SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

For the quarterly period ended September 30, 2007

                                       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:  001-33519

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

             Maryland                                   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 the registrant's  outstanding common shares of beneficial
interest, as of November 7, 2007:

Common  Shares of  beneficial  interest,  $.10 par value per share - 170,559,969
shares



                                 PUBLIC STORAGE

                                      INDEX


                                                                           Pages

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

         Condensed Consolidated Balance Sheets at
            September 30, 2007 and December 31, 2006                         1

         Condensed Consolidated Statements of Income for the
            Three and Nine Months Ended September 30, 2007 and 2006          2

         Condensed Consolidated Statement of Shareholders' Equity
            for the Nine Months Ended September 30, 2007                     3

         Condensed Consolidated Statements of Cash Flows
            for the Nine Months Ended September 30, 2007 and 2006        4 - 5

         Notes to Condensed Consolidated Financial Statements           6 - 41

Item 2.  Management's Discussion and Analysis of
            Financial Condition and Results of Operations              42 - 79

Item 3.  Quantitative and Qualitative Disclosures about Market Risk    79 - 80

Item 4.  Controls and Procedures                                       80 - 81

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

Item 1.  Legal Proceedings                                                  82

Item 1A. Risk Factors                                                       82

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds        82

Item 6.  Exhibits                                                           82




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




                                                                                    September 30,        December 31,
                                                                                       2007                  2006
                                                                                 -----------------     ----------------
                                                                                    (Unaudited)
                                       ASSETS

                                                                                                 
Cash and cash equivalents....................................................     $     168,586        $     535,684
Real estate facilities, at cost:
   Land......................................................................         2,997,585            2,959,875
   Buildings.................................................................         8,509,767            8,301,990
                                                                                 -----------------     ----------------
                                                                                     11,507,352           11,261,865
   Accumulated depreciation..................................................        (2,034,014)          (1,754,362)
                                                                                 -----------------     ----------------
                                                                                      9,473,338            9,507,503
   Construction in process...................................................           103,657              90,038
                                                                                 -----------------     ----------------
                                                                                      9,576,995            9,597,541

Investment in real estate entities...........................................           317,982              301,905
Goodwill.....................................................................           174,634              174,634
Intangible assets, net.......................................................           222,168              414,602
Restricted cash..............................................................            20,844               19,900
Other assets.................................................................           148,414              154,207
                                                                                 -----------------     ----------------
              Total assets...................................................     $  10,629,623        $  11,198,473
                                                                                 =================     ================

                       LIABILITIES AND SHAREHOLDERS' EQUITY

Borrowings on bank credit facilities.........................................     $           -        $     345,000
Notes payable................................................................         1,004,507            1,466,284
Debt to joint venture partner................................................            37,395               37,258
Preferred stock called for redemption........................................                 -              302,150
Accrued and other liabilities................................................           323,091              333,706
                                                                                 -----------------     ----------------
         Total liabilities...................................................         1,364,993            2,484,398
Minority interest:
   Preferred partnership interests...........................................           325,000              325,000
   Other partnership interests...............................................           181,772              181,030
Commitments and contingencies (Note 15)
Shareholders' equity:
   Cumulative Preferred Shares of beneficial interest, $0.01 par value,
     100,000,000 shares authorized, 1,739,500 shares issued (in series) and
     outstanding, (1,712,600 at December 31, 2006) at liquidation preference.         3,527,500            2,855,000
   Common Shares of beneficial interest, $0.10 par value, 650,000,000 shares
     authorized, 169,402,880 shares issued and outstanding (169,144,467 at
     December 31, 2006)......................................................            16,941               16,915
   Equity Shares of beneficial interest, Series A, $0.01 par value,
     100,000,000 shares authorized, 8,744.193 shares issued and outstanding..                 -                    -
   Paid-in capital...........................................................         5,652,304            5,661,507
   Cumulative net income.....................................................         3,792,940            3,503,292
   Cumulative distributions paid.............................................        (4,295,512)          (3,847,998)
   Accumulated other comprehensive income....................................            63,685               19,329
                                                                                 -----------------     ----------------
         Total shareholders' equity..........................................         8,757,858            8,208,045
                                                                                 -----------------     ----------------
              Total liabilities and shareholders' equity.....................     $  10,629,623        $  11,198,473
                                                                                 =================     ================


