in Note 14.  STOR-Re and PSIC-H  accrue  liabilities  for covered
     losses  and  loss  adjustment  expense,  which  at June  30,  2006  totaled
     $31,023,000  ($32,797,000  at December  31, 2005) with respect to insurance
     provided to the Company and its affiliates.

            Liabilities  for  losses  and loss  adjustment  expenses  include an
     amount we determine from loss reports and  individual  cases and an amount,
     based on  recommendations  from an independent  actuary that is a member of
     the American  Academy of Actuaries  using a frequency and severity  method,
     for losses incurred but not reported.  Determining the liability for unpaid
     losses  and loss  adjustment  expense  is based  upon  estimates.  While we
     believe that the amount is adequate,  the ultimate loss may be in excess of
     or less than the  amounts  provided.  See Note 14 for a  discussion  of our
     maximum  aggregate  annual  exposure,  assuming the  occurrence of multiple
     significant   events.  The  methods  for  making  such  estimates  and  for
     establishing the resulting liability are reviewed quarterly.

            PS Insurance Company, Ltd ("PSIC"), a wholly-owned subsidiary of the
     Company,  reinsured  policies  against claims for losses to goods stored by
     tenants in our  self-storage  facilities  for policy periods prior to March
     31, 2004.  PSIC-H succeeded PSIC with respect to these tenant  re-insurance
     activities effective April 1, 2004. Prior to January 1, 2006, both of these
     entities  utilize  third-party  insurance  coverage  for  losses  from  any
     individual  event  that  exceeds  a  loss  of  $500,000,  to a  maximum  of
     $10,000,000.  Commencing  January  1,  2006,  PSIC-H  covers  losses  up to
     $1,500,000 with third party insurers  covering the next $9,000,000 from any
     individual event. Losses below the third-party insurers' deductible amounts
     are accrued as cost of operations for the tenant  re-insurance  operations.
     Losses exceeding the third-party  insurers' limit are the responsibility of
     PSIC-H. See Note 14 for a discussion of our reinsured policies  outstanding
     at June 30, 2006.

            The accrued  liability for losses and loss  adjustment  expense with
     respect to tenant insurance  activities totaled $4,504,000 at June 30, 2006
     ($4,773,000 at December 31, 2005).

                                       10

<PAGE>

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

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

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

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

            Included in depreciation and amortization expense for the six months
     ended June 30, 2006 is $1,651,000 (none for the three months ended June 30,
     2006) related to the  amortization  of our  intangibles  and  goodwill,  as
     compared to $1,651,000  and  $3,302,000  for the three and six months ended
     June 30,  2005,  respectively.  Goodwill  is  reported  net of  accumulated
     amortization  of $85,085,000  and $83,434,000 at June 30, 2006 and December
     31, 2005, respectively,  on our accompanying condensed consolidated balance
     sheets.

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

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

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

            Cost of operations,  general and  administrative  expense,  interest
     expense,  as  well  as  television,  yellow  page,  and  other  advertising
     expenditures are expensed as incurred. Accordingly, the amounts incurred in
     an  interim  period may not be  indicative  of the  amounts to be  incurred
     during a full year. Television, yellow page, and other advertising expenses
     totaled  $8,922,000 and $17,623,000 for the three and six months ended June
     30, 2006, respectively,  and $8,992,000 and $16,563,000,  respectively, for
     the same periods in 2005.

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

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

                                       11

<PAGE>

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

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

            Distributions paid to the holders of our Cumulative  Preferred Stock
     totaling  $52,376,000  and  $42,147,000 for the three months ended June 30,
     2006 and 2005,  respectively,  have been deducted from net income to arrive
     at net income  allocable  to our  common  shareholders  (dividends  paid to
     holders  of  our  Cumulative   Preferred  Stock  totaled   $98,991,000  and
     $82,560,000 for the six months ended June 30, 2006 and 2005, respectively).

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

            In conformity with the SEC Observer's  clarification,  an additional
     $1,904,000 was allocated to preferred stockholders for the six months ended
     June 30,  2005  (none for the same  period in 2006),  for the excess of the
     redemption  amount over the  carrying  amount of our  Cumulative  Preferred
     Stock.  It is our  policy  to  record  such  allocations  at the  time  the
     securities are called for redemption.

            Net income  allocated  to our common  shareholders  has been further
     allocated  among our two classes of common stock;  our regular common stock
     and our Equity Stock,  Series A. The allocation  among each class was based
     upon the two-class method.  Under the two-class method,  earnings per share
     for each  class of  common  stock are  determined  according  to  dividends
     declared  (or  accumulated)  and  participation   rights  in  undistributed
     earnings.  Under the  two-class  method,  the Equity  Stock,  Series A, was
     allocated net income of $5,356,000  for each of the three months ended June
     30, 2006 and 2005 and  $10,712,000 and $10,731,000 for the six months ended
     June  30,  2006 and  2005,  respectively.  The  remaining  $71,130,000  and
     $60,763,000   for  the  three   months   ended  June  30,  2006  and  2005,
     respectively,   was   allocated   to  the   regular   common   shareholders
     ($133,375,000  and  $109,482,000 for the six months ended June 30, 2006 and
     2005, respectively).

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

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

            In July 2006, the Financial  Accounting Standards Board (the "FASB")
     issued  Interpretation No. 48, "Accounting for Uncertainty in Income Taxes"
     ("FIN 48").  This  interpretation,  among other things,  creates a two step
     approach for  evaluating  uncertain tax positions.  Recognition  (step one)
     occurs when an enterprise  concludes  that a tax position,  based solely on
     its  technical  merits,  is   more-likely-than-not  to  be  sustained  upon
     examination.  Measurement  (step two) determines the amount of benefit that
     more-likely-than-not  will be realized upon settlement.  Derecognition of a
     tax  position  that was  previously  recognized  would occur when a company
     subsequently   determines   that  a  tax   position  no  longer  meets  the

                                       12

<PAGE>

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

     more-likely-than-not  threshold  of being  sustained.  FIN 48  specifically
     prohibits   the  use  of  a  valuation   allowance  as  a  substitute   for
     derecognition   of  tax   positions,   and  it  has   expanded   disclosure
     requirements. FIN 48 is effective for fiscal years beginning after December
     15,  2006,  in which the impact of adoption  should be  accounted  for as a
     cumulative-effect adjustment to the beginning balance of retained earnings.
     The Company is evaluating  FIN 48 and has not yet determined the impact the
     adoption will have on the consolidated financial statements.

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

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

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

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

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

            During the first  quarter of 2006,  we were notified that one of our
     self-storage facilities located in Seattle, Washington will be condemned by
     local   government   authorities.   We  received  the  proceeds   from  the
     condemnation  of  approximately  $4,300,000  in  July  2006,  and a gain on
     disposition of  approximately  $2,400,000 is expected to be recorded in the
     third quarter of 2006.

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

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

                                       13

<PAGE>

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

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

                                       Three Months Ended            Six Months Ended
                                              June 30,                     June 30,
                                     -----------------------      -----------------------
                                        2006         2005            2006         2005
                                     ----------- -----------      ----------  -----------
                                                    (Amounts in thousands)
Rental income (a):
<S>                                   <C>          <C>             <C>          <C>
  Eminent Domain Facilities.......    $    79      $   263         $   192      $   511
  Closed Facilities...............          -            -               -           95
                                     ----------- -----------      ----------  -----------
Total rental income...............         79          263             192          606
                                     ----------- -----------      ----------  -----------
Cost of operations (a):
  Eminent Domain Facilities.......         38          132              88          250
  Closed Facilities...............          -            -               -          194
                                     ----------- -----------      ----------  -----------
Total cost of operations..........         38          132              88          444
                                     ----------- -----------      ----------  -----------
Depreciation expense (a):
  Eminent Domain Facilities.......         20           42              41           80
  Closed Facilities...............          -            -               -           29
                                     ----------- -----------      ----------  -----------
Total depreciation ...............         20           42              41          109
                                     ----------- -----------      ----------  -----------
Other items (b)...................          -            -               -        1,143
                                     ----------- -----------      ----------  -----------
Net discontinued operations (c)...    $    21      $    89         $    63      $ 1,196
                                     =========== ===========      ==========  ===========

</TABLE>

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

(b)  During the quarter  ended March 31, 2005,  assets of the Closed  Facilities
     were sold, resulting in a gain on sale of approximately $1,143,000.

(c)  Earnings per share for the six months ended June 30, 2005,  were  increased
     by $0.01 per share (none for the six months  ended June 30,  2006),  due to
     the impact from discontinued operations.

                                       14

<PAGE>

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

4.   Real Estate Facilities
     -----------------------
              Activity in real estate facilities is as follows:

                                                               Six Months Ended
                                                                 June 30, 2006
                                                               -----------------
                                                                 (Amounts in
                                                                  thousands)
Real estate facilities, at cost:
   Balance at December 31, 2005........................        $    5,930,484
   Facilities consolidated pursuant to EITF 04-5 (Note 2)              22,459
   Newly developed facilities opened for operations....                67,743
   Acquisition of real estate facilities...............               103,544
   Capital improvements................................                23,449
                                                               -----------------
   Balance at June 30, 2006............................             6,147,679
                                                               -----------------
Accumulated depreciation:
   Balance at December 31, 2005........................            (1,500,128)
   Additions during the year...........................               (94,785)
                                                               -----------------
   Balance at June 30, 2006............................            (1,594,913)
                                                               -----------------
Construction in process:
   Balance at December 31, 2005........................                54,472
   Current development.................................                37,936
   Dispositions........................................                (4,970)
   Newly developed facilities opened for operations....               (67,743)
                                                               -----------------
   Balance at June 30, 2006............................                19,695
                                                               -----------------
Total real estate facilities at June 30, 2006..........        $    4,572,461
                                                               =================

            During the six months  ended June 30,  2006,  we opened  three newly
     developed self-storage facilities (281,000 net rentable square feet) for an
     aggregate  cost of  $49,255,000.  We also  completed  three  projects which
     converted space previously used by our containerized  storage business into
     92,000 net rentable square feet of self-storage space for an aggregate cost
     of $7,115,000.  In addition,  we completed three  expansion  projects to an
     existing  self-storage  facility adding 91,000 net rentable square feet for
     an aggregate cost of $8,056,000, and we incurred trailing development costs
     with respect to  development  projects  completed  in prior  years,  for an
     aggregate net cost of $3,317,000.

            During the three months ended June 30, 2006, we received $466,000 of
     additional  proceeds  from a partial  condemnation  that  occurred in 2005.
     These  additional  proceeds are reflected as a gain on  disposition of real
     estate on our condensed consolidated statements of income for the three and
     six months ended June 30,  2006.  Also during the six months ended June 30,
     2006, we disposed of parcels of vacant land for an aggregate of $4,970,000.
     The  net  proceeds  were  equal  to  the  book  value  of  these   parcels;
     accordingly, no gain or loss was recorded.

            During  the  six  months  ended  June  30,  2006,   we  acquired  12
     self-storage  facilities  (872,000  net  rentable  square  feet) from third
     parties at an aggregate cost of $103,544,000,  consisting of $98,954,000 in
     cash and assumed mortgage debt totaling $4,590,000.

            Construction  in process at June 30, 2006  consists  primarily of 49
     projects  (2,874,000 net rentable  square feet) which expand or enhance the
     visual and structural appeal of our existing  self-storage  facilities with
     costs incurred of $18,241,000 at June 30, 2006 and total estimated costs to
     complete of  $234,852,000,  and five projects  (420,000 net rentable square
     feet) to convert  space at former  containerized  storage  facilities  into
     self-storage  space with costs  incurred of $1,454,000 at June 30, 2006 and
     total estimated costs to complete of $16,989,000.

                                       15

<PAGE>

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

            Our policy is to  capitalize  interest  incurred  on debt during the
     course of construction of our self-storage facilities. Interest capitalized
     for the  three  and six  months  ended  June  30,  2006  was  $353,000  and
     $1,069,000, respectively. Interest capitalized for the three and six months
     ended June 30, 2005 was $679,000 and $1,344,000, respectively.

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

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

            For the three and six months  ended  June 30,  2006,  we  recognized
     earnings from our  investments  in real estate  entities of $3,124,000  and
     $6,590,000, respectively, as compared to $4,851,000 and $10,529,000 for the
     same periods in 2005.

            Equity in  earnings of real estate  entities  includes  our pro rata
     share of the net impact of  gains/losses  on sales of assets and impairment
     charges relating to the impending sale of real estate assets as well as our
     pro rata  share of the  impact of the  application  of EITF  Topic  D-42 on
     redemptions of preferred securities recorded by PSB. Our net pro rata share
     from these  items  resulted  in a net  decrease  of equity in  earnings  of
     $19,000  for the three  months  ended June 30,  2006 and a net  increase of
     $293,000  for the six  months  ended June 30,  2006.  For the three and six
     months ended June 30, 2005,  our pro rata share of these items  resulted in
     net increases of $310,000 and $1,575,000,  respectively.  See the condensed
     financial  information  with  respect to PSB below for further  information
     regarding these items recorded by PSB.

            We received cash  distributions  from our investments in real estate
     entities  for the six months ended June 30, 2006 and 2005,  of  $10,415,000
     and $11,496,000, respectively.

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

                                       16

<PAGE>

                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2006
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                    Equity in Earnings of Real    Equity in Earnings of Real
                                   Investments in Real Estate        Estate Entities for the      Estate Entities for the Six
                                          Entities at              Three Months Ended June 30,       Months Ended June 30,
                                ---------------------------------  -----------------------------  ----------------------------
                                   June 30,        December 31,
                                     2006              2005            2006           2005            2006            2005
                                -------------     ---------------  -------------  --------------  ------------- --------------
<S>                             <C>                <C>              <C>            <C>            <C>             <C>
PSB (a)......................   $   286,930        $     288,694    $     2,640    $     3,369    $     5,616     $     7,578
Acquisition Joint Venture....         2,280                2,865              9             (5)            15             (20)
Other Investments (b)........        14,674               36,996            475          1,487            959           2,971
                                -------------     ---------------  -------------  --------------  ------------- --------------
  Total......................   $   303,884        $     328,555    $     3,124    $     4,851    $     6,590     $    10,529
                                =============     ===============  =============  ==============  ============= ==============
</TABLE>

(a)  Equity in earnings of real estate  entities  includes our pro rata share of
     the net impact of  gains/losses  on sale of assets and  impairment  charges
     relating to the  impending  sale of real  estate  assets as well as our pro
     rata  share  of the  impact  of the  application  of  EITF  Topic  D-42  on
     redemptions of preferred securities recorded by PSB. Our net pro rata share
     from these  items  resulted  in a net  decrease  of equity in  earnings  of
     $19,000  for the three  months  ended June 30,  2006 and a net  increase of
     $293,000  for the six  months  ended June 30,  2006.  For the three and six
     months ended June 30, 2005,  our pro rata share of these items  resulted in
     net increases of $310,000 and $1,575,000, respectively.

(b)  As   described  in  Note  2,   effective   January  1,  2006  we  commenced
     consolidating  the  accounts  of  three  limited  partnerships   previously
     accounted  for  under the  equity  method of  accounting.  As a result,  we
     decreased our investment in these partnerships by approximately $20,687,000
     on January 1, 2006.

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

            PS  Business  Parks,  Inc. is a REIT  traded on the  American  Stock
     Exchange, which controls an operating partnership  (collectively,  the REIT
     and the  operating  partnership  are  referred to as "PSB").  We have a 45%
     common  equity  interest in PSB as of June 30,  2006.  This  common  equity
     interest is comprised of our ownership of 5,418,273  shares of PSB's common
     stock and 7,305,355 limited partnership units in the operating  partnership
     at both June 30, 2006 and  December  31, 2005;  these  limited  partnership
     units are convertible at our option,  subject to certain  conditions,  on a
     one-for-one  basis into PSB common  stock.  Based upon the closing price at
     June 30, 2006 ($59.00 per share of PSB common stock),  the shares and units
     had a market value of  approximately  $750.7  million as compared to a book
     value of $286.9 million.

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

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

<TABLE>
<CAPTION>
                                                             Six Months Ended June 30,
                                                         -----------------------------------
                                                               2006               2005
                                                         ----------------    ---------------
                                                                (Amounts in thousands)
<S>                                                      <C>                 <C>
   Total revenue....................................     $      118,208      $      109,441
   Cost of operations and other operating expenses..            (39,663)            (35,257)
   Other income and expense, net....................              2,543                 818
   Depreciation and amortization....................            (41,536)            (36,912)
   Discontinued operations (a)......................              1,643               4,172
   Minority interest................................             (8,227)             (8,664)
                                                         ----------------    ---------------
     Net income.....................................     $       32,968      $       33,598
                                                         ================    ================

</TABLE>
                                       17

<PAGE>

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

<TABLE>
<CAPTION>
                                                            June 30,       December 31, 2005
                                                              2006
                                                         ----------------    ---------------
                                                              (Amounts in thousands)
<S>                                                      <C>                 <C>
   Total assets (primarily real estate).............     $    1,475,970      $    1,463,678
   Total debt.......................................             43,497              25,893
   Other liabilities................................             43,634              39,126
   Preferred equity and preferred minority interest.            738,250             729,100
   Common equity and common minority interest.......            650,589             669,559
</TABLE>

(a)  Included in discontinued  operations for the six months ended June 30, 2006
     is a net gain on disposition of real estate of $2,328,000  ($3,930,000  for
     the same period in 2005).

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

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

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

<TABLE>
<CAPTION>
                                                                    Six Months Ended June 30,
                                                              -------------------------------------
                                                                     2006                  2005
                                                              -----------------    ----------------
                                                                    (Amounts in thousands)
<S>                                                           <C>                   <C>
   Total revenue........................................      $          725        $          623
   Cost of operations and other expenses................                (282)                 (238)
   Depreciation and amortization........................                (137)                 (134)
                                                             -----------------    ----------------
     Net income.........................................      $          306        $          251
                                                             =================    =================
</TABLE>

<TABLE>
<CAPTION>

                                                                  June 30,            December 31,
                                                                    2006                  2005
                                                             -----------------    ----------------
                                                                    (Amounts in thousands)
<S>                                                           <C>                   <C>
   Total assets (primarily storage facilities)..........      $        8,667        $        8,974
   Liabilities..........................................                  94                    62
   Partners' equity.....................................               8,573                 8,912

</TABLE>

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

            Other Investments consist primarily of our ownership in four limited
     partnerships (collectively, the "Other Investments") owning an aggregate of
     20 storage facilities.  We owned an average common equity interest in Other
     Investments of approximately  23% during the six months ended June 30, 2006
     and 2005.

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

                                       18
<PAGE>

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

                                                                  Six Months Ended June 30,
                                                              ----------------------------------
                                                                    2006               2005
                                                              ----------------   ---------------
                                                                    (Amounts in thousands)
<S>                                                           <C>                 <C>
   Total revenue........................................      $        7,904      $       7,456
   Cost of operations and other expenses................              (3,125)            (3,009)
   Depreciation and amortization........................                (858)              (869)
     Net income.........................................      $        3,921      $       3,578

</TABLE>

<TABLE>
<CAPTION>

                                                                 June 30,          December 31,
                                                                   2006                2005
                                                              ----------------   ---------------
                                                                    (Amounts in thousands)
<S>                                                           <C>                 <C>
   Total assets (primarily storage facilities)..........      $       39,825      $      39,813
   Other liabilities....................................               1,113              1,178
   Partners' equity.....................................              38,712             38,635

</TABLE>

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

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

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

            At June 30, 2006 and August 8, 2006, we had undrawn  standby letters
     of credit totaling $17,919,000.  The beneficiaries of these standby letters
     of credit were  certain  insurance  companies  associated  with our captive
     insurance and tenant re-insurance activities.

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

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

                                       19

<PAGE>

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

                                                                    June 30,       December 31,
                                                                      2006             2005
                                                                 --------------    -------------
                                                                     (Amounts in thousands)
Unsecured senior notes:

<S>                                                              <C>               <C>
  7.66% note due January 2007.............................       $     11,200      $     22,400

Mortgage notes payable:

  5.58% mortgage note secured by a real estate facility
  with a net book value of $9.6 million, principal and interest
  payable monthly, due in September 2013..................              4,548                 -

  7.134% and 8.75% mortgage notes secured by two real estate
  facilities with a net book value of $10.6 million, principal
  and interest payable monthly, due at varying dates between
  October 2009 and September 2028.........................              1,401             1,484

  5.05% mortgage notes (including unamortized note premium of
  $1.7 million) secured by 25 real estate facilities with a net
  book value of $95.0 million, principal and interest due
  monthly,  due at varying dates  between  October 2010 and
  May 2023.................................................            37,073            38,568

  5.25% mortgage notes (including unamortized note premium
  of $3.2 million) secured by seven real estate facilities with
  a net book value of $89.3 million, principal and interest due
  monthly, due at varying dates between June 2011
  and July 2013...........................................             50,831            51,498
                                                                 --------------    -------------
         Total notes payable..............................        $   105,053       $   113,950
                                                                 ==============    =============
</TABLE>

            All of our notes payable are fixed rate. The unsecured  senior notes
     require interest and principal  payments to be paid  semi-annually and have
     various restrictive covenants, all of which have been met at June 30, 2006.