                            See accompanying notes.
                                       1



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

                                   (Unaudited)



                                                                    Three Months Ended                  Nine Months Ended
                                                                       September 30,                      September 30,
                                                                ------------------------------    -------------------------------
                                                                    2007             2006             2007              2006
                                                                --------------   -------------    -------------     -------------
Revenues:
                                                                                                        
   Self-storage rental income..............................     $    427,949     $    328,782     $  1,237,946      $    842,361
   Ancillary operating revenue.............................           37,754           29,827          107,903            77,500
   Interest and other income...............................            3,257           12,651            6,337            27,773
                                                                --------------   -------------    -------------     -------------
                                                                     468,960          371,260        1,352,186           947,634
                                                                --------------   -------------    -------------     -------------
Expenses:
  Cost of operations (excluding depreciation and
      amortization):
      Self-storage facilities..............................          143,371          109,106          441,657           286,204
      Ancillary operations.................................           22,687           18,514           63,419            50,315
  Depreciation and amortization............................          147,767          113,463          491,725           212,057
  General and administrative...............................           11,416           36,242           49,397            49,996
  Interest expense.........................................           15,257            9,323           48,772            12,752
                                                                --------------   -------------    -------------     -------------
                                                                     340,498          286,648        1,094,970           611,324
                                                                --------------   -------------    -------------     -------------
Income from continuing operations before equity in
   earnings of real estate entities, casualty gain, gain
   on disposition of real estate investments, foreign
   currency exchange gain (loss), income from derivatives
   and minority interest in income.........................          128,462           84,612          257,216           336,310

Equity in earnings of real estate entities.................            3,424            2,618           10,183             9,208
Casualty gain .............................................                -                -            2,665                 -
Gain on disposition of real estate investments.............               92              756            2,330             1,222
Foreign currency exchange gain (loss)......................           30,384             (172)          40,977              (172)
Income from derivatives, net...............................              117               32            1,126                32
 Minority interest in income...............................           (8,304)          (8,590)         (21,611)          (24,477)
                                                                --------------   -------------    -------------     -------------
Income from continuing operations..........................          154,175           79,256          292,886           322,123
Cumulative effect of a change in accounting principle......                -                -                -               578
Discontinued operations....................................           (1,409)           1,925           (3,238)            1,558
                                                                --------------   -------------    -------------     -------------
Net income.................................................     $    152,766     $     81,181     $    289,648      $    324,259
                                                                ===============  ==============   =============     =============
Net income allocation:
   Allocable to preferred shareholders based on
   distributions paid......................................     $     60,333    $      60,265     $    176,424     $     159,256
   Allocable to preferred shareholders based on redemptions.               -           21,643                -            21,643
   Allocable to Equity Shares, Series A....................            5,356            5,356           16,068            16,068
   Allocable to common shareholders........................           87,077           (6,083)          97,156           127,292
                                                                --------------   -------------    -------------     -------------
                                                                $    152,766     $     81,181     $    289,648      $    324,259
                                                                ===============  ==============   =============     =============
Net income (loss) per common share - basic
   Continuing operations...................................     $      0.52      $     (0.05)     $       0.59      $       0.94
   Discontinued operations.................................           (0.01)             0.01            (0.02)             0.01
                                                                --------------   -------------    -------------     -------------
                                                                $      0.51      $     (0.04)     $       0.57      $       0.95
                                                                ===============  ==============   =============     =============
Net income (loss) per common share - diluted
   Continuing operations...................................     $      0.52      $     (0.05)     $       0.59     $        0.93
   Discontinued operations.................................           (0.01)             0.01            (0.02)             0.01
                                                                --------------   -------------    -------------     -------------
                                                                $      0.51      $     (0.04)     $       0.57      $       0.94
                                                                ===============  ==============   =============     =============
Net income per depositary share representing Equity
   Shares, Series A (basic and diluted) ...................     $       0.61     $       0.61     $       1.84      $       1.84
                                                                ===============  ==============   =============     =============
Basic weighted average common shares outstanding...........          169,374          145,387          169,317           133,897
                                                                ===============  ==============   =============     =============
Diluted weighted average common shares outstanding.........          170,085          145,387          170,166           134,851
                                                                ===============  ==============   =============     =============
Weighted average Equity Shares, Series A (basic and
   diluted)................................................            8,744            8,744            8,744             8,744
                                                                ===============  ==============   =============     =============