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

            We assumed the 5.05% and 5.25%  mortgage  notes in  connection  with
     property acquisitions in 2004. The stated interest rates on the notes range
     from 5.4% to 8.0% with a weighted average of approximately 6.65%. The notes
     were recorded at their estimated fair value based upon the estimated market
     rate upon  assumption  of 5.05% and 5.25%,  an aggregate  of  approximately
     $94,693,000,   as  compared   to  actual   assumed   balances   aggregating
     approximately $88,247,000. This initial premium of approximately $6,446,000
     over the  principal  balance  of the notes  payable is  amortized  over the
     remaining term of the loans based upon the effective interest method.

            We  incurred  interest  expense  with  respect to our notes  payable
     aggregating  $2,982,000  and  $3,607,000  for the six months ended June 30,
     2006 and 2005, respectively. These amounts were comprised of $3,456,000 and
     $4,122,000  in cash  for the six  months  ended  June 30,  2006  and  2005,
     respectively,  less  $474,000  and  $515,000  in  amortization  of premium,
     respectively.

                                       20

<PAGE>

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

            At June 30,  2006,  approximate  principal  maturities  of our notes
     payable are as follows:

                                Unsecured          Mortgage
                               senior notes      notes payable          Total
                               -------------     -------------      ------------
                                         (Dollar amounts in thousands)
2006 (remainder of)..........  $          -       $    2,352           $   2,352
2007.........................        11,200            4,898              16,098
2008.........................             -            5,155               5,155
2009.........................             -            5,358               5,358
2010.........................             -            5,404               5,404
Thereafter...................             -           70,686              70,686
                               -------------     -------------      ------------
                               $     11,200       $   93,853           $ 105,053
                               =============     =============      ============
Weighted average rate........         7.7%             5.2%               5.5%
                               =============     =============      ============

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

            As   described   more  fully  in  Note  2,  our   partner's   equity
     contributions  with respect to certain  transactions has been classified as
     debt under the caption  "Debt to Joint  Venture  Partner."  The balances of
     $35,784,000  and  $35,697,000  as of June 30, 2006 and  December  31, 2005,
     approximate the fair value of our partners' interest in these facilities as
     of each respective date.

            A total of  $1,516,000  and  $1,194,000  was  recorded  as  interest
     expense on our condensed consolidated  statements of income with respect to
     our Debt to Joint Venture Partner during the six months ended June 30, 2006
     and 2005,  respectively,  representing  our partner's pro rata share of net
     earnings with respect to the  properties we sold to the  Acquisition  Joint
     Venture (an 8.5% return on their  investment).  This  interest  expense was
     comprised of a total of $1,429,000 and $1,340,000 paid to our joint venture
     partner  (an  8.0%  return  payable   currently  in  accordance   with  the
     partnership  agreement) during the six months ended June 30, 2006 and 2005,
     respectively, and increases in the Debt to Joint Venture Partner of $87,000
     and $86,000 in the six months ended June 30, 2006 and 2005, respectively.

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

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

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

                                       21

<PAGE>

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

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

            The  following  table  summarizes  the preferred  partnership  units
     outstanding at June 30, 2006 and December 31, 2005:

<TABLE>
<CAPTION>

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

            Income  allocated  to  the  preferred   minority  interests  totaled
     $8,249,000  and $9,839,000 for the six months ended June 30, 2006 and 2005,
     respectively,  comprised of distributions paid and the allocation of income
     resulting from the application of EITF Topic D-42 (see below).

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

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

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

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

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

                                       22

<PAGE>

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

                                                  Minority Interest at
                                             ----------------------------
                                              June 30,       December 31,
               Description                      2006             2005
-----------------------------------------    ------------     -----------
Convertible Partnership Units...........     $     6,181      $     6,177
Newly Consolidated Partnerships..........          4,055                -
Other consolidated partnerships..........         22,987           22,793
                                             ------------     -----------
Total other partnership interests........    $    33,223      $    28,970
                                             ============     ===========

<TABLE>
<CAPTION>

                                            Minority Interests in Income    Minority Interests in Income
                                             for the Three Months Ended       for the Six Months Ended
                                            -----------------------------  ------------------------------
                                            June 30,          June 30,       June 30,         June 30,
              Description                     2006               2005          2006             2005
----------------------------------------    ------------    -------------  --------------  --------------
<S>                                         <C>              <C>            <C>              <C>
Convertible Partnership Units..........     $       120      $        83    $       236      $       173
Consolidated Development Joint Venture..              -            1,835              -            3,403
Newly Consolidated Partnerships.........          1,243                -          2,173                -
Other consolidated partnerships.........          2,707            2,960          5,229            5,697
                                            ------------    -------------  --------------- --------------
Total other partnership interests.......    $     4,070      $     4,878    $     7,638      $     9,273
                                            ============    =============  =============== ==============

</TABLE>

            Distributions  paid to minority interests for the three months ended
     June 30, 2006 and 2005 were $3,636,000 and $5,182,000, respectively and for
     the six months ended June 30, 2006 and 2005 were $7,348,000 and $9,198,000,
     respectively.

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

            As  of  June  30,  2006,  one  of  the  Consolidated   Entities  had
     approximately 237,934 convertible operating partnership units ("Convertible
     Units")  outstanding  representing  a limited  partnership  interest in the
     partnership.  The Convertible  Units are convertible on a one-for-one basis
     (subject to certain limitations) into our common stock at the option of the
     unitholder.  Minority  interest in income with  respect to the  Convertible
     Units  reflects the  Convertible  Units' share of our net income,  with net
     income  allocated to minority  interests  with respect to weighted  average
     outstanding Convertible Units on a per unit basis equal to diluted earnings
     per common share.

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

            In  November  1999,  we  formed a  development  joint  venture  (the
     "Consolidated  Development  Joint  Venture")  with a joint venture  partner
     (PSAC  Storage  Investors,  LLC,  referred  to as  "PSAC")  whose  partners
     included a third party  institutional  investor  and B. Wayne  Hughes ("Mr.
     Hughes"),   the  Chairman  of  the  Board  of  the   Company,   to  develop
     approximately  $100,000,000  of  self-storage  facilities  and to  purchase
     $100,000,000 of the our Equity Stock,  Series AAA (see Note 10). We owned a
     controlling  interest in the  Consolidated  Development  Joint  Venture and
     included the accounts of this  partnership  in our  consolidated  financial
     statements  since  its  inception.  PSAC's  interest  in  the  Consolidated
     Development  Joint  Venture  was  accounted  for as minority  interest,  as
     denoted in the above table.

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

                                       23

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

                                       24

<PAGE>

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

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

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

            At June 30, 2006 and December 31, 2005, we had the following  series
     of Cumulative Preferred Stock outstanding:

<TABLE>
<CAPTION>

                                                             At June 30, 2006             At December 31, 2005
                           Earliest                    ----------------------------- ------------------------------
                          Redemption      Dividend        Shares        Carrying         Shares         Carrying
       Series              Date (a)         Rate        Outstanding      Amount        Outstanding       Amount
------------------      -------------    ------------  --------------  ------------- ---------------  -------------
                                                                      (Dollar amounts in thousands)
<S>                      <C>                  <C>             <C>       <C>                <C>         <C>
Series R                 9/28/06              8.000%          20,400    $   510,000        20,400      $   510,000
Series S                 10/31/06             7.875%           5,750        143,750         5,750          143,750
Series T                 1/18/07              7.625%           6,086        152,150         6,086          152,150
Series U                 2/19/07              7.625%           6,000        150,000         6,000          150,000
Series V                 9/30/07              7.500%           6,900        172,500         6,900          172,500
Series W                 10/6/08              6.500%           5,300        132,500         5,300          132,500
Series X                 11/13/08             6.450%           4,800        120,000         4,800          120,000
Series Y                 1/2/09               6.850%       1,600,000         40,000     1,600,000           40,000
Series Z                 3/5/09               6.250%           4,500        112,500         4,500          112,500
Series A                 3/31/09              6.125%           4,600        115,000         4,600          115,000
Series B                 6/30/09              7.125%           4,350        108,750         4,350          108,750
Series C                 9/13/09              6.600%           4,600        115,000         4,600          115,000
Series D                 2/28/10              6.180%           5,400        135,000         5,400          135,000
Series E                 4/27/10              6.750%           5,650        141,250         5,650          141,250
Series F                 8/23/10              6.450%          10,000        250,000        10,000          250,000
Series G                 12/12/10             7.000%           4,000        100,000         4,000          100,000
Series H                 1/19/11              6.950%           4,200        105,000             -                -
Series I                 5/3/11               7.250%          20,700        517,500             -                -
                                                       --------------  ------------- ---------------  -------------
      Total Cumulative Preferred Stock                     1,723,236    $ 3,120,900     1,698,336      $ 2,498,400
                                                       ==============  ============= ===============  =============
</TABLE>

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

            The  holders  of  our  Cumulative   Preferred   Stock  have  general
     preference rights with respect to liquidation and quarterly  distributions.
     Holders of the  preferred  stock,  except under certain  conditions  and as
     noted below, will not be entitled to vote on most matters.  In the event of
     a  cumulative  arrearage  equal to six  quarterly  dividends  or failure to
     maintain  a  Debt  Ratio  (as  defined)  of  50% or  less,  holders  of all
     outstanding  series of preferred  stock  (voting as a single class  without
     regard to series)  will have the right to elect two  additional  members to
     serve on the Company's Board of Directors until events of default have been
     cured.  At June 30,  2006,  there were no dividends in arrears and the Debt
     Ratio was 1.8%.

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

                                       25

<PAGE>

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

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

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

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

            Subsequent to June 30, 2006, we issued 18,400,000  depositary shares
     each representing  1/1,000 of a share our 7.25% Cumulative Preferred Stock,
     Series K, for gross proceeds of approximately  $460 million  (including the
     underwriters' overallotment option, which was exercised).

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

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

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

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

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

                                       26

<PAGE>

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

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

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

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

            During the six months ended June 30, 2006, we issued  115,228 shares
     of our Common Stock in connection with employee stock-based compensation.

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

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

                                                      June 30,      December 31,
Reconciliation of Common Shares Outstanding            2006            2005
-------------------------------------------         -------------  -------------
Legally issued and outstanding shares.......         129,356,954    129,235,770
Less - Shares owned by entities we consolidate
    that are eliminated in consolidation....          (1,146,207)    (1,146,207)
                                                    -------------  -------------
Reported issued and outstanding shares......         128,210,747    128,089,563
                                                    =============  =============
     Dividends
     ---------

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

                                       26

<PAGE>

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

                                          Distributions Per
                                        Share or Depositary  Total Distributions
                                                Share
Preferred Stock:                        -------------------  -------------------
Series Q..............................          $0.108       $      742,000
Series R..............................          $1.000           20,400,000
Series S..............................          $0.984            5,660,000
Series T..............................          $0.953            5,800,000
Series U..............................          $0.953            5,720,000
Series V..............................          $0.937            6,468,000
Series W..............................          $0.813            4,306,000
Series X..............................          $0.806            3,870,000
Series Y..............................          $0.856            1,370,000
Series Z..............................          $0.781            3,516,000
Series A..............................          $0.766            3,522,000
Series B..............................          $0.891            3,874,000
Series C..............................          $0.825            3,796,000
Series D..............................          $0.773            4,172,000
Series E..............................          $0.844            4,768,000
Series F..............................          $0.806            8,062,000
Series G..............................          $0.875            3,500,000
Series H..............................          $0.785            3,296,000
Series I..............................          $0.297            6,149,000
                                                             -------------------
                                                                 98,991,000
Common Stock:
Equity Stock, Series A................          $1.225           10,712,000
Common ...............................          $1.000          128,595,000
                                                             -------------------
   Total dividends....................                       $  238,298,000
                                                             ===================

            The dividend rate on the common stock was $0.50 per common share and
     $1.00 per common  share for the three and six months  ended June 30,  2006,
     respectively.  The  dividend  rate on the Equity  Stock A was  $0.6125  per
     depositary  share and  $1.225  per  depositary  share for the three and six
     months ended June 30, 2006, respectively.


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

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

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

            The   self-storage   segment   comprises   the   direct   ownership,
     development,  and  operation of  traditional  storage  facilities,  and the
     ownership of equity interests in entities that own storage properties.  The
     containerized  storage operations represent another segment. The commercial
     property  segment  reflects our interest in the ownership,  operation,  and
     management of commercial  properties.  The vast majority of the  commercial
     property  operations are conducted through PSB, and to a much lesser extent
     the Company and certain of its  unconsolidated  subsidiaries own commercial

                                       28

<PAGE>

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

     space,   managed  by  PSB,  within  facilities  that  combine  storage  and
     commercial space for rent. The ancillary operations include four sources of
     operating  income:  (i) the reinsurance of policies against losses to goods
     stored by tenants in our self-storage facilities,  (ii) sale of merchandise
     at our  self-storage  facilities,  (iii) truck rentals at our  self-storage
     facilities and (iv)  management of facilities  owned by third-party  owners
     and facilities owned by the Unconsolidated Entities.

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

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

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

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

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

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

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

                                       29

<PAGE>

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

<TABLE>
<CAPTION>

                                                                     Three Months Ended             Six Months Ended
                                                                           June 30,                      June 30,
                                                                 ---------------------------  ----------------------------
                                                                     2006           2005          2006            2005
                                                                 -------------  ------------  -------------  -------------
                                                                                   (Amounts in thousands)
Reconciliation of Net Income by Segment:

Self-storage
  Self-storage net operating income before depreciation
<S>                                                               <C>            <C>          <C>            <C>
      and amortization ....................................       $   172,973    $  154,853   $   336,750    $ 300,555
  Depreciation and amortization............................           (47,854)      (46,645)      (97,058)     (92,842)
  Equity in earnings - self-storage property operations....               528         1,774         1,100        3,076
  Discontinued operations (Note 3) ........................                21            89            63          181
                                                                 -------------  ------------  -------------  -------------
      Total self-storage segment net income................           125,668       110,071       240,855      210,970
                                                                 -------------  ------------  -------------  -------------
  Commercial  properties
  Commercial properties net operating income before
     depreciation and amortization.........................             1,778         1,884         3,422        3,605
  Depreciation and amortization............................              (549)         (580)       (1,134)      (1,159)
  Equity in earnings - commercial property operations......             8,965         8,632        17,856       17,593
                                                                 -------------  ------------  -------------  -------------
      Total commercial property segment net income.........            10,194         9,936        20,144       20,039
                                                                 -------------  ------------  -------------  -------------
  Containerized storage
  Containerized storage net operating income before
  depreciation.............................................               (19)          714           601        1,809
  Containerized storage depreciation.......................              (223)       (1,015)         (483)      (2,177)
  Discontinued operations (Note 3) ........................                 -             -             -        1,015
                                                                 -------------  ------------  -------------  -------------
      Total containerized storage segment net income.......              (242)         (301)          118          647
                                                                 -------------  ------------  -------------  -------------
  Ancillary Operations
   Revenue less cost of operations.........................             6,673         7,058        11,231       10,659
                                                                 -------------  ------------  -------------  -------------
  Other items not allocated to segments
  General and administrative and other included in equity in
     earnings..............................................            (6,369)       (5,555)      (12,366)     (10,140)
  Cumulative effect of change in accounting principal......                 -             -           578            -
  Interest and other income................................            10,047         3,394        15,122        6,287
  General and administrative...............................            (6,975)       (6,128)      (13,754)     (11,269)
  Interest expense.........................................            (1,872)       (1,794)       (3,429)      (3,457)
  Gain on sale of real estate..............................               466            53           466           53
  Minority interest in income..............................            (8,728)       (8,468)      (15,887)     (19,112)
                                                                 -------------  ------------  -------------  -------------
      Total other items not allocated to segments                     (13,431)      (18,498)      (29,270)     (37,638)
                                                                 -------------  ------------  -------------  -------------
       Total consolidated net income.......................       $   128,862    $  108,266   $   243,078    $ 204,677
                                                                 =============  ============  =============  =============
</TABLE>


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

      Stock Options

            We have a 1990 Stock Option Plan (the "1990 Plan"),  which  provides
     for the grant of non-qualified  stock options.  We have a 1994 Stock Option
     Plan (the "1994 Plan"),  a 1996 Stock Option and Incentive  Plan (the "1996
     Plan"), a 2000  Non-Executive/Non-Director  Stock Option and Incentive Plan
     (the  "2000  Plan"),  a 2001  Non-Executive/Non-Director  Stock  Option and

                                       30

<PAGE>

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

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

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

            For the  three  and six  months  ended  June  30,  2006 we  recorded
     $331,000 and $598,000,  respectively,  in stock option compensation expense
     related to options  granted  after January 1, 2002, as compared to $214,000
     and $427,000, respectively, for the same periods in 2005. The estimated per
     option  value of $10.50 for the stock  options  granted in the first  three
     months of 2006 was based  upon an  estimated  life of 5 years,  an  average
     risk-free rate of 4.32%,  an expected  dividend yield of 7%, and an average
     expected volatility of 0.265.

            A total of 125,000 stock options were granted  during the six months
     ended June 30, 2006,  94,166 shares were  exercised,  and 2,000 shares were
     forfeited.  A total of 1,451,980 stock options were outstanding at June 30,
     2006 (1,423,146 at December 31, 2005).

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

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

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

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

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

                                       31

<PAGE>

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

            During the six months ended June 30, 2006,  208,250 restricted stock
     units were  granted,  13,780  restricted  stock units were  forfeited,  and
     32,400 restricted stock units vested. This vesting resulted in the issuance
     of  21,062  shares  of  the  Company's  Common  Stock.  In  addition,  cash
     compensation was paid to employees in lieu of 11,338 shares of Common Stock
     based upon the market  value of the stock at the date of vesting,  and used
     to settle the employees' tax liability generated by the vesting.

            At June 30, 2006,  approximately 461,900 restricted stock units were
     outstanding  (299,830 at December  31,  2005).  A total of  $1,160,000  and
     $2,429,000 in  restricted  stock expense was recorded for the three and six
     months  ended  June  30,  2006,   respectively  ($938,000  and  $1,956,000,
     respectively, for the same periods in 2005).

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

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

            Mr.  Hughes and his family  (the  "Hughes  Family")  have  ownership
     interests  in, and operate  approximately  44  self-storage  facilities  in
     Canada under the name "Public Storage" ("PS Canada")  pursuant to a license
     agreement with the Company.  We currently do not own any interests in these
     facilities nor do we own any  facilities in Canada.  The Hughes Family owns
     approximately 36% of our Common Stock outstanding at June 30, 2006. We have
     a right of first refusal to acquire the stock or assets of the  corporation
     that manages the 44 self-storage facilities in Canada, if the Hughes Family
     or the corporation agrees to sell them. However, we have no interest in the
     operations of this  corporation,  we have no right to acquire this stock or
     assets unless the Hughes Family decides to sell, the right of first refusal
     does not apply to the  self-storage  facilities,  and we receive no benefit
     from the  profits  and  increases  in value  of the  Canadian  self-storage
     facilities.

            Through PSIC and PSCI-H,  we continue to reinsure  risks relating to
     loss of goods stored by tenants in the  self-storage  facilities in Canada.
     We acquired the tenant insurance  business on December 31, 2001 through its
     acquisition of PSIC.  During each of the six months ended June 30, 2006 and
     2005,  we received  $505,000 and  $526,000,  respectively,  in  reinsurance
     premiums  attributable  to the  Canadian  Facilities.  Since  our  right to
     provide  tenant  reinsurance  to the Canadian  Facilities may be qualified,
     there is no assurance that these premiums will continue.

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

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


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

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

                                       32

<PAGE>

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

            Dann V. Angeloff,  a director of the Company, is the general partner
     of a limited  partnership  formed  in June  1973  that owns a  self-storage
     facility that is managed by us. We recorded management fees with respect to
     this facility amounting to $18,000 and $31,000 for the three and six months
     ended June 30, 2006, respectively,  compared to $11,000 and $22,000 for the
     three and six months ended, June 30, 2005, respectively.

            PSB  manages  certain  of  the  commercial  facilities  that  we own
     pursuant  to  management  agreements  for a  management  fee equal to 5% of
     revenues.  We paid a total of $146,000,  and $295,000 for the three and six
     months  ended  June 30  2006,  respectively,  and  $144,000  and  $289,000,
     respectively,  for the same periods in 2005 in management fees with respect
     to PSB's property management  services.  At June 30, 2006, we have recorded
     amounts owed to PSB of  $1,166,000  ($551,000 at December  31,  2005),  for
     management fees and certain other operating expenses related to the managed
     facilities,  paid by PSB on our behalf.  These  amounts are the result of a
     time lag between PSB paying such expenditures and being reimbursed by us.

            We manage the Company's wholly-owned self-storage facilities as well
     as the facilities owned by the Unconsolidated Entities and the Consolidated
     Entities on a joint  basis,  in order to take  advantage of scale and other
     efficiencies. As a result, significant components of self-storage operating
     costs, such as payroll costs,  advertising and promotion,  data processing,
     and insurance  expenses are shared and allocated among the various entities
     using  methodologies  meant to fairly  allocate  such costs  based upon the
     related  activities.  The total of such expenses which were included in the
     operations of the Unconsolidated  Entities were approximately $676,000, and
     $1,267,000 for the three and six months ended June 30, 2006,  respectively,
     compared to $1,099,000  and  $2,219,000  for the three and six months ended
     June 30, 2005, respectively.

            Pursuant to a cost-sharing and  administrative  services  agreement,
     PSB reimburses us for certain administrative services. PSB's share of these
     costs  totaled  approximately  $80,000 and  $160,000  for the three and six
     months  ended  June 30,  2006,  respectively,  and  $85,000  and  $170,000,
     respectively, for the same periods in 2005.