                            See accompanying notes.
                                       2



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

                                   (Unaudited)





                                                               Cumulative                                       Cumulative Net
                                                            Preferred Shares   Common Shares   Paid-in Capital       Income
                                                           ------------------ ---------------  ---------------  --------------

                                                                                                     
Balance at December 31, 2006..............................   $  2,855,000     $     16,915     $  5,661,507      $  3,503,292

Issuance of cumulative preferred shares:
   Series M (20,000 shares).............................          500,000                -          (15,233)                -
   Series N (6,900 shares)..............................          172,500                -           (5,375)                -

Issuance of common shares in connection with:
   Exercise of employee stock options (191,095  shares)...              -               19            8,033                 -
   Vesting of restricted shares (67,318 shares) ..........              -                7               (7)                -

Stock-based compensation expense (Note 13) ...............              -                -            3,379                 -

Net income................................................              -                -                -           289,648

Cash distributions:
   Cumulative preferred shares (Note 11)..................              -                -                -                 -
   Equity Shares, Series A ($1.838 per depositary share)..              -                -                -                 -
   Common Shares ($1.50 per share)........................              -                -                -                 -

Accumulated other comprehensive income:
   Foreign currency translation adjustments not reflected
     in net income........................................              -                -                -                 -
                                                           ------------------ ---------------  ---------------  --------------
Balance at September 30, 2007.............................   $  3,527,500     $     16,941     $  5,652,304      $  3,792,940
                                                           ================== ===============  ===============  ==============



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

                                   (Unaudited)



                                                                                 Accumulated
                                                                                      Other             Total
                                                                Cumulative      Comprehensive     Shareholders'
                                                               Distributions         Income           Equity
                                                              --------------    ---------------   --------------

                                                                                         
Balance at December 31, 2006..............................    $ (3,847,998)     $     19,329      $  8,208,045

Issuance of cumulative preferred shares:
   Series M (20,000 shares).............................                 -                 -           484,767
   Series N (6,900 shares)..............................                 -                 -           167,125

Issuance of common shares in connection with:
   Exercise of employee stock options (191,095  shares)...               -                 -             8,052
   Vesting of restricted shares (67,318 shares) ..........               -                 -                 -

Stock-based compensation expense (Note 13) ...............               -                 -             3,379

Net income................................................               -                 -           289,648

Cash distributions:
   Cumulative preferred shares (Note 11)..................        (176,424)                -          (176,424)
   Equity Shares, Series A ($1.838 per depositary share)..         (16,068)                -           (16,068)
   Common Shares ($1.50 per share)........................        (255,022)                -          (255,022)

Accumulated other comprehensive income:
   Foreign currency translation adjustments not reflected
     in net income........................................               -            44,356            44,356
                                                              --------------    ---------------   --------------
Balance at September 30, 2007.............................    $ (4,295,512)     $     63,685      $  8,757,858
                                                              ==============    ===============   ==============



                            See accompanying notes.
                                       3


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

                                   (Unaudited)



                                                                                      For the Nine Months Ended
                                                                                            September 30,
                                                                                   --------------------------------
                                                                                         2007            2006
                                                                                   ---------------  ---------------
Cash flows from operating activities:
                                                                                               
   Net income...............................................................         $  289,648      $  324,259
   Adjustments to reconcile net income to net cash provided by operating
     activities:
    Amortization of note premium, net of increase in debt to joint venture
       partner (Notes 7 and 8)..............................................             (3,592)           (838)
    Gain on sales of real estate and real estate investments (Notes 4 and
       14)..................................................................             (2,330)         (3,592)
    Depreciation and amortization...........................................            491,725         212,057
    Write off of capitalized development project costs......................              1,615           9,319
    Equity in earnings of real estate entities..............................            (10,183)         (9,208)
    Foreign currency exchange (gain) loss...................................            (40,977)            172
    Income from derivatives, net............................................             (1,126)            (32)
    Distributions received from the real estate entities (Note 5)...........             17,185          15,049
    Minority interest in income.............................................             21,611          24,477
       Other operating activities...........................................            (11,985)         10,489
                                                                                   ---------------  ---------------
       Total adjustments....................................................            461,943         257,893
                                                                                   ---------------  ---------------
       Net cash provided by operating activities............................            751,591         582,152
                                                                                   ---------------  ---------------
Cash flows from investing activities:
    Capital improvements to real estate facilities .........................            (49,453)        (44,366)
    Construction in process.................................................            (81,134)        (70,903)
    Acquisition of minority interests.......................................                  -         (60,799)
    Acquisition of real estate facilities...................................            (72,787)        (98,954)
    (Deconsolidation) consolidation of partnerships (Note 2)................                (65)          3,024
    Cash portion of the merger with Shurgard (Note 3).......................                  -        (161,284)
    Proceeds from sales of real estate......................................              2,008          11,281
    Sale of real estate investments to affiliates (Note 10).................              4,909               -
    Additions to restricted cash............................................               (944)         (3,358)
    Proceeds from sales of held-to-maturity debt securities (Note 2)........              6,019           8,079
                                                                                   ---------------  ---------------
       Net cash used in investing activities................................           (191,447)       (417,280)
                                                                                   ---------------  ---------------
Cash flows from financing activities:
    Principal payments on notes payable.....................................           (504,658)       (687,508)
    Net repayments on bank credit facilities................................           (345,000)              -
    Contributions received from European minority interests.................                  -           9,302
    Proceeds from borrowings on European notes payable......................             39,602           8,544
    Net proceeds from the issuance of common shares.........................              8,052          78,899
    Net proceeds from the issuance of cumulative preferred shares...........            651,892       1,048,945
    Redemption of cumulative preferred shares...............................           (302,150)       (682,500)
    Issuance of preferred partnership interests.............................                  -         100,000
    Distributions paid to shareholders......................................           (447,514)       (388,605)
    Distributions paid to holders of preferred partnership interests (Note
       10)..................................................................            (16,209)        (13,652)
    Distributions paid to other minority interests..........................            (15,828)        (11,037)
                                                                                   ---------------  ---------------
       Net cash used in financing activities................................           (931,813)       (537,612)
                                                                                   ---------------  ---------------
Net decrease in cash and cash equivalents...................................           (371,669)       (372,740)
Net effect of foreign exchange translation on cash..........................              4,571               -
                                                                                   ---------------  ---------------
Cash and cash equivalents at the beginning of the year......................            535,684         481,995
                                                                                   ---------------  ---------------
Cash and cash equivalents at the end of the period..........................         $  168,586      $  109,255
                                                                                   ===============  ===============


                            See accompanying notes.
                                       4



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


                                   (Unaudited)

                                   (Continued)




Supplemental schedule of non-cash investing and financing activities:

   Foreign currency translation adjustment:
                                                                                                
       Real estate facilities, net of accumulated depreciation..............          $ (99,305)      $  20,849
       Construction in process..............................................             (3,610)            643
       Intangible assets, net...............................................            (14,718)              -
       Other assets.........................................................             (4,694)              -
       Notes payable........................................................             26,337         (10,223)
       Accrued and other liabilities........................................              7,094               -
       Minority interest - other partnership interests......................              8,134               -
       Accumulated other comprehensive income (loss)........................             85,333         (11,269)

   Deconsolidation of real estate entities:
       Real estate facilities, net of accumulated depreciation..............             41,409               -
       Investment in real estate entities...................................            (23,079)              -
       Intangible assets, net...............................................              1,816               -
       Other assets.........................................................                344               -
       Notes payable........................................................            (19,329)              -
       Accrued and other liabilities........................................               (544)              -
       Minority interests ..................................................               (682)              -

    Real estate acquired in exchange for assumption of mortgage note...........               -          (4,590)
    Mortgage note assumed in connection with acquisition of real estate........               -           4,590

   Merger with Shurgard Storage Centers, Inc.:
       Real estate facilities.............................................                     -     (5,070,528)
       Intangible assets..................................................                     -       (483,107)
       Other assets.......................................................                     -       (100,411)
       Accrued and other liabilities......................................                     -        162,730
       Minority interest..................................................                     -        144,351
       Debt...............................................................                     -      1,999,535
       Common stock.......................................................                     -          3,891
       Paid in capital....................................................                     -      3,182,255

    Consolidation of entities pursuant to Emerging Issues Task Force Topic 04-5:
       Minority interest - other partnership interests.........................               -           3,963
       Real estate facilities..................................................               -         (22,459)
       Investments in real estate entities.....................................               -          20,846
       Other assets............................................................               -            (167)
       Accrued and other liabilities...........................................               -             841