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

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

         Legal Matters

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

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

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

                                       33

<PAGE>

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

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

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

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

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

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

            The plaintiff is suing the Company on behalf of a purported class of
     California  property  managers who claim that they were not compensated for
     all hours worked.  The Brinkley suit is based upon California wage and hour
     laws. The maximum  potential  liability  cannot be estimated,  but would be
     increased if a class or classes are  certified  or, if claims are permitted
     to be  brought on behalf of others  under the  California  Unfair  Business
     Practices  Act.  In May 2006,  a motion for class  certification  was filed
     seeking to certify five subclasses.  Plaintiff is seeking certification for
     alleged meal period violations, rest period violations,  failure to pay for
     travel  time,  failure to pay for mileage  reimbursement,  and for pay stub
     violations.  We are  vigorously  contesting the claims and intend to resist
     any  expansion  beyond  the  named  plaintiff  on the  grounds  of  lack of
     commonality  of claims.  We do not  believe  that this matter will have any
     material adverse effect on the results of operations of the Company.

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

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

                                       34

<PAGE>

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

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

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

         INSURANCE AND LOSS EXPOSURE

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

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

            Our tenant  re-insurance  program,  operating  through  PSIC through
     March 31,  2004,  and through  PSIC-H  beginning  April 1, 2004,  reinsures
     policies  against  claims  for  losses to goods  stored by  tenants  at our
     self-storage  facilities.  For 2005, we had outside  third-party  insurance
     coverage for claims paid exceeding  $500,000  resulting from any individual
     event, to a limit of $10,000,000.  Effective January 1, 2006, such coverage
     was revised to cover claims paid  exceeding  $1,500,000  resulting from any
     individual  event,  to a limit  of  $9,000,000.  At June 30,  2006,  we had
     approximately 268,000 reinsured policies outstanding representing aggregate
     coverage of approximately $658 million.

         DEVELOPMENT AND ACQUISITION OF REAL ESTATE FACILITIES

            We currently have 59 projects in our development pipeline, including
     expansions and enhancements to existing self-storage facilities.  The total
     estimated cost of these facilities is approximately $271,536,000,  of which
     $19,695,000 has been spent at June 30, 2006.  These projects are subject to
     contingencies.

            Subsequent  to  June  30,  2006,  we did  not  acquire  and  are not
     currently under contract to acquire any additional  self-storage facilities
     from third parties,  with  exception to the merger with Shurgard  discussed
     below.

     MERGER WITH SHURGARD
     --------------------

            On March 6, 2006, we entered into an agreement with Shurgard Storage
     Centers,  Inc ("Shurgard") under which Public Storage will acquire Shurgard
     at a total transaction value of approximately  $5.0 billion.  In connection
     with the proposed  merger,  on July 24, 2006,  Public  Storage and Shurgard
     filed the definitive joint proxy  statement/prospectus  with the Securities
     and Exchange  Commission and began mailing it to their  shareholders.  Each
     company has scheduled a shareholders' meeting to be held on August 22, 2006
     to, among other things, vote on approval of the merger.

                                       35

<PAGE>

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

            Under the terms of the merger agreement,  Public Storage will issue,
     in a taxable  transaction,  approximately 41 million shares of common stock
     to holders of Shurgard's  common stock and assume  Shurgard's debt and line
     of credit of approximately $1.9 billion (at March 31 2006). Concurrent with
     the closing of the  merger,  we expect to repay  Shurgard's  line of credit
     ($621  million at March 31,  2006),  and pay  approximately  $60 million of
     legal,   consulting,   and  other   merger-related   costs.   In  addition,
     approximately $136 million of Shurgard's  preferred stock will be redeemed.
     The transaction is subject to customary  closing  conditions and regulatory
     approvals,  including the approval of the  shareholders  of both companies.
     The merger is currently  targeted to close on or shortly  after the date of
     the shareholder meetings.

            Completion  of the  transaction  is not  assured  and is  subject to
     risks,  including that shareholders of either Public Storage or Shurgard do
     not approve the  transaction  or that the other closing  conditions are not
     satisfied. In addition,  Shurgard may under limited circumstances terminate
     the agreement to take a superior proposal.  Public Storage and Shurgard are
     not aware of any significant  governmental  approvals that are required for
     consummation  of the merger.  If any approval or action is required,  it is
     presently  contemplated  that Public  Storage and Shurgard  would use their
     reasonable best efforts to obtain such approval.  There can be no assurance
     that any approvals, if required, will be obtained.

            The foregoing  description  of the terms of our agreement to acquire
     Shurgard does not purport to be complete,  and is qualified in its entirety
     by reference to the full text of the merger  agreement,  a copy of which is
     filed with our  current  report on Form 8-K dated  March 7,  2006,  and our
     definitive joint proxy statement/prospectus dated July 24, 2006.

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

            On August 8,  2006,  we issued  18,400,000  depositary  shares  each
     representing  1/1,000  of a share our  7.25%  Cumulative  Preferred  Stock,
     Series K, for gross proceeds of approximately  $460 million  (including the
     underwriters' overallotment option, which was exercised).

                                       36

<PAGE>

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

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

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

         CRITICAL ACCOUNTING POLICIES

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

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

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

         We therefore do not estimate or accrue any federal  income tax expense.
This estimate could be incorrect,  because due to the complex nature of the REIT
qualification requirements, the ongoing importance of factual determinations and
the  possibility  of future changes in our  circumstances,  we cannot be assured
that we actually have satisfied or will satisfy the requirements for taxation as

                                       37

<PAGE>

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

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

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

         ESTIMATED  LEVEL OF RETAINED RISK AND UNPAID TENANT CLAIM  LIABILITIES:
As  described  in  Notes  2  and  14 to  our  condensed  consolidated  financial
statements,  we retain  certain  risks with  respect to property  perils,  legal
liability,  and other such risks. In addition, a wholly-owned  subsidiary of the
Company reinsures  policies against claims for losses to goods stored by tenants
in our self-storage facilities. In connection with these risks, we accrue losses
based  upon the  estimated  level of losses  incurred  using  certain  actuarial
assumptions followed in the insurance industry and based on recommendations from
an  independent  actuary that is a member of the American  Academy of Actuaries.
While we believe  that the  amounts of the  accrued  losses  are  adequate,  the
ultimate  liability  may be in excess of or less than the amounts  recorded.  At
June 30, 2006,  we had  approximately  268,000  reinsured  policies  outstanding
representing aggregate coverage of approximately $658 million.

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

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

                                       38

<PAGE>


MERGER WITH SHURGARD
--------------------

         On March 6, 2006, we entered into an agreement  with  Shurgard  Storage
Centers,  Inc  ("Shurgard")  (NYSE:SHU)  under which Public Storage will acquire
Shurgard  at a  total  transaction  value  of  approximately  $5.0  billion.  In
connection  with the  proposed  merger,  on July 24,  2006,  Public  Storage and
Shurgard  filed  the  definitive  joint  proxy   statement/prospectus  with  the
Securities and Exchange  Commission and began mailing it to their  shareholders.
Each company has scheduled a shareholders' meeting to be held on August 22, 2006
to, among other things, vote on approval of the merger.

         Under the terms of the merger agreement,  Public Storage will issue, in
a taxable  transaction,  approximately  41  million  shares  of common  stock to
holders of Shurgard's common stock and assume Shurgard's debt and line of credit
of approximately $1.9 billion (at March 31 2006). Concurrent with the closing of
the merger,  we expect to repay Shurgard's line of credit ($621 million at March
31, 2006), and pay  approximately  $60 million of legal,  consulting,  and other
merger-related  costs.  In addition,  approximately  $136 million of  Shurgard's
preferred  stock will be  redeemed.  The  transaction  is  subject to  customary
closing  conditions  and  regulatory  approvals,  including  the approval of the
shareholders of both companies.  The merger is currently targeted to close on or
shortly after the date of the shareholder meetings.

         Completion of the  transaction  is not assured and is subject to risks,
including that  shareholders of either Public Storage or Shurgard do not approve
the  transaction  or that the other closing  conditions  are not  satisfied.  In
addition,  Shurgard may under limited  circumstances  terminate the agreement to
take a superior  proposal.  Public  Storage  and  Shurgard  are not aware of any
significant  governmental  approvals that are required for  consummation  of the
merger. If any approval or action is required, it is presently contemplated that
Public  Storage and Shurgard would use their  reasonable  best efforts to obtain
such approval.  There can be no assurance that any approvals,  if required, will
be obtained.

         The  foregoing  description  of the terms of our  agreement  to acquire
Shurgard  does not purport to be  complete,  and is qualified in its entirety by
reference  to the full text of the  merger  agreement,  a copy of which is filed
with our  current  report on Form 8-K dated  March 7, 2006,  and our  definitive
joint proxy statement/prospectus dated July 24, 2006.

         Included  in  general  and  administrative  expense  on  our  unaudited
condensed  consolidated  statements of income for the three and six months ended
June 30,  2006,  respectively,  are costs  related to the  proposed  merger with
Shurgard incurred prior to signing the merger agreement, as well as expenditures
in planning the integration of the two companies of  approximately  $1.1 million
and $2.2 million,  respectively. We expect to incur additional incremental costs
related to the  integration  of the two companies in the next few  quarters,  as
well as costs associated with winding down Shurgard's  business  affairs.  These
costs  cannot  be  estimated  at this  time and will be  expensed  as  incurred;
therefore,  they are expected to have a negative  impact on our  earnings  going
forward.

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

FOR THE THREE MONTHS ENDED JUNE 30, 2006:

         Net income for the three  months  ended June 30, 2006 was  $128,862,000
compared to $108,266,000  for the same period in 2005,  representing an increase
of $20,596,000,  or 19.0%. This increase is primarily due to improved operations
from our Same Store group of facilities, continued growth in operations from our
newly  developed  and  recently  expanded  facilities,  continued  growth in our
recently  acquired  self-storage  facilities as well as higher interest  income.
These items were partially  offset by an increase in general and  administrative
expense.

                                       39

<PAGE>

         Same Store net operating income, before depreciation expense, increased
by $6,517,000 or 4.8% as a result of a 5.7%  improvement  in revenues  partially
offset by a 7.4% increase in cost of operations. Aggregate net operating income,
before depreciation  expense,  for our newly developed and recently expanded and
acquired  facilities  increased by approximately  $8,654,000.  This increase was
largely due to the impact of facilities acquired in 2005 and 2006, combined with
continued  fill-up of our newly  developed  and expansion  facilities.  Interest
income  increased as a result of earning higher  interest rates on invested cash
balances  combined with  significantly  higher average cash balances invested in
interest-bearing  accounts  as  compared  to the same  period  in  2005.  Higher
invested cash balances were  primarily due to the issuances of $517.5 million of
our 7.25% Series I Cumulative  Preferred Stock on May 3, 2006 and $100.0 million
of our 7.25% Series J Preferred  Partnership  Units on May 9, 2006.  General and
administrative  expense  increased  primarily  as a result of certain  costs and
expenses  totaling  $1.1  million  with  respect  to the  proposed  merger  with
Shurgard.

         Net income allocable to our common  shareholders  (after allocating net
income to our preferred and equity  shareholders)  was  $71,130,000 or $0.55 per
common  share on a diluted  basis  for the  three  months  ended  June 30,  2006
compared to  $60,763,000  or $0.47 per common  share on a diluted  basis for the
same period in 2005,  representing  an increase  of $0.08 per common  share,  or
17.0%. The increases in net income allocable to common shareholders and earnings
per  common  diluted  share  are due  primarily  to the  impact  of the  factors
described  above,  offset  by an  increase  in  income  allocated  to  preferred
shareholders, as described below.

         For the  three  months  ended  June 30,  2006 and  2005,  we  allocated
$52,376,000  and $42,147,000 of our net income,  respectively,  to our preferred
shareholders based on distributions paid. The year-over-year  increase is due to
the  issuance  of  additional  preferred  securities,  partially  offset  by the
redemption of preferred securities that had higher dividend rates than the newly
issued preferred securities.

         Weighted  average diluted shares increased to 129,062,000 for the three
months ended June 30, 2006 from  128,618,000 for the three months ended June 30,
2005.

FOR THE SIX MONTHS ENDED JUNE 30, 2006:

         Net  income for the six months  ended  June 30,  2006 was  $243,078,000
compared to $204,677,000  for the same period in 2005,  representing an increase
of $38,401,000,  or 18.8%. This increase is primarily due to improved operations
from our Same Store,  newly  developed  and  acquired  self-storage  facilities,
reduced minority interest in income and higher interest income. These items were
partially  offset  by  increases  in  general  and  administrative  expense  and
depreciation  along  with a  decrease  in  equity  in  earnings  of real  estate
entities.

         Same Store net operating income, before depreciation expense, increased
by $14,647,000 or 5.6% as a result of a 5.4%  improvement in revenues  partially
offset by a 5.1% increase in cost of  operations  before  depreciation  expense.
Aggregate net operating income for our newly  developed,  acquired and expansion
self-storage  facilities  increased by approximately  $16,080,000 largely due to
the impact of  facilities  acquired in 2005 and 2006,  combined  with  continued
fill-up of our newly developed and expansion  facilities.  Minority  interest in
income  declined due to the  acquisition of minority  interests that occurred in
2005.  Interest income increased as a result of earning higher interest rates on
invested cash balances,  combined with higher average cash balances  invested in
interest-bearing  accounts as compared to the same period in 2005.  Depreciation
increased due  principally  to the  expansion of our real estate  portfolio as a
result of newly developed and acquired  facilities.  General and  administrative
expense  increased  primarily as a result of certain costs and expenses totaling
$2.2 million with respect to the proposed merger with Shurgard.

         Net income allocable to our common  shareholders  (after allocating net
income to our preferred and equity  shareholders)  was $133,375,000 or $1.03 per
common share on a diluted  basis for the six months ended June 30, 2006 compared
to $109,482,000 or $0.85 per common share on a diluted basis for the same period
in 2005,  representing  an increase  of $0.18 per common  share,  or 21.2%.  The
increases in net income allocable to common shareholders and earnings per common
diluted  share are due primarily to the impact of the factors  described  above,
offset  partially by  increased  income  allocated  to  preferred  shareholders,
described below.

                                       40

<PAGE>

         For the  six  months  ended  June  30,  2006  and  2005,  we  allocated
$98,991,000  and $82,560,000 of our net income,  respectively,  to our preferred
shareholders based on distributions paid. The year-over-year  increase is due to
the  issuance  of  additional  preferred  securities,  partially  offset  by the
redemption of preferred securities that had higher dividend rates than the newly
issued  preferred  securities.  We also  recorded  allocations  of income to our
preferred  shareholders  with  respect  to the  application  of EITF  Topic D-42
totaling  $1,904,000  for the six months  ended June 30, 2005 (none for the same
period in 2006).

         Weighted  average  diluted shares  increased to 129,037,000 for the six
months  ended June 30, 2006 from  128,895,000  for the six months ended June 30,
2005.

         As described more fully under "Liquidity and Capital  Resources" below,
we have approximately $653,750,000 in higher coupon preferred stock that becomes
available  for  redemption  during  the  remainder  of 2006.  While  there is no
assurance,  if we do redeem  these  securities,  during  2006 there  would be an
additional allocation to the preferred shareholders of approximately $22 million
($0.17 per common share,  based upon weighted  average diluted shares during the
six  months  ended  June 30,  2006) from the  application  of EITF  Topic  D-42.
Similarly,  if PS Business  Parks redeems the  preferred  stock it has available
during the  remainder of 2006,  our pro-rata  share will be  approximately  $1.4
million.

         In the ensuing discussions of our operations, we present "net operating
income  before  depreciation  and  amortization  and cost of  operations  before
depreciation  and  amortization",  which  excludes  the  impact of  depreciation
expense.  Although  depreciation is an operating expense,  we believe that these
operating metrics are meaningful measures of operating  performance,  because we
utilize these measures in making decisions with respect to capital  allocations,
in determining  current  property  values,  segment  performance,  and comparing
period to period and market to market property  operating  results.  Included in
Note 11 to our  June  30,  2006  condensed  consolidated  financial  statements,
"Segment  Information,"  is a  reconciliation  of net operating  income  (before
depreciation)  by each  respective  operating  segment to our  consolidated  net
income.

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

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

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

                                       41

<PAGE>

<TABLE>
<CAPTION>

Self - storage operations summary:
                                                         Three Months Ended June 30,             Six Months Ended June 30,
                                                     -------------------------------------- --------------------------------------
                                                                                 Percentage                             Percentage
                                                         2006         2005        Change       2006          2005         Change
                                                     -----------  -----------   ----------- ----------- ------------    ----------
                                                                            (Dollar amounts in thousands)
Rental income (a):
<S>                                                  <C>          <C>                <C>    <C>          <C>                 <C>
   Same Store Facilities (b)...................      $  214,832    $ 203,302         5.7%   $  423,060   $  401,361          5.4%
   Acquired Facilities (c).....................          16,090        8,831        82.2%       30,205       16,327         85.0%
   Expansion Facilities (d)....................          13,240       11,606        14.1%       25,796       22,751         13.4%
   Developed Facilities (e)....................          14,346       11,516        24.6%       27,661       22,162         24.8%
   Newly consolidated facilities (g)...........           3,890            -           -         7,188            -            -
                                                     -----------  -----------   ----------- ----------- ------------    ----------
     Total rental income.......................         262,398      235,255        11.5%      513,910      462,601         11.1%
                                                     -----------  -----------   ----------- ----------- ------------    ----------
Cost of operations before depreciation and
amortization (f):
   Same Store Facilities.......................          72,749       67,736         7.4%      144,779      137,727          5.1%
   Acquired Facilities.........................           6,306        3,880        62.5%       12,007        7,308         64.3%
   Expansion Facilities........................           4,282        3,917         9.3%        8,538        7,945          7.5%
   Developed Facilities........................           5,147        4,869         5.7%       10,116        9,066         11.6%
   Newly consolidated facilities...............             941            -           -         1,720            -            -
                                                     -----------  -----------   ----------- ----------- ------------    ----------
   Total cost of operations....................          89,425       80,402        11.2%      177,160      162,046          9.3%
                                                     -----------  -----------   ----------- ----------- ------------    ----------
Net operating income before depreciation and
amortization:
   Same Store Facilities.......................         142,083      135,566         4.8%      278,281      263,634          5.6%
   Acquired Facilities.........................           9,784        4,951        97.6%       18,198        9,019        101.8%
   Expansion Facilities........................           8,958        7,689        16.5%       17,258       14,806         16.6%
   Developed Facilities........................           9,199        6,647        38.4%       17,545       13,096         34.0%
   Newly consolidated facilities...............           2,949            -           -         5,468            -            -
                                                     -----------  -----------   ----------- ----------- ------------    ----------
   Total net operating income before depreciation
   and amortization (i)........................         172,973      154,853        11.7%      336,750      300,555         12.0%
                                                     -----------  -----------   ----------- ----------- ------------    ----------
Depreciation and amortization expense:
-------------------------------------
   Same Store Facilities.......................         (36,472)     (38,264)       (4.7)%     (75,020)     (77,232)        (2.9)%
   Acquired Facilities.........................          (4,589)      (2,436)       88.4%       (8,517)      (4,063)       109.6%
   Expansion Facilities........................          (3,048)      (2,726)       11.8%       (6,015)      (5,259)        14.4%
   Developed Facilities........................          (3,629)      (3,219)       12.7%       (7,118)      (6,288)        13.2%
   Newly consolidated facilities...............            (116)           -           -          (388)           -          -
                                                     -----------  -----------   ----------- ----------- ------------    ----------
   Total depreciation and amortization expense.         (47,854)     (46,645)        2.6%      (97,058)     (92,842)         4.5%
                                                     -----------  -----------   ----------- ----------- ------------    ----------
Net operating income:
   Same Store Facilities.......................         105,611       97,302         8.5%      203,261      186,402          9.0%
   Acquired Facilities.........................           5,195        2,515       106.6%        9,681        4,956         95.3%
   Expansion Facilities........................           5,910        4,963        19.1%       11,243        9,547         17.8%
   Developed Facilities........................           5,570        3,428        62.5%       10,427        6,808         53.2%
   Newly consolidated facilities...............           2,833            -           -         5,080            -            -
                                                     -----------  -----------   ----------- ----------- ------------    ----------
   Total net operating income..................        $125,119    $ 108,208        15.6%   $  239,692   $  207,713         15.4%
                                                     ===========  ===========   =========== =========== ============    ==========
Number of self-storage facilities (at end of
period)........................................                                                  1,493        1,440          3.7%
Net rentable square feet (in thousands, at end of
   period) (h): ...............................                                                 91,637       86,810          5.6%

</TABLE>

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

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

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

                                       42

<PAGE>

(d)  The Expansion  Facilities  include 61 facilities  containing  5,327,000 net
     rentable square feet of  self-storage  space;  these  facilities were owned
     since  January 1,  2004,  however,  operating  results  are not  comparable
     throughout  the periods  presented due primarily to expansions in their net
     rentable square feet (described below).

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

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

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

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

(i)  Total net operating income before depreciation and amortization, which is a
     non-GAAP measure,  for our self-storage  segment is presented in Note 11 to
     our June 30, 2006 condensed  consolidated  financial  statements,  "Segment
     Information,"  which  includes a  reconciliation  of net  operating  income
     before  depreciation  and amortization for this segment to our consolidated
     net income.

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

         Self-Storage Operations - Same Store Facilities

         We  increased  the  number of  facilities  included  in the Same  Store
Facilities  from 1,260  facilities  at December 31, 2005 to 1,266  facilities at
June 30, 2006.  The increase in the Same Store pool of  facilities is due to the
inclusion  of 23  facilities  previously  classified  as  Developed or Expansion
facilities and the removal of 17 facilities that are now classified as Expansion
facilities.  These facilities are included in the Same Store Facilities  because
they are all  stabilized  and owned since January 1, 2004 and therefore  provide
meaningful comparative data for 2004, 2005, and 2006.

         As a result of the change in the Same Store  Facilities,  the  relative
weighting of markets has changed.  Accordingly,  comparisons  should not be made
between  information  presented  in  2005  reports  for  the  1,260  Same  Store
Facilities  and the  current  1,266 Same Store  Facilities  in order to identify
trends in occupancies, realized rents per square foot, or operating results.

         The Same  Store  Facilities  contain  approximately  73.9  million  net
rentable  square  feet,  representing  approximately  81% of the  aggregate  net
rentable square feet of our consolidated  self-storage  portfolio.  Revenues and
operating expenses with respect to this group of properties are set forth in the
above Self-Storage  Operations table under the caption, "Same Store Facilities."
The following  table sets forth  additional  operating  data with respect to the
Same Store Facilities:

                                       43

<PAGE>

<TABLE>
<CAPTION>



SAME STORE FACILITIES                                        Three Months Ended June 30,              Six Months Ended June 30,
                                                            ---------------------------------        ------------------------------
                                                                                   Percentage                             Percentage
                                                            2006         2005        Change        2006         2005        Change
                                                       --------------- ----------- ------------  ------------ -----------  ---------
                                                              (Dollar amounts in thousands, except weighted average amounts)
<S>                                                      <C>           <C>              <C>      <C>          <C>              <C>
Rental income......................................      $  205,213    $  194,377       5.6%     $  404,304   $  383,949       5.3%
Late charges and administrative fees collected.....           9,619         8,925       7.8%         18,756       17,412       7.7%
                                                       ---------------  ----------  ------------ -----------  -----------   --------
  Total rental income.............................          214,832       203,302       5.7%        423,060      401,361       5.4%
                                                       ---------------  ----------  ------------ -----------  -----------   --------

Cost of operations before depreciation and amortization:
     Payroll expense...............................          22,409        20,956       6.9%         43,739       42,051       4.0%
     Property taxes................................          19,346        18,402       5.1%         40,009       38,333       4.4%
     Repairs and maintenance.......................           7,105         6,368      11.6%         13,806       13,050       5.8%
     Advertising and promotion.....................           6,716         6,814      (1.4)%        13,395       12,784       4.8%
     Utilities.....................................           4,362         3,816      14.3%          9,162        8,373       9.4%
     Property insurance............................           3,169         2,246      41.1%          5,019        4,248      18.1%
     Telephone reservation center..................           2,102         2,041       3.0%          4,051        3,794       6.8%
     Other cost of management......................           7,540         7,093       6.3%         15,598       15,094       3.3%
                                                       ---------------  ----------  ------------ -----------  -----------   --------
   Total cost of operations........................          72,749        67,736       7.4%        144,779      137,727       5.1%
                                                       ---------------  ----------  ------------ -----------  -----------   --------

Net operating income before depreciation and
amortization (e)...................................         142,083       135,566       4.8%        278,281      263,634       5.6%
Depreciation and amortization......................         (36,472)      (38,264)     (4.7)%       (75,020)     (77,232)     (2.9)%
                                                       ---------------  ----------  ------------ -----------  -----------   --------
 Net operating income..............................      $  105,611    $   97,302       8.5%     $  203,261   $  186,402       9.0%
                                                       ===============  ==========  ============ ===========  ===========   ========
Gross margin (before depreciation and amortization)          66.1%         66.7%       (0.9)%        65.8%        65.7%        0.2%

Weighted average for the fiscal year:
   Square foot occupancy (a).......................          92.1%         92.1%        0.0%         91.1%        91.0%        0.1%
   Realized annual rent per occupied square foot (b)        $12.05        $11.42        5.5%        $12.00       $11.41        5.2%
   REVPAF (c)......................................         $11.10        $10.52        5.5%        $10.94       $10.39        5.3%

 Weighted average at June 30:
   Square foot occupancy...........................                                                  92.6%        92.4%        0.2%
   In place annual rent per occupied square foot (d)                                                $13.30       $12.62        5.4%

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

</TABLE>

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

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

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

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

(e)      Total net operating income before depreciation and amortization,  which
         is a non-GAAP  measure,  for our same  store  facilities  represents  a
         portion of our total self-storage segment's net operating income before
         depreciation and  amortization,  and is reconciled to the segment total
         in the table "self-storage  operations summary" above. A reconciliation
         of  our  total  self-storage  segment's  net  operating  income  before
         depreciation and amortization to consolidated net income is included in
         Note  11  to  our  June  30,  2006  condensed   consolidated  financial
         statements, "Segment Information."

         Rental income increased  approximately  5.7% and 5.4% for the three and
six months ended June 30, 2006, respectively, as compared to the same periods in
2005.  These increases were primarily  attributable  to higher average  realized
annual  rental rates per occupied  square foot,  which were 5.5% and 5.2% higher
for the three and six months ended June 30, 2006,  respectively,  as compared to
the same periods in 2005. Our occupancy levels remained  approximately  flat for
each of the periods.

                                       44
<PAGE>

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

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

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

         We  believe  that our Same Store  Facilities  are well  positioned  for
continued  rental income growth for the remainder of 2006. At June 30, 2006, our
existing tenants were paying rental rates that were 5.4% higher, and occupancies
were 0.2% higher than at June 30, 2005.

         Cost of operations (excluding  depreciation and amortization) increased
by 7.4% and 5.1% for the three and six months ended June 30, 2006, respectively,
as compared to the same periods in 2005.

         Payroll  expense  has  increased  6.9% and 4.0% for the  three  and six
months  ended June 30,  2006,  respectively,  as compared to the same periods in
2005,  due  principally  to  higher  wage  rates  required  for  some of our job
classifications because of a tight labor market in several market areas, as well
as higher overtime hours required due to understaffing  issues. We do not expect
to  experience  the high level of  payroll  increase  experienced  in the second
quarter, during the remainder of 2006.

         Repairs and  maintenance  expenditures  increased 11.6% and 5.8% during
the three and six months  ended June 30,  2006.  During the second  quarter,  we
experienced  higher repair and  maintenance  costs to address  certain  deferred
maintenance  issues  localized to a few markets.  We do not expect to experience
the high level of repairs and  maintenance  increase  experienced  in the second
quarter, during the remainder of 2006.

         Advertising  and promotion  costs  decreased  1.4% for the three months
ended June 30, 2006 and  increased  4.8% for the six months ended June 30, 2006,
compared to the same periods in 2005. The increases in advertising and promotion
costs for the six months ended June 30, 2006 are due principally to increases in
internet and television  advertising expenses.  Television advertising decreased
from  $2,955,000  to  $2,611,000  in the three  months  ended  June 30,  2006 as
compared to the same period in 2005, but increased from $6,543,000 to $6,589,000
for the six months  ended June 30,  2006 as compared to the same period in 2005.
Future  television  advertising  expenditures will continue to be volatile as we
adapt to market and competitive conditions.

         Utility  expenses  increased  14.3% and 9.4%  during  the three and six
months ended June 30, 2006, due principally to higher energy costs. These levels
of increases are expected to persist during the remainder of 2006.

         Insurance  expense  increased  41.1%  and  18.1%  for the three and six
months  ended  June 30,  2006,  reflecting  significant  increases  in  property
insurance  resulting  primarily from the hurricanes  experienced in 2005.  These
rate increases became effective with our policy year starting April 1, 2006 and,
accordingly,  we expect to continue  these  trends of higher  insurance  expense
throughout the remainder of 2006.

         Telephone  reservation  center  costs  increased  3.0% and 6.8% for the
three and six months ended June 30, 2006, respectively,  as compared to the same
periods in 2005. In preparation for our seasonal rental period, we increased our
staffing levels earlier this year compared to the same period in 2005, resulting
in higher  payroll  costs.  We  expect  to  realize  certain  benefits  from the
increased staffing through better conversion ratios and lower temporary staffing
costs through the remainder of 2006.

                                       45
<PAGE>

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

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

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

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

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

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

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

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

</TABLE>

                                       46

<PAGE>


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

The following table sets forth regional trends in our Same Store Facilities:
<TABLE>
<CAPTION>


                                              Three Months Ended June 30,             Six Months Ended June 30,
                                          ---------------------------------------   ---------------------------------------
                                             2006          2005         Change         2006         2005             Change
                                          -----------   ----------  --------------  -----------  -------------  -------------
                                                  (Amounts in thousands, except for per square foot amounts)
Same Store Facilities Operating Trends
by Region
Rental income:

   Southern California  (126
<S>                                        <C>          <C>              <C>       <C>          <C>                   <C>
   facilities)......................       $  35,123    $  33,469        4.9%      $  69,360    $   66,115            4.9%
   Northern California  (127
   facilities)......................          25,971       24,654        5.3%         51,161        48,509            5.5%
   Texas  (149 facilities)..........          18,940       17,847        6.1%         37,147        35,309            5.2%
   Florida  (130 facilities)........          22,651       20,605        9.9%         44,554        40,605            9.7%
   Illinois  (91 facilities)........          15,695       15,090        4.0%         30,979        30,045            3.1%
   Georgia  (58 facilities).........           7,474        6,713       11.3%         14,614        13,406            9.0%
   All other states  (585 facilities)         88,978       84,924        4.8%        175,245       167,372            4.7%
                                          -----------   ----------  -------------- -----------  -------------  -------------
Total rental income.................         214,832      203,302        5.7%        423,060       401,361            5.4%

Cost of operations before depreciation
 and amortization:
   Southern California..............           8,140        7,283       11.8%         16,375        14,917            9.8%
   Northern California..............           6,990        6,393        9.3%         13,738        12,757            7.7%
   Texas............................           8,808        7,863       12.0%         17,057        15,964            6.8%
   Florida..........................           7,541        7,373        2.3%         14,749        14,362            2.7%
   Illinois.........................           7,057        6,276       12.4%         14,536        13,202           10.1%
   Georgia..........................           2,519        2,350        7.2%          5,051         4,756            6.2%
   All other states.................          31,694       30,198        5.0%         63,273        61,769            2.4%
                                         -----------    ----------  -------------- -----------  -------------  -------------
Total cost of operations............          72,749       67,736        7.4%        144,779       137,727            5.1%

Net operating income before depreciation
 and amortization:
   Southern California..............          26,983       26,186        3.0%         52,985        51,198            3.5%
   Northern California..............          18,981       18,261        3.9%         37,423        35,752            4.7%
   Texas............................          10,132        9,984        1.5%         20,090        19,345            3.9%
   Florida..........................          15,110       13,232       14.2%         29,805        26,243           13.6%
   Illinois.........................           8,638        8,814       (2.0)%        16,443        16,843           (2.4)%
   Georgia..........................           4,955        4,363       13.6%          9,563         8,650           10.6%
   All other states.................          57,284       54,726        4.7%        111,972       105,603            6.0%
                                         -----------    ----------  -------------- -----------  -------------  -------------
Total net operating income before
   depreciation and amortization....       $ 142,083    $ 135,566        4.8%      $ 278,281    $  263,634            5.6%

Weighted average occupancy:
   Southern California..............          91.9%        92.6%        (0.8)%        91.6%         92.6%            (1.1)%
   Northern California..............          91.5%        91.9%        (0.4)%        90.7%         90.6%             0.1%
   Texas............................          92.0%        90.6%         1.5%         90.9%         89.7%             1.3%
   Florida..........................          93.9%        93.5%         0.4%         93.6%         92.7%             1.0%
   Illinois.........................          90.8%        91.0%        (0.2)%        89.2%         89.4%            (0.2)%
   Georgia..........................          93.7%        92.9%         0.9%         93.1%         92.0%             1.2%
   All other states.................          92.0%        92.1%        (0.1)%        90.8%         90.8%             0.0%
                                         -----------    ----------  -------------- -----------  -------------  -------------
Total weighted average occupancy....          92.1%        92.1%         0.0%         91.1%         91.0%             0.1%

REVPAF:
   Southern California..............     $     17.10    $  16.29         5.0%      $  16.88     $  16.08              5.0%
   Northern California..............           14.38       13.66         5.3%         14.18        13.45              5.4%
   Texas............................            7.79        7.36         5.9%          7.64         7.29              4.8%
   Florida..........................           11.60       10.55         9.9%         11.40        10.40              9.6%
   Illinois.........................           10.78       10.38         3.9%         10.66        10.35              3.0%
   Georgia..........................            8.40        7.58        10.8%          8.22         7.57              8.6%
   All other states.................           10.12        9.67         4.7%          9.98         9.54              4.6%
                                         -----------  ----------    -------------- -----------  -------------  -------------
Total REVPAF........................     $     11.10    $  10.52         5.5%      $  10.94     $  10.39              5.3%

</TABLE>

                                       47
<PAGE>

<TABLE>
<CAPTION>

   Same Store Facilities Operating
   Trends by Region (Continued)               Three Months Ended June 30,             Six Months Ended June 30,
                                          -------------------------------------   ------------------------------------
                                            2006         2005         Change        2006         2005          Change
                                          ----------  ------------   ----------  -----------  -----------     --------
Realized annual rent per occupied square foot:

<S>                                        <C>          <C>              <C>       <C>          <C>              <C>
   Southern California..............       $  18.60     $  17.59         5.8%      $  18.42     $  17.37         6.0%
   Northern California..............          15.72        14.86         5.8%         15.63        14.84         5.3%
   Texas............................           8.46         8.12         4.3%          8.41         8.12         3.6%
   Florida..........................          12.35        11.29         9.4%         12.18        11.21         8.7%
   Illinois.........................          11.88        11.41         4.1%         11.95        11.58         3.2%
   Georgia..........................           8.97         8.17         9.8%          8.83         8.23         7.3%
   All other states.................          11.00        10.50         4.8%         10.99        10.50         4.7%
                                          ----------  ------------   ----------  -----------  -----------     --------
Total realized rent per square foot.       $  12.05     $  11.42         5.5%      $  12.00     $  11.41         5.2%

In place annual rent per occupied square foot at June 30:
   Southern California..............                                               $  20.29     $  19.19         5.7%
   Northern California..............                                                  17.36        16.47         5.4%
   Texas............................                                                   9.40         8.95         5.1%
   Florida..........................                                                  13.39        12.23         9.4%
   Illinois.........................                                                  13.23        12.74         3.9%
   Georgia..........................                                                   9.96         9.25         7.6%
   All other states.................                                                  12.20        11.67         4.6%
                                                                                 ------------   ----------     -------
Total in place rent per occupied
  square foot.......................                                               $  13.30     $  12.62         5.4%

</TABLE>

         SELF-STORAGE OPERATIONS - ACQUIRED FACILITIES

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


<TABLE>
<CAPTION>

ACQUIRED SELF-STORAGE FACILITIES                            Three Months Ended June 30,              Six Months Ended June 30,
                                                        ------------------------------------    -----------------------------------
                                                            2006        2005         Change         2006       2005         Change
                                                       ----------   ----------   -----------  -----------  ------------  ----------
                                                                 (Dollar amounts in thousands, except square foot amounts)
Rental income:
<S>                                                     <C>          <C>           <C>          <C>          <C>          <C>
   Self-storage facilities acquired in 2006......       $  1,442     $      -      $  1,442     $  1,839     $      -     $  1,839
   Self-storage facilities acquired in 2005......          6,178        1,377         4,801       11,816        1,877        9,939
   Self-storage facilities acquired in 2004......          8,470        7,454         1,016       16,550       14,450        2,100
                                                       ----------   ----------   -----------  -----------  ------------  ----------
   Total rental income...........................         16,090        8,831         7,259       30,205       16,327       13,878
                                                       ----------   ----------   -----------  -----------  ------------  ----------
Cost of operations before depreciation and
amortization :
   Self-storage facilities acquired in 2006......            717            -           717          942            -          942
   Self-storage facilities acquired in 2005......          2,385          674         1,711        4,854          951        3,903
   Self-storage facilities acquired in 2004......          3,204        3,206            (2)       6,211        6,357         (146)
                                                       ----------   ----------   -----------  -----------  ------------  ----------
   Total cost of operations......................          6,306        3,880         2,426       12,007        7,308        4,699
                                                       ----------   ----------   -----------  -----------  ------------  ----------
</TABLE>
                                       48

<PAGE>

<TABLE>
<CAPTION>

ACQUIRED SELF-STORAGE FACILITIES (Continued)                     Three Months Ended                      Six Months Ended
                                                                      June 30,                               June 30,
                                                        ------------------------------------    -----------------------------------
                                                           2006        2005         Change         2006       2005         Change
                                                       ----------   ----------   -----------  -----------  ------------  ----------

Net operating income before depreciation and amortization:
<S>                                                           <C>                        <C>          <C>                       <C>
   Self-storage facilities acquired in 2006......             725            -           725          897            -          897
   Self-storage facilities acquired in 2005......           3,793          703         3,090        6,962          926        6,036
   Self-storage facilities acquired in 2004......           5,266        4,248         1,018       10,339        8,093        2,246
                                                       ----------   ----------   -----------  -----------  ------------  ----------
Total net operating income before depreciation and
   amortization (a)..............................           9,784        4,951         4,833       18,198        9,019        9,179
Depreciation and amortization....................          (4,589)      (2,436)       (2,153)      (8,517)      (4,063)      (4,454)
                                                       ----------   ----------   -----------  -----------  ------------  ----------
   Net operating income..........................       $   5,195    $   2,515     $   2,680    $   9,681    $   4,956    $   4,725
                                                       ==========   ===========  ============  ===========  ===========  ==========

Weighted average square foot occupancy during the
period:
   Self-storage facilities acquired in 2006......           66.0%         -             -           63.4%         -              -
   Self-storage facilities acquired in 2005......           85.5%        82.8%          3.3%        83.6%        80.7%         3.6%
   Self-storage facilities acquired in 2004......           89.6%        87.6%          2.3%        87.8%        85.3%         2.9%
                                                       ----------   ----------   -----------  -----------  ------------  ----------
                                                            85.6%        86.7%         (1.3)%       84.4%        84.6%        (0.2)%
                                                       ==========   ===========  ============  ===========  ===========  ==========

Weighted average realized annual rent per occupied
square foot for the period (b):
   Self-storage facilities acquired in 2006......         $ 13.44     $     -           -        $  13.92      $    -           -
   Self-storage facilities acquired in 2005......           11.58         9.33         24.1%        11.30         8.82        28.1%
   Self-storage facilities acquired in 2004......           11.63        10.51         10.7%        11.63        10.45        11.3%
                                                       ----------   ----------   -----------  -----------  ------------  ----------
                                                         $  11.72     $  10.34         13.3%     $  11.58      $ 10.27        12.8%
                                                       ==========   ===========  ============  ===========  ===========  ==========

In place annual rent per occupied square foot at
June 30 (c):
   Self-storage facilities acquired in 2006......                                                 $ 15.82     $     -           -
   Self-storage facilities acquired in 2005......                                                   12.87        11.00       17.0%
   Self-storage facilities acquired in 2004......                                                   12.76        11.66        9.4%
                                                                                                 ---------    ----------  ---------
                                                                                                    13.08        11.53       13.4%
                                                                                                 =========    ==========  =========
Number of Facilities at June 30:
     2006........................................                                                       12           -         12
     2005........................................                                                       32          14         18
     2004........................................                                                       45          45          -
                                                                                                 ---------    ----------  ---------
                                                                                                        89          59         30
                                                                                                 =========    ==========  =========
Net rentable square feet at June 30:
   Self-storage facilities acquired in 2006......                                                      872           -          872
   Self-storage facilities acquired in 2005......                                                    2,390         920        1,470
   Self-storage facilities acquired in 2004 (d)..                                                    3,121       3,109           12
                                                                                                 ---------    ----------   ---------
                                                                                                     6,383       4,029        2,354
                                                                                                 =========    ==========    ========
Cumulative acquisition cost at June 30:
   Self-storage facilities acquired in 2006......                                               $  103,544    $      -    $  103,544
   Self-storage facilities acquired in 2005......                                                  254,549      82,456       172,093
   Self-storage facilities acquired in 2004 (d)..                                                  260,801     259,487         1,314
                                                                                                 ---------    ----------   ---------
                                                                                                $  618,894    $341,943    $  276,951
                                                                                                 =========    ==========    ========

</TABLE>

(a)  Total net operating income before depreciation and amortization, which is a
     non-GAAP measure,  for our acquired  self-storage  facilities  represents a
     portion of our total  self-storage  segment's net  operating  income before
     depreciation  and  amortization,  and is reconciled to the segment total in
     the table "self-storage  operations summary" above. A reconciliation of our
     total self-storage  segment's net operating income before  depreciation and
     amortization to consolidated  net income is included in Note 11 to our June
     30,   2006   condensed   consolidated   financial   statements,    "Segment
     Information."

                                       49
<PAGE>

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

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

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

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

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

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

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

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

         We expect  that our  acquisitions  will  continue  to provide  earnings
growth  during the  remainder  of 2006 as these  facilities  continue to improve
their occupancy levels as well as realized rental rates. In addition, during the
remainder  of 2006 we expect to  continue  to  acquire  additional  self-storage
facilities.

SELF-STORAGE OPERATIONS - EXPANSION FACILITIES

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

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

                                       50
<PAGE>

<TABLE>
<CAPTION>

EXPANSION SELF-STORAGE FACILITIES
                                                         Three Months Ended                     Six Months Ended
                                                               June 30,                                  June 30,
                                                     ---------------------------                ---------------------------
                                                          2006          2005         Change          2006         2005    Change
                                                     ------------  ------------- -----------  -------------  ------------ --------
Rental income:
--------------
<S>                                                   <C>            <C>         <C>           <C>            <C>          <C>
   New Orleans facilities (a) ...............         $    1,445     $  1,511    $      (66)   $    2,961     $   2,955    $    6
   Other expansion facilities................             11,795       10,095         1,700        22,835        19,796     3,039
                                                     ------------  ------------- -----------  -------------  ------------ --------
     Total rental income.....................             13,240       11,606         1,634        25,796        22,751     3,045
                                                     ------------  ------------- -----------  -------------  ------------ --------
Cost of operations before depreciation:
---------------------------------------
   New Orleans facilities....................                405          469           (64)          773           975      (202)
   Other expansion facilities................              3,877        3,448           429         7,765         6,970       795
                                                     ------------  ------------- -----------  -------------  ------------ --------
     Total cost of operations................              4,282        3,917           365         8,538         7,945       593
                                                     ------------  ------------- -----------  -------------  ------------ --------
Net operating income before depreciation:
-----------------------------------------
   New Orleans facilities....................              1,040        1,042            (2)        2,188         1,980       208
   Other expansion facilities................              7,918        6,647         1,271        15,070        12,826     2,244
                                                     ------------  ------------- -----------  -------------  ------------ --------
  Total net operating income before depreciation (b)       8,958        7,689         1,269        17,258        14,806     2,452
  Depreciation................................            (3,048)      (2,726)         (322)       (6,015)       (5,259)     (756)
                                                     ------------  ------------- -----------  -------------  ------------ --------
   Net operating income......................         $    5,910     $  4,963    $      947    $   11,243     $  9,547     $1,696
                                                     ============  ============= ===========  =============  =========== =========

Weighted average square foot occupancy during
----------------------------------------------
the period:
-----------
   New Orleans facilities (c)................              66.6%        92.0%        (27.6)%        72.3%         90.6%     (20.2)%
   Other expansion facilities................              81.0%        86.2%         (6.0)%        79.8%         84.4%      (5.5)%
                                                     ------------  ------------- -----------  -------------  ------------ --------
                                                           79.6%        86.9%         (8.4)%        79.0%         85.1%      (7.2)%
                                                     ------------  ------------- -----------  -------------  ------------ --------

Weighted average realized rent per occupied square
--------------------------------------------------
foot during the period (d):
---------------------------

   New Orleans facilities (c) ...............         $    11.08    $   11.89        (6.8)%     $   10.18   $    11.83     (13.9)%
   Other expansion facilities................              12.22        11.68         4.6%          12.22        11.76        3.9%
                                                     ------------  ------------- -----------  -------------  ------------ --------
                                                      $    12.13    $   11.71         3.6%      $   12.04   $    11.77        2.3%
                                                     ============  ============= ===========  =============  =========== =========

In place annual rent per occupied square foot at
-------------------------------------------------
June 30 (e):
------------

   New Orleans facilities (c) ...............                                                    $   14.26   $    13.22       7.9%
   Other expansion facilities................                                                        13.79        13.12       5.1%
                                                                                               -------------  ------------ --------
                                                                                                 $   13.82   $    13.13       5.3%
                                                                                               ============= ============= =========
Number of Facilities at June 30:
--------------------------------
   New Orleans facilities....................                                                             8           8        -
   Other expansion facilities................                                                            53          53        -
                                                                                               -------------  ------------ --------
                                                                                                         61          61        -
                                                                                               ============= ============= ========
Net rentable square feet (in thousands, at end of period) (f):
--------------------------------------------------------------
   New Orleans facilities....................                                                           524         524        -
   Other expansion facilities................                                                         4,803       4,123      680
                                                                                               -------------  ------------ --------
                                                                                                      5,327       4,647      680
                                                                                               ============= ============= ========

</TABLE>

(a)   Rental income for the New Orleans  Facilities for the three and six months
      ended June 30, 2006  includes  $433,000  and  $940,000,  respectively,  in
      business  interruption  proceeds we expect to receive  from our  insurers,
      relative to losses occurring in each respective period.

                                       51
<PAGE>

(b)   Total  net  operating  income  before  depreciation,  which is a  non-GAAP
      measure, for our expansion self-storage facilities represents a portion of
      our total self-storage segment's net operating income before depreciation,
      and is  reconciled  to  the  segment  total  in  the  table  "self-storage
      operations  summary"  above. A  reconciliation  of our total  self-storage
      segment's net operating  income before  depreciation to  consolidated  net
      income is included in Note 11 to our June 30, 2006 condensed  consolidated
      financial statements, "Segment Information."

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

(d)   Realized  annual  rent per  occupied  square  foot is computed by dividing
      rental  income,  prior to late  charges and  administrative  fees,  by the
      weighted average  occupied square footage for the period.  Realized annual
      rent  per  occupied  square  foot  takes  into  consideration  promotional
      discounts, credit card fees and other costs that reduce rental income from
      the  contractual  amounts due.  Realized rent per square foot excludes the
      impact of  $433,000  and  $940,000 in  business  interruption  proceeds we
      expect to receive from our insurers relative to the New Orleans facilities
      for the three and six months ended June 30, 2006, respectively.

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


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

         All of the New  Orleans  facilities  were  closed  for  operations  for
several weeks following the hurricane;  however, all but two of these facilities
have since  reopened.  The five that are  operating  are not  operating  at full
capacity,  as many  units  are  unavailable  for lease  due to  damage.  The two
facilities  that  remain  closed  will  not be able  to  reopen  at all  without
substantial  restoration  and  repair  work.  Notwithstanding  that  five of our
facilities in New Orleans are currently operating,  we believe that the indirect
economic  effects of the hurricane on the city may have a negative impact on our
facilities' operating results, and these effects are expected to continue for an
indeterminate  time  period.  Included in revenues  for the three and six months
ended  June 30,  2006 are  $433,000  and  $940,000,  respectively,  in  expected
business  interruption  proceeds for these facilities,  representing the loss of
business for the six months ended June 30, 2006.

         We expect  that the  Expansion  Facilities,  other than the New Orleans
facilities, will continue to provide growth to our earnings during the remainder
of 2006 as we  continue  to rent the newly  added  vacant  space.  The  weighted
average  occupancy level of these  facilities was 81.0%, and 79.8% for the three
and six months ended June 30, 2006,  respectively.  For the three and six months
ended June 30, 2005, the weighted  average  occupancy level of these  facilities
was 86.2% and 84.4%, respectively.

         We expect that we will continue to redevelop additional facilities;  at
June 30, 2006, we have five projects with an aggregate  cost of  $18,400,000  to
convert the  containerized  storage space into  self-storage  space and 49 other
expansion  and  repackaging  projects  to  enhance  the  visual  appeal  of  our
facilities  or  increase  their  net  rentable  space  at an  aggregate  cost of
$244,300,000.  These  activities  will  increase  our  self-storage  space by an
aggregate of 3,294,000  net rentable  square feet and will result in  short-term
dilution  to  earnings.  However,  we believe  that  expansion  of our  existing
self-storage facilities in markets that have unmet storage demand, and improving
our existing  facilities'  competitive  position through  enhancing their visual
appeal,  provide an important means to improve the Company's earnings.  Further,
the  construction  cost for these  expansions is generally lower on a per-square
foot basis than the  development of a new facility,  resulting in a higher yield
potential on invested capital.  There can be no assurance about the future level
of such expansion and enhancement opportunities,  and these projects are subject
to contingencies.

                                       52
<PAGE>

SELF-STORAGE OPERATIONS - DEVELOPED FACILITIES

         We have 44 newly developed self-storage  facilities,  and 17 facilities
that were developed to contain both  self-storage and  containerized  storage at
the same location  ("Combination  Facilities") that have not been operating at a
stabilized  level of operations  since January 1, 2004. At June 30, 2006,  these
newly  developed  facilities  have an aggregate of 5,102,000 net rentable square
feet of  self-storage  space and 125,000 net rentable  square feet of industrial
space developed  originally for our containerized  storage  business.  Aggregate
development cost for these 61 facilities was approximately  $538,901,000 at June
30, 2006. The operating  results of the self-storage  facilities and Combination
Facilities are reflected in the Self-Storage Operations table under the caption,
"Developed  Facilities."  These  facilities are not included in the "Same Store"
portfolio because their operations have not been stabilized.

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


                                       53
<PAGE>

<TABLE>
<CAPTION>

DEVELOPED SELF-STORAGE FACILITIES                     Three Months Ended                       Six Months Ended
                                                            June 30,                                June 30,
                                                    -------------------------                ----------------------
                                                       2006         2005        Change        2006          2005        Change
                                                   ------------- ------------ ------------- ------------ ------------ ------------
                                                     (Amounts in thousands, except per square foot amounts and facility count)
Rental income:
<S>                                                 <C>           <C>          <C>          <C>          <C>           <C>
  Self-storage facilities opened in 2006.......     $       56    $        -   $       56   $       56   $        -    $      56
  Self-storage facilities opened in 2005.......            584            48          536          953           50           903
  Self-storage facilities opened in 2004.......          1,742         1,247          495        3,360        2,254         1,106
  Self-storage facilities opened in 2003 and 2002        6,909         6,136          773       13,519       11,886         1,633
  Combination facilities.......................          5,055         4,085          970        9,773        7,972         1,801
                                                   ------------- ------------ ------------- ------------ ------------ ------------
     Total rental income.......................         14,346        11,516        2,830       27,661       22,162         5,499
                                                   ------------- ------------ ------------- ------------ ------------ ------------
Cost of operations before depreciation:
  Self-storage facilities opened in 2006.......            114             -          114          114            -           114
  Self-storage facilities opened in 2005.......            406            94          312          820          117           703
  Self-storage facilities opened in 2004.......            551           659         (108)       1,129        1,178           (49)
  Self-storage facilities opened in 2003 and 2002        2,230         2,218           12        4,395        4,266           129
  Combination facilities.......................          1,846         1,898          (52)       3,658        3,505           153
                                                   ------------- ------------ ------------- ------------ ------------ ------------
     Total cost of operations before depreciation        5,147         4,869          278       10,116        9,066         1,050
                                                   ------------- ------------ ------------- ------------ ------------ ------------
Net operating income before depreciation:
  Self-storage facilities opened in 2006.......            (58)            -          (58)         (58)           -           (58)
  Self-storage facilities opened in 2005.......            178           (46)         224          133          (67)          200
  Self-storage facilities opened in 2004.......          1,191           588          603        2,231        1,076         1,155
  Self-storage facilities opened in 2003 and 2002        4,679         3,918          761        9,124        7,620         1,504
  Combination facilities.......................          3,209         2,187        1,022        6,115        4,467         1,648
                                                   ------------- ------------ ------------- ------------ ------------ ------------
   Net operating income before depreciation (a)          9,199         6,647        2,552       17,545       13,096         4,449
 Depreciation..................................         (3,629)       (3,219)        (410)      (7,118)      (6,288)         (830)
                                                   ------------- ------------ ------------- ------------ ------------ ------------
 Net operating income........................      $     5,570     $  3,428     $   2,142   $   10,427   $    6,808      $   3,619
                                                   ============= ============ ============= ============ ============ ============
Weighted average square foot occupancy during
the period:
  Self-storage facilities opened in 2006.......          18.2%          -            -           16.0%         -               -
  Self-storage facilities opened in 2005.......          44.0%         31.2%        41.0%        37.4%        25.5%         46.7%
  Self-storage facilities opened in 2004.......          87.6%         73.4%        19.3%        85.6%        66.2%         29.3%
  Self-storage facilities opened in 2003 and 2002        92.8%         91.8%         1.1%        92.1%        89.4%          3.0%
  Combination facilities.......................          77.8%         77.4%         0.5%        76.3%        75.4%          1.2%
                                                   ------------- ------------ ------------- ------------ ------------ ------------
                                                         79.0%         82.5%        (4.2)%       78.2%        80.1%         (2.4)%
                                                   ============= ============ ============= ============ ============ ============
Weighted average realized rent per occupied
square foot during the period (b):
  Self-storage facilities opened in 2006.......    $     3.14      $      -           -     $    3.14    $       -             -
  Self-storage facilities opened in 2005.......         10.74          5.14        108.9%       10.31         4.73         118.0%
  Self-storage facilities opened in 2004.......         15.91         13.32         19.4%       15.63        13.32          17.3%
  Self-storage facilities opened in 2003 and 2002       14.78         13.23         11.7%       14.56        13.16          10.6%
  Combination facilities.......................         13.18         12.52          5.3%       13.16        12.63           4.2%
                                                   ------------- ------------ ------------- ------------ ------------ ------------
                                                   $    13.97      $  12.89          8.4%   $   13.89    $   12.93           7.4%
                                                   ============= ============ ============= ============ ============ ============


In place annual rent per occupied square foot at June 30 (c):

  Self-storage facilities opened in 2006.......                                             $   20.66    $       -            -
  Self-storage facilities opened in 2005.......                                                 14.20        12.26         15.8%
  Self-storage facilities opened in 2004.......                                                 17.69        16.28          8.7%
  Self-storage facilities opened in 2003 and 2002                                               16.24        14.74         10.2%
  Combination facilities.......................                                                 14.73        13.79          6.8%
                                                                                            ------------ ------------ -------------
                                                                                            $   15.75    $   14.50          8.6%
                                                                                            ============ ============ =============
</TABLE>

                                       54
<PAGE>

<TABLE>
<CAPTION>

DEVELOPED SELF-STORAGE FACILITIES
(continued)
                                                      Three Months Ended                       Six Months Ended
                                                            June 30,                                June 30,
                                                   ------------------------                 -------------------------
                                                       2006         2005        Change        2006          2005        Change
                                                  -------------  -----------   ---------   ---------    -----------   -----------
                                                   (Amounts in thousands, except per square foot amounts and facility count)
Number of facilities at June 30:
<S>                                                                                                 <C>          <C>          <C>
  Self-storage facilities opened in 2006.......                                                     3            -            3
  Self-storage facilities opened in 2005.......                                                     6            2            4
  Self-storage facilities opened in 2004.......                                                     7            7            -
  Self-storage facilities opened in 2003 and 2002                                                  28           28            -
  Combination facilities.......................                                                    17           17            -
                                                                                            -----------   -----------  ----------
                                                                                                   61           54            7
                                                                                            ===========   ===========  ==========
Square Footage at June 30:
  Self-storage facilities opened in 2006.......                                                   281            -          281
  Self-storage facilities opened in 2005.......                                                   463          125          338
  Self-storage facilities opened in 2004.......                                                   505          505            -
  Self-storage facilities opened in 2003 and 2002                                               1,937        1,937            -
  Combination facilities (d)...................                                                 1,916        1,621          295
                                                                                            -----------   -----------  ----------
                                                                                                5,102        4,188          914
                                                                                            ===========   ===========  ==========
Cumulative development cost at June 30:
  Self-storage facilities opened in 2006.......                                              $ 49,255     $      -     $ 49,255
  Self-storage facilities opened in 2005.......                                                37,815       11,423       26,392
  Self-storage facilities opened in 2004.......                                                60,579       60,579            -
  Self-storage facilities opened in 2003 and 2002                                             211,621      204,473        7,148
  Combination facilities (d)...................                                               179,631      172,312        7,319
                                                                                            -----------   -----------  ----------
                                                                                             $538,901     $448,787     $ 90,114
                                                                                            ===========   ===========  ==========
</TABLE>

     (a)  Total net operating  income before  depreciation,  which is a non-GAAP
          measure,  for  our  developed  self-storage  facilities  represents  a
          portion  of our total  self-storage  segment's  net  operating  income
          before  depreciation,  and  is  denoted  in  the  table  "self-storage
          operations  summary" above. A reconciliation of our total self-storage
          segment's net operating income before depreciation to consolidated net
          income  is  included  in  Note  11 to  our  June  30,  2006  condensed
          consolidated financial statements, "Segment Information."

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

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

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

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

                                       55
<PAGE>

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

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

         The annualized  yield on costs for these  facilities for the six months
ended June 30, 2006,  based on net  operating  income before  depreciation,  was
approximately  6.5%,  which is lower than our ultimate  yield  expectations.  We
expect these yields to increase as these facilities reach  stabilization of both
occupancy levels and realized rents.  Properties that were developed before 2005
have  contributed  greatly to our  earnings  growth.  The  growth in  properties
developed  in 2004 was  principally  due to  occupancy  growth,  and  growth for
properties developed in 2003 and 2002 were due principally to rate increases. We
expect that these facilities will continue to provide growth to our earnings.

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

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

SELF-STORAGE OPERATIONS - NEWLY CONSOLIDATED FACILITIES

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

                                       56
<PAGE>

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

<TABLE>
<CAPTION>

                                                   Three Months         Six Months
                                                      Ended                Ended
                                                  June 30, 2006        June 30, 2006
                                                -----------------   -----------------
<S>                                              <C>                 <C>
   Rental income...............................  $      3,890        $     7,188
   Cost of operations (excluding depreciation).           941              1,720
                                                -----------------   -----------------
   Net operating income before depreciation (a)         2,949              5,468
   Depreciation................................          (116)              (388)
                                                -----------------   -----------------
      Net operating income.....................  $      2,833        $     5,080
                                                =================   =================
   Weighted average square foot occupancy
   during the period:..........................         89.8%               88.9%

   Weighted average realized annual rent per
   occupied square foot for the period:........  $     16.37         $     16.31

   In place annual rent per occupied square
   foot at June 30:............................                      $     18.48

</TABLE>

     (a)  Total net operating  income before  depreciation,  which is a non-GAAP
          measure  described  above,  for our  commercial  property  segment  is
          presented  in  Note  11  to  our  condensed   consolidated   financial
          statements,  "Segment Information," which includes a reconciliation of
          net  operating  income  before  depreciation  for this  segment to our
          consolidated net income.

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

         Our  commercial  operations  are  comprised of  1,296,000  net rentable
square  feet  of  commercial  space  operated  principally  at  certain  of  the
self-storage facilities.

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

COMMERCIAL PROPERTY OPERATIONS:
(excluding discontinued operations)
                                                Three Months Ended June 30,             Six Months Ended June 30,
                                           -------------------------------------  -------------------------------------
                                              2006         2005        Change        2006         2005        Change
                                           ------------ ------------  ----------  -----------  ----------   -----------
<S>                                         <C>         <C>           <C>          <C>         <C>          <C>
Rental income.........................      $   3,013   $   2,927     $     86     $   6,005   $   5,775    $     230
Cost of operations....................         (1,235)     (1,043)        (192)       (2,583)     (2,170)        (413)
                                           ------------ ------------  ----------  -----------  -----------  -----------
   Net operating income before
   depreciation (a)...................          1,778       1,884         (106)        3,422       3,605         (183)

 Depreciation.........................           (549)       (580)          31        (1,134)     (1,159)          25
                                           ------------ ------------  ----------  -----------  -----------  -----------
   Operating income...................      $   1,229   $   1,304      $   (75)     $  2,288   $   2,446     $   (158)
                                           =========== =============  ==========  ===========  ===========  ===========
</TABLE>

     (a)  Total net operating  income before  depreciation,  which is a non-GAAP
          measure,  for our commercial  property segment is presented in Note 11
          to our June 30,  2006  condensed  consolidated  financial  statements,
          "Segment   Information,"   which  includes  a  reconciliation  of  net
          operating   income  before   depreciation  for  this  segment  to  our
          consolidated net income.

                                       57
<PAGE>

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

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

<TABLE>
<CAPTION>

CONTAINERIZED STORAGE:
(EXCLUDING DISCONTINUED OPERATIONS)
                                             Three Months Ended June 30,          Six Months Ended June 30,
                                          ---------------------------------  ---------------------------------
                                             2006       2005      Change       2006        2005       Change
                                          ------------ --------- ----------  ---------  ---------    ---------
                                                                 (Amounts in thousands)
<S>                                        <C>         <C>        <C>         <C>        <C>          <C>
Rental and other income ............       $ 4,200     $ 3,988    $   212     $ 8,130    $ 7,825      $   305
Cost of operations:
    Direct operating costs..........         3,462       2,910        552       6,099      5,294          805
    Facility lease expense..........           757         364        393       1,430        722          708
                                          ------------ ---------  ----------  --------  ----------   ---------
      Total cost of operations......         4,219       3,274        945       7,529      6,016        1,513
                                          ------------ ---------  ----------  --------  ----------   ---------
Net operating (loss) income before
depreciation (a)....................           (19)        714       (733)        601      1,809       (1,208)
   Depreciation expense (b).........          (223)     (1,015)       792        (483)    (2,177)       1,694
                                          ------------ ---------  ----------  --------  ----------   ---------
Operating (loss) income.............       $  (242)    $  (301)   $    59     $   118    $  (368)     $   486
                                          ===========  =========  ==========  ========  ===========  ==========
</TABLE>

     (a)   Total net operating income before  depreciation,  which is a non-GAAP
           measure  described  above, for our  containerized  storage segment is
           presented  in Note 11 to our June  30,  2006  condensed  consolidated
           financial  statements,   "Segment   Information,"  which  includes  a
           reconciliation  of net operating income before  depreciation for this
           segment to our consolidated net income.

     (b)   Depreciation  expense  principally  relates  to the  depreciation  of
           containers;  however,  depreciation  expense  for the  three  and six
           months  ended  June  30,  2006   includes   $178,000  and   $378,000,
           respectively,  related to real estate facilities compared to $272,000
           and $524,000 for the same periods in 2005, respectively.

         Rental and other income  includes  monthly  rental charges to customers
for storage of the  containers,  service fees charged for pickup and delivery of
containers to customers'  homes and  businesses  and certain  non-core  services
which were eliminated,  such as handling and packing  customers' goods from city
to city. At June 30, 2006, there were approximately  22,143 occupied  containers
in the continuing facilities.

         Direct operating costs principally  includes  payroll,  equipment lease
expense,  utilities and vehicle expenses (fuel and insurance).  Direct operating
costs  for  the  three  and  six  months  ended  June  30,  2006  also  includes
approximately   $441,000  and  $623,000  of  research  and  development   costs,
respectively.  Facility  lease  expense has increased  significantly  as we have
moved the operations from wholly-owned combination facilities to facilities that
we lease from third parties.

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

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

                                       58
<PAGE>

<TABLE>
<CAPTION>

                                             Three Months Ended                       Six Months Ended
                                                  June 30,                                June 30,
                                           ------------------------                 ------------------------
                                             2006         2005        Change         2006         2005       Change
                                          ------------  ---------  -----------     ----------  -----------  ---------
                                                                            (Amounts in thousands)
Revenues:
<S>                                          <C>         <C>         <C>             <C>        <C>          <C>
    Tenant reinsurance premiums.....         $  7,803    $  6,251    $  1,552        $ 14,589   $  12,167    $ 2,422
    Merchandise sales...............            6,300       6,445       (145)          11,313      11,252         61
    Truck rentals...................            3,659       3,761       (102)           6,429       6,342         87
    Property management.............              607         741       (134)           1,212       1,455       (243)
                                          ------------  ---------  -----------     ----------  -----------  ---------
       Total revenues...............           18,369      17,198       1,171          33,543      31,216      2,327
                                          ------------  ---------  -----------     ----------  -----------  ---------
Cost of operations:
    Tenant reinsurance..............            3,123       1,566      1,557            6,215       4,543      1,672
    Merchandise sales...............            5,621       5,013        608           10,194       9,284        910
    Truck rentals...................            2,871       3,442       (571)           5,761       6,400       (639)
    Property management.............               81         119        (38)             142         330       (188)
                                          ------------  ---------  -----------     ----------  -----------  ---------
       Total cost of operations.....           11,696      10,140      1,556           22,312      20,557      1,755
                                          ------------  ---------  -----------     ----------  -----------  ---------
Net operating income:
    Tenant reinsurance..............            4,680       4,685         (5)           8,374       7,624        750
    Merchandise sales...............              679       1,432       (753)           1,119       1,968       (849)
    Truck rentals...................              788         319        469              668         (58)       726
    Property management.............              526         622        (96)           1,070       1,125        (55)
                                          ------------  ---------  -----------     ----------  -----------  ---------
       Total net operating income...         $  6,673    $  7,058    $  (385)       $  11,231    $ 10,659    $   572
                                          ============  ==========  ===========   ============  ==========  ==========
</TABLE>

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

         On  December  31,  2001,  we  acquired  PSIC from a related  party.  PS
Insurance  reinsures  policies  against losses to goods stored by tenants in our
self-storage  facilities.  Revenues  are  comprised  of fees  charged to tenants
electing such policies.  Cost of operations  primarily includes claims paid that
are not covered by our outside  third-party  insurers (described below), as well
as claims adjusting expenses.

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

         The future level of tenant  reinsurance  revenues is largely  dependent
upon the number of new tenants electing to purchase  policies,  premiums charged
for such insurance and existing tenant  retention to continue  participating  in
the  insurance  program.  For the six  months  ended  June 30,  2006  and  2005,
approximately 33.1% and 33.0%, respectively, of our self-storage tenant base had
such policies.  During 2005 and 2004, we experienced damage caused by hurricanes
to several of our facilities in our Florida and New Orleans markets. As a result
of such damage, we recorded estimated tenant claim expense during the quarter in
which the damage  occurred.  As time progressed,  the tenant claims  liabilities
were adjusted, either increasing or decreasing the liabilities,  based on actual
claims history.  As a result of these  adjustments,  we experienced  significant
volatility  in our reported  quarterly  cost of  operations,  particularly  with
respect to 2005.

         The future cost of  operations  will be  dependent  primarily  upon the
level of losses incurred,  including the level of catastrophic  events,  such as
hurricanes, that occur and affect our properties. The aforementioned increase in
the  deductible of  $1,500,000  per event could result in higher loss expense in
the remainder of 2006,  depending  upon the number of  catastrophic  losses that
occur.
                                       59
<PAGE>

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

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

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

         The revenues of these activities have remained relatively stable during
the periods  reflected in the table above.  Cost of  operations  with respect to
merchandise sales has increased  approximately  $608,000, or 12.1% for the three
months ended June 30, 2006 as compared to the same period in 2005. This increase
has been caused  primarily by higher payroll costs, as we have added more retail
store managers combined with higher cost of purchasing  inventory for sale. Cost
of operations with respect to truck rentals decreased approximately $571,000, or
16.6% for the three months ended June 30, 2006 as compared to the same period in
2005. This decrease was principally due to lower truck maintenance cost combined
with lower payroll cost. The primary factors  impacting the levels of operations
of these  activities  are the levels of  customer  traffic  at our  self-storage
facilities, including the levels of move-ins.

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

         We manage 27  self-storage  facilities on behalf of third-party  owners
and 22 self-storage  facilities that are owned by the  Unconsolidated  Entities.
Under the supervision of the property  owners,  we coordinate  rental  policies,
rent collections,  marketing activities, the purchase of equipment and supplies,
maintenance activities, and the selection and engagement of vendors,  suppliers,
and  independent  contractors.  We also assist and advise the property owners in
establishing policies for the hire, discharge,  and supervision of employees for
the operation of these facilities.

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

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

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

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

                                       60
<PAGE>
<TABLE>
<CAPTION>

                                              Three Months Ended                             Six Months Ended
                                                      June 30,                                  June 30,
                                            ---------------------------              --------------------------
                                                  2006         2005        Change        2006         2005        Change
                                           -------------   -----------  -----------  -----------  -----------  ------------
                                                                         (Amounts in thousands)

Property operations:
<S>                                           <C>           <C>          <C>          <C>          <C>         <C>
  PSB....................................     $  18,181     $  16,914    $   1,267    $  36,111    $  34,128   $    1,983
  Acquisition Joint Venture..............           101            63           38          187          114           73
  Newly consolidated partnerships (1)....             -         1,314       (1,314)           -        2,590       (2,590)
  Other investments (2)..................           677           873         (196)       1,378        1,280           98
                                           -------------   -----------  -----------  -----------  -----------  ------------
                                                 18,959        19,164         (205)      37,676       38,112         (436)
                                           -------------   -----------  -----------  -----------  -----------  ------------
Depreciation:
  PSB....................................        (9,216)       (8,282)        (934)     (18,255)     (16,535)      (1,720)
  Acquisition Joint Venture..............           (68)          (68)           -         (137)        (134)          (3)
  Newly consolidated partnerships (1)....             -          (241)         241            -         (416)         416
  Other investments (2)..................          (182)         (167)         (15)        (328)        (358)          30
                                           -------------   -----------  -----------  -----------  -----------  ------------
                                                 (9,466)       (8,758)        (708)     (18,720)     (17,443)      (1,277)
                                           -------------   -----------  -----------  -----------  -----------  ------------
Other: (3)
  PSB (4)................................        (6,325)       (5,263)      (1,062)     (12,240)     (10,015)      (2,225)
  Newly consolidated partnerships (1)....             -          (206)         206            -          (79)          79
  Other investments (2)..................           (44)          (86)          42         (126)         (46)         (80)
                                           -------------   -----------  -----------  -----------  -----------  ------------
                                                 (6,369)       (5,555)        (814)     (12,366)     (10,140)      (2,226)
                                           -------------   -----------  -----------  -----------  -----------  ------------
Total equity in earnings of real estate
entities..................................    $   3,124     $   4,851    $  (1,727)   $   6,590    $  10,529   $   (3,939)
                                           =============  =============  ===========  ==========  ===========  ============

</TABLE>

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

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

     (3)   "Other"  reflects  our share of general and  administrative  expense,
           interest   expense,   interest   income,   and  other   non-property;
           non-depreciation  related  operating  results of these entities.  The
           amount of  interest  expense  included  in  "other" is  $234,000  and
           $458,000   for  the  three  and  six  months  ended  June  30,  2006,
           respectively, as compared to $121,000 and $244,000, respectively, for
           the same periods in 2005.

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

         Equity in earnings of real estate entities  includes our pro rata share
of the net  impact of  gains/losses  on sales of assets and  impairment  charges
relating to the  impending  sale of real  estate  assets as well as our pro rata
share of the impact of the  application  of EITF Topic  D-42 on  redemptions  of
preferred  securities  recorded by PSB.  Our net pro rata share from these items
resulted in a net decrease of equity in earnings of $19,000 for the three months
ended June 30, 2006 and a net increase of $293,000 for the six months ended June
30, 2006.  For the three and six months ended June 30, 2005,  our pro rata share
of  these  items   resulted  in  net  increases  of  $310,000  and   $1,575,000,
respectively.

         The impact of the PSB items discussed above led to a decrease in equity
in  earnings  of  real  estate  entities   totaling   $329,000  and  $1,282,000,
respectively, when comparing the three and six month periods ended June 30, 2006
to the same  periods  in 2005.  In  addition,  equity in  earnings  real  estate
entities  decreased  due to our  consolidation  of  three  limited  partnerships
effective  January 1, 2006 as described in Note 2 to our condensed  consolidated
financial statements.  As a result of this consolidation,  equity in income with
respect to these partnerships ceased effective January 1, 2006.

                                       61
<PAGE>

         Equity in earnings of PSB  represents  our pro rata share  (averages of
approximately  45% and 44% for the six  months  ended  June 30,  2006 and  2005,
respectively)  of the earnings of PSB.  Throughout 2005 and the six months ended
June  30,  2006,  we owned  5,418,273  common  shares  and  7,305,355  operating
partnership  units  (units  which  are  convertible  into  common  shares  on  a
one-for-one basis) in PSB. At June 30, 2006, PSB owned and operated 18.2 million
net rentable square feet of commercial  space located in eight states.  PSB also
manages  commercial  space owned by the Company and affiliated  entities at June
30, 2006 pursuant to property management agreements.

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

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

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

         Our future  earnings  with respect to the "Other  Investments"  will be
dependent  upon the operating  results of the 20  self-storage  facilities  that
these  entities  own. The  operating  characteristics  of these  facilities  are
similar to those of the Company's  self-storage  facilities,  and are subject to
the same operational issues as the Same Store Facilities as discussed above. See
Note 5 to our  condensed  consolidated  financial  statements  for the operating
results of these entities for the six months ended June 30, 2006 and 2005.

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

         INTEREST AND OTHER  INCOME:  Interest and other income was  $10,047,000
and $15,122,000 for the three and six months ended June 30, 2006,  respectively,
as compared to $3,394,000 and $6,287,000,  respectively, for the same periods in
2005.  This increase is due to earning  higher  interest  rates on invested cash
balances  combined with  significantly  higher average cash balances invested in
interest-bearing accounts as compared to the same periods in 2005.

         As discussed more fully in "Liquidity and Capital  Resources" below, at
June 30, 2006, we had cash balances totaling approximately  $984,000,000,  which
includes significant  proceeds from recent equity issuances.  These balances are
typically invested in short-term low-risk securities that, during the six months
ended June 30, 2006, earned a nominal yield. In addition,  on August 8, 2006, we
raised  approximately  $460,000,000  in gross  proceeds from our issuance of our
Series K  Cumulative  Preferred  Stock.  The future  level of interest and other
income will be partially  dependent  upon the timing of our  investment of these
unused offering  proceeds and the level of interest  earned on these  short-term
investments.
                                       62
<PAGE>

         DEPRECIATION AND  AMORTIZATION:  Depreciation and amortization  expense
was  $48,626,000  and  $98,675,000  for the three and six months  ended June 30,
2006, respectively, compared to $48,240,000 and $96,178,000 for the same periods
in 2005. The increase in  depreciation  and  amortization  for the three and six
months  ended  June 30,  2006,  as  compared  to the same  period in 2005 is due
primarily to increased depreciation with respect to newly developed and acquired
facilities,  partially  offset by a reduction  in  amortization  of our property
management contracts.  Included in depreciation and amortization expense for the
six months  ended June 30, 2006 is  $1,651,000  (none for the three months ended
June 30,  2006)  related to the  amortization  of  intangibles,  as  compared to
$1,651,000  and  $3,302,000  for the three and six months  ended June 30,  2005,
respectively.  Amortization  ceased as of April 1, 2006, as described more fully
in Note 2 to our condensed consolidated financial statements.

         GENERAL  AND  ADMINISTRATIVE:  General and  administrative  expense was
$6,975,000 and  $13,754,000 for the three and six months ended June 30, 2006, as
compared  to  $6,128,000  and   $11,269,000   for  the  same  periods  in  2005,
representing  increases of $847,000 and  $2,485,000,  respectively.  General and
administrative  expense  principally  consists of state income  taxes,  investor
relations expenses and corporate and executive  salaries.  In addition,  general
and  administrative  expenses  includes  expenses  that  vary  depending  on the
Company's activity levels in certain areas, such as overhead associated with the
acquisition and development of real estate  facilities,  employee  severance and
stock-based compensation, and product research and development expenditures.

         Included  in general and  administrative  expense for the three and six
months  ended June 30,  2006,  respectively,  are costs  related to the proposed
merger with Shurgard incurred prior to signing the merger agreement,  as well as
expenditures in planning the  integration of the two companies of  approximately
$1.1  million  and $2.2  million,  respectively.  We expect to incur  additional
incremental  costs related to the  integration  of the two companies in the next
few quarters,  as well as costs associated with winding down Shurgard's business
affairs.  These costs  cannot be  estimated at this time and will be expensed as
incurred; therefore, they are expected to have a negative impact on our earnings
going forward.

         Restricted  stock and stock option  expense  amounted to  approximately
$1,491,000  and  $3,027,000  for the three and six months  ended June 30,  2006,
respectively,  as compared to $1,152,000 and $2,383,000,  respectively,  for the
same periods in 2005.

         INTEREST  EXPENSE:  Interest  expense was $1,872,000 and $3,429,000 for
the  three  and six  months  ended  June 30,  2006,  respectively,  compared  to
$1,794,000 and $3,457,000,  respectively, for the same periods in 2005. Interest
capitalized during the three and six months ended June 30, 2006 was $353,000 and
$1,069,000,  respectively, as compared to $679,000 and $1,344,000, respectively,
for  the  same  periods  in  2005.  See  also  Notes  7 and 8 to  our  condensed
consolidated financial statements for a schedule of our debt balances, principal
repayment requirements, and average interest rates.

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

                                       63
<PAGE>
<TABLE>
<CAPTION>

                                                  Three Months Ended June 30,                  Six Months Ended June 30,
                                                --------------------------------           ------------------------------
                                                      2006           2005         Change      2006           2005          Change
                                                 --------------  --------------  -----------------------  -------------   ---------
                                                                              (Amounts in thousands)
Preferred partnership interests:
<S>                                                  <C>        <C>           <C>          <C>           <C>             <C>
   Ongoing distributions (a).................        $  4,658   $    3,590    $  1,068     $  8,249      $    8,965      $   (716)
   Special Distribution and EITF Topic D-42 (b)             -            -           -            -             874          (874)
Acquired minority interests (c)..............               -        2,154      (2,154)           -           4,479        (4,479)
Newly consolidated partnerships (d)..........           1,243            -       1,243        2,173               -          2,173
Convertible Partnership Units (e)............             120           83          37          236             173             63
Other minority interests (f).................           2,707        2,641          66        5,229           4,621            608
                                                 --------------  -------------- ---------  -----------  -------------    ---------
    Total minority interests in income.......       $   8,728   $    8,468   $     260    $  15,887      $   19,112     $  (3,225)
                                                 ============== =============  ========== ============  =============  ============
</TABLE>

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

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

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

     (d)   These  amounts  reflect  income  allocated to minority  interests for
           three  entities  that we  commenced  consolidating  the  accounts for
           effective  January 1, 2006 (see Note 2 to our condensed  consolidated
           financial  statements).  Included in minority  interest in income for
           the three and six months ended June 30, 2006 was $32,000 and $66,000,
           respectively, in depreciation expense.

     (e)   These  amounts  reflect the  minority  interests  represented  by the
           Convertible   Partnership   Units  (see  Note  8  to  our   condensed
           consolidated financial statements).

     (f)   These amounts  reflect  income  allocated to minority  interests that
           were  outstanding  consistently  throughout the six months ended June
           30,  2006 and  2005.  Included  in  minority  interest  in  income is
           $164,000 and $326,000 in  depreciation  expense for the three and six
           months ended June 30, 2006, respectively, as compared to $174,000 and
           $374,000 for the same periods in 2005.

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

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

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

         During  July  2005,  in  an  eminent  domain  proceeding,  one  of  our
self-storage facilities located in the Portland,  Oregon market was condemned by
local governmental authorities.  Additionally,  in July 2006, were notified that
one of our  self-storage  facilities in our Seattle,  Washington  market will be
condemned by local  governmental  authorities in an eminent  domain  proceeding.
Collectively,  these  Portland  and Seattle  facilities  are referred to as "the
Eminent Domain Facilities".
                                       64
<PAGE>

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

<TABLE>
<CAPTION>

Discontinued Operations:
                                             Three Months Ended                       Six Months Ended
                                                  June 30,                                June 30,
                                           -------------------------               ------------------------
                                              2006         2005        Change          2006          2005       Change
                                          ------------  ------------  -----------  -----------   ---------- ----------
                                                                      (Amounts in thousands)
<S>                                         <C>          <C>           <C>          <C>          <C>         <C>
Rental income.......................        $     79     $    263      $(184)       $    192     $    606    $   (414)

Cost of operations...................            (38)        (132)        94             (88)        (444)        356
Depreciation and amortization ......             (20)         (42)        22             (41)        (109)         68
                                          ------------  ------------  -----------  -----------   ---------- ----------
Income before other items...........              21           89        (68)             63           53          10

Other items:
    Net gain on disposition of assets              -            -          -               -        1,143      (1,143)
                                          ------------  ------------  -----------  -----------   ---------- ----------
Net discontinued operations.........        $     21     $     89   $    (68)       $     63     $  1,196    $ (1,133)
                                           ============  ========== =============  ============  ========== ==========
</TABLE>


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

         We believe that our internally generated net cash provided by operating
activities  will  continue to be  sufficient  to enable us to meet our operating
expenses,  capital improvements,  debt service requirements and distributions to
shareholders for the foreseeable future. In addition,  at June 30, 2006, cash on
hand  totaled  $983,600,000  and we  had no  outstanding  borrowings  under  our
$200,000,000  bank line of credit.  We anticipate that a significant  portion of
the cash on-hand will be utilized in  connection  with the proposed  merger with
Shurgard, see below.

         Operating as a real estate  investment  trust ("REIT"),  our ability to
retain cash flow for reinvestment is restricted. In order for us to maintain our
REIT  status,  a  substantial  portion  of  our  operating  cash  flow  must  be
distributed to our shareholders (see "Requirement to Pay Distributions"  below).
However, despite the significant distribution requirements, we have been able to
retain a significant  amount of our  operating  cash flow.  The following  table
summarizes our ability to fund distributions to the minority  interest,  capital
improvements to maintain our facilities,  and  distributions to our shareholders
through the use of cash provided by operating  activities.  The  remaining  cash
flow  generated  is available  to make both  principal  payments on debt and for
reinvestment.
                                       65
<PAGE>

<TABLE>
<CAPTION>

                                                                             Six Months Ended June 30,
                                                                         --------------------------------
                                                                                2006               2005
                                                                         --------------    --------------
                                                                             (Amounts in thousands)
<S>                                                                      <C>                <C>
Net cash provided by operating activities.......................         $    367,400       $    335,860
Distributions to minority interest (Preferred Units)............               (8,249)            (8,965)
Distributions to minority interest (common equity)..............               (7,348)            (9,198)
                                                                         --------------    --------------
Cash from operations allocable to our shareholders..............              351,803            317,697

Capital improvements to maintain our facilities.................              (23,449)            (9,370)
                                                                         --------------    --------------
 Remaining operating cash flow available for distributions to our
   shareholders................................................              328,354            308,327

Distributions paid:
  Preferred stock dividends.....................................              (98,991)           (82,560)
  Equity Stock, Series A dividends..............................              (10,712)           (10,731)
  Distributions to Common shareholders..........................             (128,595)          (115,665)
                                                                         --------------    --------------
Cash available for principal payments on debt and reinvestment..         $     90,056       $     99,371
                                                                         ==============    ===============
</TABLE>

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

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

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

         Our  portfolio  of  real  estate   facilities   remains   substantially
unencumbered. At June 30, 2006, we have mortgage debt outstanding of $93,900,000
(which encumbers 35 facilities with a book value of approximately  $204,500,000)
and unsecured debt in the amount of $11,200,000.  At June 30, 2006, we also have
Debt to Joint Venture Partner  amounting to $35,800,000 with respect to ten real
estate facilities with an aggregate book value of $48,100,000.

         RECENT  ISSUANCE  OF  PREFERRED  STOCK  AND  PROJECTED   REDEMPTION  OF
PREFERRED  SECURITIES:  One of our  financing  objectives  over the past several
years has been to  reduce  our  average  cost of  capital  with  respect  to our
preferred  securities.  Accordingly,  we have  redeemed  higher  rate  preferred
securities  outstanding  and have financed the  redemption  with cash on-hand or
from the proceeds  from the  issuance of lower rate  preferred  securities.  The
table below  reflects the preferred  stock that is redeemable in the second half
of 2006 (amounts in 000's):

                                       66
<PAGE>

           Redeem 8.00% Series R (Redeemable 09/28/06)        $    510,000
           Redeem 7.88% Series S (Redeemable 10/31/06)             143,750
                                                             --------------
           Total redemptions                                  $    653,750
                                                             ==============

         We believe that our size and financial flexibility enables us to access
capital when appropriate. During 2006, we have issued approximately $1.1 billion
of our Cumulative Preferred Stocks and $100 million of our preferred partnership
units.  We used  approximately  $172.5 million of these net proceeds in order to
redeem higher-coupon preferred securities.

         REQUIREMENT  TO  PAY   DISTRIBUTIONS:   We  estimate  the  distribution
requirement with respect to our Preferred Stock  outstanding at June 30, 2006 to
be  approximately   $222.5  million  per  year.  We  estimate  that  the  annual
distribution  requirement  with  respect  to  the  preferred  partnership  units
outstanding at June 30, 2006, to be approximately $21.6 million per year.

         During  each of the six months  ended June 30,  2006 and 2005,  we paid
cash  dividends  totaling  $10,712,000  and  $10,731,000,  respectively,  to the
holders of our Equity Stock,  Series A. With respect to the depositary shares of
Equity  Stock,  Series  A, we  have no  obligation  to pay  distributions  if no
distributions are paid to the common shareholders.  To the extent that we do pay
common  distributions in any year, the holders of the depositary  shares receive
annual  distributions  equal to the  lesser  of (i)  five  times  the per  share
dividend  on  the  common  stock  or  (ii)  $2.45.  The  depositary  shares  are
non-cumulative,  and have no  preference  over our  common  stock  either  as to
dividends  or in  liquidation.  With  respect  to the  Equity  Stock,  Series  A
outstanding at June 30, 2006, we estimate the total regular distribution for the
third quarter of 2006 to be approximately $5.4 million.

         During the six months ended June 30, 2006, we paid  dividends  totaling
$128,595,000  ($1.00 per common share) to the holders of our common stock. Based
upon shares outstanding at August 2, 2006 and a quarterly  distribution of $0.50
per share,  which was  declared by the Board of  Directors on August 2, 2006 and
payable on September  28, 2006,  to  shareholders  of record as of September 15,
2006,  we  estimate  a dividend  payment  with  respect  to our common  stock of
approximately $64.1 million for the third quarter of 2006.

         CAPITAL IMPROVEMENT  REQUIREMENTS:  For 2006, we budgeted approximately
$43.0  million for capital  improvements.  During the six months  ended June 30,
2006, we incurred capital  improvements of approximately $23.5 million.  Capital
improvements  include  major  repairs or  replacements  to the  facilities  that
maintain the facilities' existing operating condition and visual appeal. Capital
improvements  do not include costs  relating to the  development or expansion of
facilities,  or expenditures associated with improving the visual and structural
appeal of our existing self-storage facilities.

         DEBT SERVICE  REQUIREMENTS:  We do not believe we have any  significant
refinancing  risks with respect to our debt, all of which is fixed rate. At June
30, 2006, we have total outstanding debt of approximately $140,837,000. See Note
7 to our condensed  consolidated  financial statements for approximate principal
maturities of such borrowings.

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

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

         At June 30,  2006,  we have a  development  "pipeline"  of 59  projects
consisting of  self-storage  facilities,  conversion of space at facilities that
was  previously  used for  containerized  storage  and  expansions  to  existing
self-storage facilities.  At June 30, 2006, we have acquired the land for all of
these projects.

                                       67
<PAGE>

         The development  and fill-up of these storage  facilities is subject to
significant  contingencies such as obtaining appropriate governmental approvals.
We estimate that the amount remaining to be spent to complete  development to be
approximately  $251.8 million and will be incurred over the next 24 months.  The
following table sets forth certain  information  with respect to our development
pipeline.


<TABLE>
<CAPTION>

DEVELOPMENT PIPELINE SUMMARY (as of June 30, 2006)

                                                                              Total
                                                    Number       Net        extimated     Costs incurred
                                                      of       rentable    development       through         Costs to
                                                   projects     sq. ft.        costs         06/30/06        complete
                                                  ----------- ----------  -------------  --------------     ----------
                                                               (Amounts in thousands, except number of projects)
  Facilities currently under construction:
<S>                                                    <C>        <C>      <C>              <C>              <C>
    PUD conversions                                    2          152      $    6,622       $    1,192       $    5,430
    Expansions and other enhancements to               8          249          18,244            4,435           13,809
                                                  ----------- ----------  -------------  --------------     ------------
    existing self-storage facilities
                                                      10          401          24,866            5,627           19,239
                                                  ----------- ----------  -------------  --------------     ------------
  Facilities awaiting construction:
    PUD conversions                                    3          268          11,821              262           11,559
    Expansions and other enhancements to              46        2,625         234,849           13,806          221,043
                                                  ----------- ----------  -------------  --------------     ------------
     existing self-storage facilities
                                                      49        2,893         246,670           14,068          232,602
                                                  ----------- ----------  -------------  --------------     ------------
  Total Development Pipeline                          59        3,294      $  271,536       $   19,695       $  251,841
                                                  ==========   =========  ============    ===============   =============
</TABLE>

         MERGER WITH  SHURGARD:  On March 6, 2006,  we entered into an agreement
with Shurgard Storage Centers,  Inc ("Shurgard") under which Public Storage will
acquire Shurgard at a total transaction value of approximately $5.0 billion.  In
connection  with the  proposed  merger,  on July 24,  2006,  Public  Storage and
Shurgard  filed  the  definitive  joint  proxy   statement/prospectus  with  the
Securities and Exchange  Commission and began mailing it to their  shareholders.
Each company has scheduled a shareholders' meeting to be held on August 22, 2006
to, among other things, vote on approval of the merger.

         Under the terms of the merger agreement,  Public Storage will issue, in
a taxable  transaction,  approximately  41  million  shares  of common  stock to
holders of Shurgard's common stock and assume Shurgard's debt and line of credit
of approximately $1.9 billion (at March 31 2006). Concurrent with the closing of
the merger,  we expect to repay Shurgard's line of credit ($621 million at March
31, 2006), and pay  approximately  $60 million of legal,  consulting,  and other
merger-related  costs.  In addition,  approximately  $136 million of  Shurgard's
preferred  stock will be  redeemed.  The  transaction  is  subject to  customary
closing  conditions  and  regulatory  approvals,  including  the approval of the
shareholders of both companies.  The merger is currently targeted to close on or
shortly after the date of the shareholder meetings.

         Completion of the  transaction  is not assured and is subject to risks,
including that  shareholders of either Public Storage or Shurgard do not approve
the  transaction  or that the other closing  conditions  are not  satisfied.  In
addition,  Shurgard may under limited  circumstances  terminate the agreement to
take a superior  proposal.  Public  Storage  and  Shurgard  are not aware of any
significant  governmental  approvals that are required for  consummation  of the
merger. If any approval or action is required, it is presently contemplated that
Public  Storage and Shurgard would use their  reasonable  best efforts to obtain
such approval.  There can be no assurance that any approvals,  if required, will
be obtained.

         The  foregoing  description  of the terms of our  agreement  to acquire
Shurgard  does not purport to be  complete,  and is qualified in its entirety by
reference  to the full text of the  merger  agreement,  a copy of which is filed
with our  current  report on Form 8-K dated  March 7, 2006,  and our  definitive
joint proxy statement/prospectus dated July 24, 2006.

                                       68

<PAGE>


CONTRACTUAL OBLIGATIONS

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

                                    Total         2006           2007           2008          2009           2010        Thereafter
                                  ----------    -----------   ------------   -----------    -----------  ------------   -----------
<S>                                <C>           <C>           <C>             <C>           <C>          <C>              <C>
Long-term debt (1) ...........     $139,000      $  5,227      $   21,226      $  9,597      $  9,498     $    9,259       $ 84,193
Operating leases (2)..........       68,983         5,185          10,737         7,466         5,367          2,932         37,296
Construction commitments (3)..       19,239        16,923           2,316             -             -              -              -
                                  ----------    -----------   ------------   -----------    -----------  ------------   -----------
Total.........................    $ 227,222     $  27,335      $   34,279     $  17,063     $  14,865     $   12,191      $ 121,489
                                  ==========    ===========   =============  ===========    ===========  ============   ===========
</TABLE>

     (1)    Amounts  include  interest  payments on our notes  payable  based on
            their  contractual  terms. See Note 7 to our condensed  consolidated
            financial  statements  for  additional   information  on  our  notes
            payable.

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

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

         In January 2004, we entered into a joint  venture  partnership  with an
institutional  investor  for the  purpose of  acquiring  up to  $125,000,000  of
existing  self-storage  properties  in the United States from third parties (the
"Acquisition Joint Venture").  As described more fully in Note 2 to our June 30,
2006  condensed   consolidated   financial  statements,   our  partner's  equity
contributions with respect to certain  transactions are classified as debt under
the  caption  "Debt to Joint  Venture  Partner"  in our  condensed  consolidated
balance  sheets.  At June  30,  2006,  our  Debt to Joint  Venture  Partner  was
$35,784,000. For a six-month period beginning 54 months after formation, we have
the right to acquire our partner's  interest  based upon the market value of the
properties.  If we do not exercise our option, our partner can elect to purchase
our  interest  in the  properties  during a  six-month  period  commencing  upon
expiration of our six-month option period.  If our partner fails to exercise its
option,  the Acquisition  Joint Venture will be liquidated and the proceeds will
be distributed to the partners according to the joint venture agreement. We have
not included our Debt to Joint Venture  Partner as a  contractual  obligation in
the  table  above,  since we only  have the  right,  rather  than a  contractual
obligation, to acquire our partner's interest.

         We have not included  any  contractual  obligations  that we may assume
from  Shurgard,  as  described  above under  "Merger  with  Shurgard"  since the
completion of the transaction is not assured and is subject to risks,  including
that  shareholders  of either  Public  Storage or  Shurgard  do not  approve the
transaction or that the other closing conditions are not satisfied.

OFF-BALANCE SHEET ARRANGEMENTS

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

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

         To limit our  exposure  to market  risk,  we  principally  finance  our
operations and growth with permanent equity capital, consisting of either common
or  preferred  stock.  At June  30,  2006,  our  debt as a  percentage  of total
shareholders' equity (based on book values) was 2.6%.

                                       69
<PAGE>

         Our  preferred  stock is not  redeemable  at the option of the holders.
Except under certain  conditions  relating to the Company's  qualification  as a
REIT,  the  Preferred  Stock  is not  redeemable  by the  Company  prior  to the
following  dates:  Series R - September  28, 2006,  Series S - October 31, 2006,
Series T - January 18, 2007,  Series U - February 19, 2007, Series V - September
30, 2007,  Series W - October 6, 2008,  Series X - November 13, 2008, Series Y -
January 2, 2009, Series Z - March 5, 2009, Series A - March 31, 2009, Series B -
June 30,  2009,  Series C - September  13,  2009,  Series D - February 28, 2010,
Series E - April 27, 2010,  Series F - August 23, 2010,  Series G - December 12,
2010,  Series H - January 19, 2011, Series I - May 3, 2011 and Series K - August
8, 2011. On or after the respective dates, each of the series of Preferred Stock
will be redeemable at the option of the Company, in whole or in part, at $25 per
depositary share (or share in the case of the Series Y), plus accrued and unpaid
dividends through the redemption date.

         Our market risk  sensitive  instruments  include notes  payable,  which
totaled  $105,053,000 at June 30, 2006. All of the Company's debt bears interest
at fixed rates. See Note 7 to our condensed  consolidated  financial  statements
for approximate principal maturities of the notes payable at June 30, 2006.

ITEM 4.  CONTROLS AND PROCEDURES
--------------------------------

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

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

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

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PART II.   OTHER INFORMATION

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

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

Item 1A.   Risk Factors
           ------------
         In addition to the other information in our Form 10-Q and our Form 10-K
for the year ended December 31, 2005, you should consider the following  factors
in evaluating the Company:

PUBLIC STORAGE SHAREHOLDERS WILL INCUR IMMEDIATE DILUTION IF THE SHURGARD MERGER
IS COMPLETED.

         Public Storage shareholders will incur immediate dilution in connection
with the merger.  During 2005, Public Storage shareholders would incur a loss of
$0.44 per share (diluted) on a pro-forma basis compared to earnings of $1.92 per
share  (diluted) on a historical  basis  primarily as a result of an increase in
depreciation  and  amortization  expense.  No adjustments  have been made to the
pro-forma  financial   information  to  reflect  certain  expected  self-storage
operating  cost of savings or increases  in property  taxes  resulting  from the
merger because they have not been quantified.

IF THE SHURGARD MERGER IS COMPLETED, IT MAY SUBJECT US TO ADDITIONAL RISKS

         Completion  of the Shurgard  merger  transaction  is not assured and is
subject  to risks,  including  that  shareholders  of either  Public  Storage or
Shurgard do not approve the transaction or that the other closing conditions are
not satisfied.  In addition,  Shurgard may under limited circumstances terminate
the agreement to take a superior  proposal.  Public Storage and Shurgard are not
aware  of  any  significant   governmental   approvals  that  are  required  for
consummation  of the  merger.  If any  approval  or  action is  required,  it is
presently  contemplated  that  Public  Storage  and  Shurgard  would  use  their
reasonable best efforts to obtain such approval.  There can be no assurance that
any approvals, if required, will be obtained.

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

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

     o      inability to realize or delays in realizing expected synergies;

     o      unanticipated operating costs;

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

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

     o      potential underinsured losses on Shurgard properties; and

     o      risk of failure to mitigate  any  Shurgard  material  weaknesses  in
            internal  control  to  the  extent  that  it  affects  our  internal
            controls.

         The  success of the merger  will  depend,  in part,  on our  ability to
realize the  anticipated  cost savings from  combining the  businesses of Public
Storage and  Shurgard.  However,  to realize the  anticipated  benefits from the
merger,  we must  successfully  combine  the  businesses  of Public  Storage and
Shurgard in a manner that permits  those cost savings to be realized.  If we are
not able to successfully  achieve those objectives,  the anticipated benefits of
the merger may not be  realized  fully or at all or may take longer or cost more
to realize than  expected.  Public Storage and Shurgard have operated and, until
the  completion  of the merger,  will continue to operate  independently.  It is
possible  that the  integration  process  could  result in the loss of  valuable

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<PAGE>

employees,  the disruption of each company's ongoing business or inconsistencies
in  standards,  controls,  procedures,   practices,  policies  and  compensation
arrangements  that adversely affect our ability to maintain  relationships  with
tenants  and  employees  or to achieve the  anticipated  benefits of the merger.
Further,  the size of the transaction may make integration of Public Storage and
Shurgard difficult, expensive, and disruptive,  adversely affecting the combined
company's  revenues  and  earnings,  and  implementation  of merger  integration
efforts may divert management's  attention from other strategic  priorities.  In
addition,  the  merger  has  been  structured  so that it  should  be a  taxable
transaction  for U.S.  Federal  income tax purposes.  As a result,  the combined
company should have the benefit of a step-up in tax basis in Shurgard's  assets.
It is  possible  that  the IRS may  challenge  the  step-up  in  basis.  If such
challenge were sustained,  we would not achieve this benefit, which would reduce
our depreciation deductions and our ability to retain cash flow.

         Shurgard  also holds many of its  properties  through  joint  ventures,
which have additional risks,  including risks related to the financial strength,
common business goals and strategies and cooperation of the venture partner,  as
well as the  inability  to take some  actions  that may require  approval by the
venture  partner.  In addition,  Shurgard  holds  substantially  all of its real
estate investments in Europe indirectly  through  partnerships and joint venture
arrangements.   If  we  are  unable  to   effectively   control  these  indirect
investments,  there is a risk that our  ownership  of the joint  ventures  could
cause us to lose our REIT status.

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

         We have assumed based on public filings that Shurgard has qualified and
will  continue  to  qualify as a REIT and that we would be able to  continue  to
qualify as a REIT following an acquisition.  However,  if Shurgard has failed or
fails to qualify as a REIT, we generally  would succeed to or incur  significant
tax liabilities  (including the significant tax liability that would result from
the deemed  sale of assets by  Shurgard  pursuant  to the  merger)  and we might
possibly lose our REIT status should disqualifying activities continue after the
acquisition.

         Shurgard has a significantly greater level of debt than we do with more
fixed and  floating-rate  debt, as well as derivative  instruments that we would
assume.  Shurgard's  outstanding borrowings on its lines of credit ($621 million
at March 31, 2006) would  become  payable  immediately  upon  completion  of the
merger. In addition,  there would be an estimated $60 million in additional cash
costs  related  to  the  merger,   cash   requirements  for  the  redemption  of
approximately $136 million of Shurgard's preferred stock on the merger date, and
additional  possible  cash  requirements  following  the merger.  We may look to
obtain a new line of  credit  (with an  increased  borrowing  capacity),  bridge
financing,  or issue additional  preferred or common equity to provide liquidity
as Shurgard's  other borrowings come due. As a result,  this  transaction  would
result  in  a  significant  increase  in  our  exposure  to  interest  rate  and
refinancing risks.

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

     o      currency risks, including currency fluctuations;

     o      unexpected changes in legislative and regulatory requirements;

     o      potentially adverse tax burdens;

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

     o      obstacles to the repatriation of earnings and cash;

     o      regional, national and local political uncertainty;
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<PAGE>

     o      economic slowdown and/or downturn in foreign markets;

     o      difficulties in staffing and managing international operations;

     o      reduced protection for intellectual property in some countries; and

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

         In connection  with the proposed  acquisition  of  Shurgard's  European
operations, we will be evaluating various strategic alternatives, including, but
not limited to, public or private offerings of securities,  one or more possible
joint ventures, and possible asset acquisitions and/or sales.

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

         At August 2, 2006, B. Wayne Hughes,  Chairman of the Board, and members
of his family (the "Hughes Family") owned  approximately  36% of our outstanding
shares of common stock.  Consequently,  the Hughes Family could control  matters
submitted to a vote of our shareholders,  including electing directors, amending
our  organizational  documents,  dissolving  and approving  other  extraordinary
transactions,  such as a takeover  attempt,  even though such actions may not be
favorable to the other common shareholders.

PROVISIONS IN OUR ORGANIZATIONAL DOCUMENTS MAY PREVENT CHANGES IN CONTROL.

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

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

         We have assumed based on public filings that Shurgard has qualified and
will continue to qualify as a REIT  following the merger.  However,  if Shurgard
has failed or fails to qualify as a REIT, we generally would succeed to or incur
significant   tax   liabilities   and  possibly  lose  our  REIT  status  should
disqualifying activities continue after the Shurgard merger.

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

         For any  taxable  year that we fail to qualify as a REIT and are unable
to avail ourselves of certain savings provisions set forth in the Code, we would
be subject to federal  income tax at the regular  corporate  rates on all of our
taxable income,  whether or not we make any  distributions to our  shareholders.
Those taxes would reduce the amount of cash  available for  distribution  to our
shareholders or for reinvestment  and would adversely affect our earnings.  As a
result,  our failure to qualify as a REIT  during any taxable  year could have a
material  adverse  effect  upon us and  our  shareholders.  Furthermore,  unless
certain relief  provisions  apply, we would not be eligible to elect REIT status
again until the fifth taxable year that begins after the first year for which we
fail to qualify.
                                       73
<PAGE>

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

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

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

         We have become  increasingly  centralized  and dependent upon automated
information technology processes.  While we have attempted to mitigate this risk
through offsite backup  procedures and contracted data centers that include,  in
some cases,  redundant  operations,  we could  still be  severely  impacted by a
catastrophic  occurrence,  such as a natural disaster or a terrorist  attack. In
addition,  an increasing  portion of our business  operations are conducted over
the Internet,  increasing  the risk of viruses that could cause system  failures
and  disruptions of operations  despite our  deployment of anti-virus  measures.
Experienced  computer  programmers may be able to penetrate our network security
and  misappropriate our confidential  information,  create system disruptions or
cause shutdowns.

WE AND OUR SHAREHOLDERS ARE SUBJECT TO FINANCING RISKS.

         DEBT INCREASES THE RISK OF LOSS. In making real estate investments,  we
may borrow money,  which  increases the risk of loss. At June 30, 2006, our debt
of $140.8 million was 2.3% of our total assets.

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

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

         THE VALUE OF OUR  INVESTMENTS  MAY BE REDUCED BY GENERAL  RISKS OF REAL
ESTATE  OWNERSHIP.  Since we derive  substantially  all of our income  from real
estate  operations,  we  are  subject  to  the  general  risks  of  owning  real
estate-related assets, including:

     o      lack of demand for rental spaces or units in a locale;

     o      changes in general economic or local conditions;

     o      natural disasters, such as earthquakes or hurricanes;

     o      potential terrorist attacks;

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

     o      the impact of environmental protection laws;

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

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

     o      tenant claims.

         In addition,  we self-insure  certain of our property loss,  liability,
and workers  compensation  risks; areas that other real estate companies may use
third-party  insurers  for. This results in a higher risk of losses that are not
covered  by  third-party  insurance  contracts,  as  described  in Note 14 under
"Insurance and Loss Exposure" to our consolidated  financial  statements at June
30, 2006.

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

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

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

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

         Delays in development  and fill-up of our  properties  would reduce our
profitability.  Since  January  1,  2002,  we have  opened  44  newly  developed
self-storage   facilities  and  17  facilities  that  combine  self-storage  and
containerized  storage space at the same location,  with  aggregate  development

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<PAGE>

costs of approximately  $538.9 million. In addition,  at June 30, 2006 we had 59
projects in development that are expected to be completed in  approximately  the
next two years.  These 59 projects have total estimated  costs of  approximately
$272 million.  Construction  delays due to weather,  unforeseen site conditions,
personnel problems, and other factors, as well as cost overruns, would adversely
affect our profitability. Delays in the rent-up of newly developed facilities as
a result of  competition  or other  factors  would  also  adversely  impact  our
profitability.

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

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

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

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

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

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

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

         Through our  subsidiaries,  we continue to reinsure  risks  relating to
loss of goods stored by tenants in the  self-storage  facilities  in Canada.  We
acquired  the tenant  insurance  business  on  December  31,  2001  through  our
acquisition  of PSIC.  For each of the six month periods ended June 30, 2006 and
2005, we collected $505,000 and $526,000,  respectively in reinsurance  premiums
attributable  to the Canadian  operations.  Since PSIC's right to provide tenant
reinsurance to the Canadian  facilities may be qualified,  there is no assurance
that these premiums will continue.
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<PAGE>

OUR CONTAINERIZED STORAGE BUSINESS HAS INCURRED OPERATING LOSSES.

         Public  Storage  Pickup & Delivery  ("PSPUD")  was organized in 1996 to
operate a containerized storage business. We own all of the economic interest of
PSPUD.  Since  PSPUD  will  operate  profitably  only if it can  succeed  in the
relatively new field of containerized  storage,  we cannot provide any assurance
as to its  profitability.  PSPUD  incurred an operating  loss of  $10,058,000 in
2002, and generated  operating profits of $2,543,000 in 2003,  $684,000 in 2004,
$1,818,000  for 2005 and $118,000 for the six months ended June 30, 2006.  Since
2002, PSPUD closed or consolidated  facilities that were deemed not strategic to
its business plan, and has 12 facilities open at June 30, 2006.

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

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

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

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

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

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

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

         On May 9, 2006, PSA Institutional Partners,  L.P., a California limited
partnership ("PSAIP") and a majority - owned indirect subsidiary of the Company,
sold  4,000,000  7.25%  Series  J  Cumulative   Preferred  Redeemable  Perpetual
Preferred Units for $100,000,000.  The terms of the Series J Preferred Units are
specified  by the Fourth  Amendment  to the Amended and  Restated  Agreement  of
Limited  Partnership of PSAIP dated as of May 9, 2006 (the "Fourth  Amendment").
Under the Fourth Amendment, PSAIP has the right to redeem the Series J Preferred
Units  on or  after  the  fifth  anniversary  of  issuance  at  the  Liquidation
Preference as defined in the Partnership Agreement. The Series J Preferred Units
are  exchangeable  for  depositary  shares  representing  interests in shares of
Series J Preferred  Stock on or after the tenth  anniversary  of issuance at the
option of a holder or PSAIP,  at a rate of one Series J  Preferred  Unit for one
depositary  shares  representing one thousandth  (1/1000) of a share of Series J
Preferred  Stock,  subject to certain  adjustments.  In addition,  under certain
circumstance,  Series J  Preferred  Units  may be  exchanged  prior to the tenth
anniversary of the date of issuance.
                                       77
<PAGE>

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

ITEM 6.    EXHIBITS
           ---------

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

                                       78
<PAGE>


                                   SIGNATURES

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

                DATED:     August 8, 2006

                PUBLIC STORAGE, INC.

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


                                       79


<PAGE>


Exhibit No.                       Exhibit Index

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                       80
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

3.28        Certificate of  Determination  of  Preferences  of 8.75%  Cumulative
            Preferred  Stock,  Series  M of  Public  Storage,  Inc.  Filed  with
            Registrant's  Registration  Statement on Form 8-A/A  relating to the
            Depositary  Shares  Each  Representing  1/1,000  of a Share of 8.75%
            Cumulative  Preferred  Stock,  Series M and  incorporated  herein by
            reference.

3.29        Certificate of  Determination  of Equity Stock,  Series AA of Public
            Storage, Inc. Filed with Registrant's  Quarterly Report on Form 10-Q
            for the quarterly  period ended September 30, 1999 and  incorporated
            herein by reference.

                                       81
<PAGE>

3.30        Certificate Decreasing Shares Constituting Equity Stock, Series A of
            Public Storage,  Inc. Filed with  Registrant's  Quarterly  Report on
            Form 10-Q for the  quarterly  period  ended  September  30, 1999 and
            incorporated herein by reference.

3.31        Certificate  of  Determination  of Equity Stock,  Series A of Public
            Storage, Inc. Filed with Registrant's  Quarterly Report on Form 10-Q
            for the quarterly  period ended September 30, 1999 and  incorporated
            herein by reference.

3.32        Certificate of Amendment of Certificate of  Determination  of Equity
            Stock,  Series A of Public  Storage,  Inc.  Filed with  Registrant's
            Quarterly  Report on Form 10-Q for the  quarterly  period ended June
            30, 2001 and incorporated herein by reference.

3.33        Certificate of Determination  of Equity Stock,  Series AAA of Public
            Storage,  Inc.  Filed with  Registrant's  Current Report on Form 8-K
            dated November 15, 1999 and incorporated herein by reference.

3.34        Certificate  of  Determination  of  Preferences  of 9.5%  Cumulative
            Preferred  Stock,  Series  N of  Public  Storage,  Inc.  Filed  with
            Registrant's  Annual Report on Form 10-K for the year ended December
            31, 1999 and incorporated herein by reference.

3.35        Certificate of  Determination  of  Preferences of 9.125%  Cumulative
            Preferred  Stock,  Series  O of  Public  Storage,  Inc.  Filed  with
            Registrant's  Quarterly Report on Form 10-Q for the quarterly period
            ended March 31, 2000 and incorporated herein by reference.

3.36        Certificate of  Determination  of  Preferences  of 8.75%  Cumulative
            Preferred  Stock,  Series  P of  Public  Storage,  Inc.  Filed  with
            Registrant's  Quarterly Report on Form 10-Q for the quarterly period
            ended June 30, 2000 and incorporated herein by reference.

3.37        Certificate of  Determination  of  Preferences of 8.600%  Cumulative
            Preferred  Stock,  Series  Q of  Public  Storage,  Inc.  Filed  with
            Registrant's  Registration  Statement on Form 8-A/A (No.  001-08389)
            relating to the  Depositary  Shares Each  Representing  1/1,000 of a
            Share  of  8.600%   Cumulative   Preferred   Stock,   Series  Q  and
            incorporated herein by reference.

3.38        Certificate of Amendment of Certificate of  Determination  of Equity
            Stock,  Series A of Public  Storage,  Inc.  Filed with  Registrant's
            Quarterly  Report on Form 10-Q for the  quarterly  period ended June
            30, 2001 and incorporated herein by reference.

3.39        Certificate of  Determination  of  Preferences of 8.000%  Cumulative
            Preferred  Stock,  Series  R of  Public  Storage,  Inc.  Filed  with
            Registrant's  Registration  Statement  on Form 8-A  relating  to the
            Depositary  Shares  Each  Representing  1/1,000 of a Share of 8.000%
            Cumulative  Preferred  Stock,  Series R and  incorporated  herein by
            reference.

3.40        Certificate of  Determination  of  Preferences of 7.875%  Cumulative
            Preferred  Stock,  Series  S of  Public  Storage,  Inc.  Filed  with
            Registrant's  Registration  Statement  on Form 8-A  relating  to the
            Depositary  Shares  Each  Representing  1/1,000 of a Share of 7.875%
            Cumulative  Preferred  Stock,  Series S and  incorporated  herein by
            reference.

3.41        Certificate of  Determination  of  Preferences of 7.625%  Cumulative
            Preferred  Stock,  Series  T of  Public  Storage,  Inc.  Filed  with
            Registrant's  Registration  Statement  on Form 8-A  relating  to the
            Depositary  Shares  Each  Representing  1/1,000 of a Share of 7.625%
            Cumulative  Preferred  Stock,  Series T and  incorporated  herein by
            reference.

3.42        Certificate of  Determination  of  Preferences of 7.625%  Cumulative
            Preferred  Stock,  Series  U of  Public  Storage,  Inc.  Filed  with
            Registrant's   Registration   Statement  on  Form  8-A  relating  to
            Depositary  Shares  Each  Representing  1/1,000 of a Share of 7.625%
            Cumulative  Preferred  Stock,  Series U and  incorporated  herein by
            reference.

                                       82
<PAGE>

3.43        Amendment to Certificate of  Determination  of Preferences of 7.625%
            Cumulative  Preferred Stock, Series T of Public Storage,  Inc. Filed
            with  Registrant's  Quarterly  Report on Form 10-Q for the quarterly
            period  ended  September  30,  2002  and   incorporated   herein  by
            reference.

3.44        Certificate of  Determination  of  Preferences of 7.500%  Cumulative
            Preferred  Stock,  Series  V of  Public  Storage,  Inc.  Filed  with
            Registrant's   Registration  Statement  Form  8-A  relating  to  the
            Depositary  Shares  Each  Representing  1/1,000 of a Share of 7.500%
            Cumulative  Preferred  Stock,  Series V and  incorporated  herein by
            reference.

3.45        Certificate of  Determination  of  Preferences of 6.500%  Cumulative
            Preferred  Stock,  Series  W of  Public  Storage,  Inc.  Filed  with
            Registrant's   Registration  Statement  Form  8-A  relating  to  the
            Depositary  Shares  Each  Representing  1/1,000 of a Share of 6.500%
            Cumulative  Preferred  Stock,  Series W and  incorporated  herein by
            reference.

3.46        Certificate  of  Determination  of  Preferences   6.450%  Cumulative
            Preferred  Stock,  Series  X of  Public  Storage,  Inc.  Filed  with
            Registrant's  Registration  Statement  on Form 8-A  relating  to the
            Depositary  Shares  Each  Representing  1/1,000 of a Share of 6.450%
            Cumulative  Preferred  Stock,  Series X and  incorporated  herein by
            reference.

3.47        Certificate of  Determination  of  Preferences  of 6.85%  Cumulative
            Preferred  Stock,  Series Y of Public  Storage,  Inc. Filed with the
            Registrant's  Quarterly Report on Form 10-Q for the quarterly period
            ended March 31, 2004 and incorporated herein by reference.

3.48        Certificate of  Determination  of  Preferences of 6.250%  Cumulative
            Preferred  Stock,  Series  Z of  Public  Storage,  Inc.  Filed  with
            Registrant's  Registration  Statement  on Form 8-A  relating  to the
            Depositary  Shares  Each  Representing  1/1,000 of a Share of 6.250%
            Cumulative  Preferred  Stock,  Series Z and  incorporated  herein by
            reference.

3.49        Certificate of  Determination  of  Preferences of 6.125%  Cumulative
            Preferred  Stock,  Series  A of  Public  Storage,  Inc.  Filed  with
            Registrant's  Registration  Statement  on Form 8-A  relating  to the
            Depositary  Shares  Each  Representing  1/1,000 of a Share of 6.125%
            Cumulative  Preferred  Stock,  Series A and  incorporated  herein by
            reference.

3.50        Certificate of  Determination  of  Preferences  of 6.40%  Cumulative
            Preferred  Stock,  Series  NN of Public  Storage,  Inc.  Filed  with
            Registrant's  Quarterly Report on Form 10-Q for the quarterly period
            ended March 31, 2004 and incorporated herein by reference.

3.51        Certificate of  Determination  of  Preferences of 7.125%  Cumulative
            Preferred  Stock,  Series  B of  Public  Storage,  Inc.  Filed  with
            Registrant's  Registration  Statement  on Form 8-A  relating  to the
            Depositary  Shares  Each  Representing  1/1,000 of a Share of 7.125%
            Cumulative  Preferred  Stock,  Series B and  incorporated  herein by
            reference.

3.52        Certificate of  Determination  of  Preferences  of 6.60%  Cumulative
            Preferred  Stock,  Series  C of  Public  Storage,  Inc.  Filed  with
            Registrant's  Registration  Statement  on Form 8-A  relating  to the
            Depositary  Shares  Each  Representing  1/1,000  of a Share of 6.60%
            Cumulative  Preferred  Stock,  Series C and  incorporated  herein by
            reference.

3.53        Certificate of  Determination  of  Preferences  of 6.18%  Cumulative
            Preferred  Stock,  Series  D of  Public  Storage,  Inc.  Filed  with
            Registrant's  Registration  Statement  on Form 8-A  relating  to the
            Depositary  Shares  Each  Representing  1/1,000  of a Share of 6.18%
            Cumulative  Preferred  Stock,  Series D and  incorporated  herein by
            reference.

3.54        Certificate of  Determination  of  Preferences  of 6.75%  Cumulative
            Preferred  Stock,  Series  E of  Public  Storage,  Inc.  Filed  with
            Registrant's  Registration  Statement  on Form 8-A  relating  to the
            Depositary  Shares  Each  Representing  1/1,000  of a share of 6.75%
            Cumulative  Preferred  Stock,  Series E and  incorporated  herein by
            reference.

3.55        Certificate of  Determination  of  Preferences  of 6.45%  Cumulative
            Preferred  Stock,  Series  F of  Public  Storage,  Inc.  Filed  with
            Registrant's  Registration  Statement  on Form 8-A  relating  to the
            Depositary  Shares  Each  Representing  1/1,000  of a Share of 6.45%
            Cumulative  Preferred  Stock,  Series F and  incorporated  herein by
            reference.

                                       83
<PAGE>

3.56        Amendment to  Certificate  of  Determination  of  Preferences  6.45%
            Cumulative  Preferred Stock, Series F of Public Storage,  Inc. Filed
            with Registrant's Registration Statement on Form 8-A relating to the
            Depositary  Shares  Each  Representing  1/1,000  of a Share of 6.45%
            Cumulative  Preferred  Stock,  Series F and  incorporated  herein by
            reference.

3.57        Certificate of  Determination  of  Preferences  of 7.00%  Cumulative
            Preferred  Stock,  Series  G of  Public  Storage,  Inc.  Filed  with
            Registrant's  Registration  Statement  on Form 8-A  relating  to the
            Depositary  Shares  Each  Representing  1/1,000  of a Share of 7.00%
            Cumulative  Preferred  Stock,  Series G and  incorporated  herein by
            reference.

3.58        Certificate of  Determination  of  Preferences  of 6.95%  Cumulative
            Preferred  Stock,  Series  H of  Public  Storage,  Inc.  Filed  with
            Registrant's  Registration  Statement  on Form 8-A  relating  to the
            Depositary  Shares  Each  Representing  1/1,000  of a Share of 6.95%
            Cumulative  Preferred  Stock,  Series H and  incorporated  herein by
            reference.

3.59        Certificate of  Determination  of  Preferences  of 7.25%  Cumulative
            Preferred  Stock,  Series  I of  Public  Storage,  Inc.  Filed  with
            Registrant's  Registration  Statement  on Form 8-A  relating  to the
            Depositary  Shares  Each  Representing  1/1,000  of a Share of 7.25%
            Cumulative  Preferred  Stock,  Series I and  incorporated  herein by
            reference.

3.60        Certificate of  Determination  of  Preferences  of 7.25%  Cumulative
            Preferred  Stock,  Series  J of  Public  Storage,  Inc.  Filed  with
            Registrant's  Current  Report on Form 8-K filed May 9, 2006 relating
            to the  Depositary  Shares Each  Representing  1/1,000 of a Share of
            7.25% Cumulative  Preferred Stock,  Series J and incorporated herein
            by reference.

3.61        Amendment  to  Certificate  of  Determination  of  Determination  of
            Preferences  of Cumulative  Preferred  Stock,  Series G (8.875%),  H
            (8.45%),  I (8.625%),  J (8%), K (8.25%),  L (8.25%),  M (8.75%),  N
            (9.5%), O (9.125%) and P (8.75%) of Public Storage,  Inc. Filed with
            Registrant's  Current Report on Form 8-K dated November 22, 2005 and
            incorporated herein by reference.

3.62        Revised Bylaws of Storage  Equities,  Inc.  Filed with  Registrant's
            Registration  Statement  on Form S-4/A (SEC File No.  33-64971)  and
            incorporated herein by reference.

3.63        Amendment to Bylaws of Public Storage,  Inc. adopted on May 9, 1996.
            Filed with Registrant's Registration Statement on Form S-4 (Sec File
            No. 333-03749) and incorporated herein by reference.

3.64        Amendment  to Bylaws of Public  Storage,  Inc.  adopted  on June 26,
            1997. Filed with Registrant's  Registration  Statement on Form S-3/A
            (SEC File No. 333-41123) and incorporated herein by reference.

3.65        Amendment to Bylaws of Public  Storage,  Inc.  adopted on January 6,
            1998. Filed with Registrant's  Registration  Statement on Form S-3/A
            (SEC File No. 333-41123) and incorporated herein by reference.

3.66        Amendment to Bylaws of Public Storage,  Inc. adopted on February 10,
            1998.  Filed  with  Registrant's  Current  Report  on Form 8-K dated
            February 10, 1998 and incorporated herein by reference.

3.67        Amendment  to Bylaws of Public  Storage,  Inc.  adopted  on March 4,
            1999. Filed with Registrant's Current Report on Form 8-K dated March
            4, 1999 and incorporated herein by reference.

3.68        Amendment to Bylaws of Public Storage,  Inc. adopted on May 6, 1999.
            Filed  with  Registrant's  Quarterly  Report  on Form  10-Q  for the
            quarterly  period  ended March 31, 1999 and  incorporated  herein by
            reference.

3.69        Amendment to Bylaws of Public Storage,  Inc.  adopted on November 7,
            2002. Filed with Registrant's  Quarterly Report on Form 10-Q for the
            quarterly period ended September 30, 2002 and incorporated herein by
            reference.

                                       84
<PAGE>

3.70        Amendment to Bylaws of Public Storage,  Inc. adopted on May 8, 2003.
            Filed  with  Registrant's  Quarterly  Report  on Form  10-Q  for the
            quarterly  period  ended March 31, 2003 and  incorporated  herein by
            reference.

3.71        Amendment  to Bylaws of Public  Storage,  Inc.  adopted on August 5,
            2003. Filed with Registrant's  Quarterly Report on Form 10-Q for the
            quarterly  period  ended June 30,  2003 and  incorporated  herein by
            reference.

3.72        Amendment  to Bylaws of Public  Storage,  Inc.  adopted on March 11,
            2004.  Filed with  Registrant's  Annual  Report on Form 10-K for the
            year ended December 31, 2003 and incorporated herein by reference.

4.1         Registration  Rights  Agreement  dated as of May 9, 2006 relating to
            7.25% Series J Cumulative  Preferred Stock of the Registrant.  Filed
            with  Registrant's  Current Report on Form 8-K dated May 9, 2006 and
            incorporated herein by reference.

10.1.       Merger  Agreement,  dated as of March 6, 2006, by and among Shurgard
            Storage Centers,  Inc., ASKL Sub LLC and Public Storage,  Inc. Filed
            with Registrant's Current Report on Form 8-K dated March 6, 2006 and
            incorporated herein by reference.

10.2.       Voting Agreement, dated as of March 6, 2006, by and among Charles K.
            Barbo and  Public  Storage,  Inc.  Filed with  Registrant's  Current
            Report on Form 8-K dated  March 6, 2006 and  incorporated  herein by
            reference.

10.3.       Deposit  Agreement  dated as of May 3,  2006  among  Registrant  and
            Computershare  Trust  Company  N.A.  and the  holders of  depositary
            receipts evidencing the Depositary Shares Each Representing  1/1,000
            of a share of 7.25% Cumulative Preferred Stock, Series I. Filed with
            Registrant's  Registration  Statement  on Form 8-A  relating  to the
            Depositary  Shares  Each  Representing  1/1,000  of a Share of 7.25%
            Cumulative  Preferred  Stock,  Series I and  incorporated  herein by
            reference.

10.4.       Fourth  Amendment  dated as of May 9, 2006 to Amended  and  Restated
            Agreement of Limited Partnership of PSA Institutional  Partners,  L.
            P. Filed with  Registrant's  Current Report on Form 8-K filed May 9,
            2006 and incorporated herein by reference.

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

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

31.1        Rule  13a-14(a)/15d-14(a)  Certification of Chief Executive Officer.
            Filed herewith.

31.2        Rule  13a-14(a)/15d-14(a)  Certification of Chief Financial Officer.
            Filed herewith.

32          Section  1350  Certification  of Chief  Executive  Officer and Chief
            Financial Officer. Filed herewith.

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