   Revaluation of debt to joint venture partner:
       Debt due to joint venture partner..................................                     -           1,386
       Other assets.......................................................                     -          (1,386)



                            See accompanying notes.
                                       5



                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

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

               Public  Storage,  Inc.,  formerly a California  corporation,  was
     organized  in 1980.  Effective  June 1,  2007,  following  approval  by our
     shareholders,  we reorganized  Public Storage,  Inc. into Public Storage, a
     Maryland real estate investment trust (referred to herein as "the Company",
     "the  Trust",   "we",  "us",  or  "our").   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. Our  self-storage  facilities  are located  primarily in the
     United  States.  As a result of the merger with Shurgard  Storage  Centers,
     Inc. ("Shurgard") on August 22, 2006, we also have self-storage  facilities
     located in seven Western European countries (Note 3).

               In addition to our self-storage facilities,  we own (i) interests
     in commercial properties containing commercial and industrial rental space,
     (ii) interests in facilities that lease storage containers, and (iii) other
     ancillary  operations  conducted at our  self-storage  locations  comprised
     principally of  reinsurance  of policies  against losses to goods stored by
     our  self-storage  tenants,  retail sales of storage  related  products and
     truck rentals.

               At  September  30,  2007,  we  had  direct  and  indirect  equity
     interests in 2,012  self-storage  facilities located in 38 states operating
     under the "Public Storage" name, and 169 self-storage facilities located in
     Europe which  operate under the "Shurgard  Storage  Centers"  name. We also
     have direct and indirect equity  interests in  approximately 20 million net
     rentable square feet of commercial space located in 11 states in the United
     States.

               Any reference to the number of properties, square footage, number
     of tenant  reinsurance  policies  outstanding and the aggregate coverage of
     such  reinsurance  policies  are  unaudited  and  outside  the scope of our
     independent  registered  public  accounting  firm's review of our financial
     statements  in  accordance   with  the  standards  of  the  Public  Company
     Accounting Oversight Board (United States).

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

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

               The  accompanying   unaudited  condensed  consolidated  financial
     statements  have been prepared in accordance with U.S.  generally  accepted
     accounting  principles  ("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 notes required by GAAP for
     complete  financial   statements.   In  the  opinion  of  management,   all
     adjustments  (consisting  of normal and recurring  adjustments)  considered
     necessary for a fair  presentation  have been reflected in these  unaudited
     condensed  consolidated  financial  statements.  Operating  results for the
     three  and  nine  months  ended  September  30,  2007  are not  necessarily
     indicative of the results that may be expected for the year ended  December
     31, 2007.  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 (and amendments thereto) for the year ended December 31, 2006.

               Certain  amounts  previously  reported have been  reclassified to
     conform to the September 30, 2007 presentation.  In previous presentations,
     certain cash  balances  held by our captive  insurance  entities  which are
     restricted  as to their use were included in cash and cash  equivalents  on
     the Company's  condensed  consolidated  balance  sheets.  These  restricted
     balances are reclassified as "restricted  cash" (see also "Restricted Cash"
     below).  In previous  presentations,  revenues and cost of operations  with
     respect to our Commercial  facilities and Containerized  Storage facilities

                                       6


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

     were reported on separate lines on our condensed consolidated statements of
     income. In our current presentation, revenues with respect to each of these
     operations, along with revenues from our tenant reinsurance,  retail, truck
     and  property  management  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.

     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
     ("VIE's").  VIE's in which we are the primary beneficiary are consolidated.
     Entities that are not VIE's that we control are consolidated.

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

               The accounts of the  entities we control  along with the accounts
     of the VIE's that we are the  primary  beneficiary  of are  included in our
     consolidated  financial  statements  along  with those of the  Company.  We
     account for our investment in entities that we do not control,  or entities
     for  which  we are not the  primary  beneficiary  and  over  which  we have
     significant  influence,  using the equity method of accounting.  Changes in
     consolidation status are reflected effective the date the change of control
     or determination  of primary  beneficiary  status occurred,  and previously
     reported periods are not restated.  The entities that we consolidate during
     the periods to which the reference applies,  are referred to hereinafter as
     the  "Consolidated  Entities." The entities that we have an interest in but
     do not consolidate during the periods to which the reference  applies,  are
     referred to hereinafter as the "Unconsolidated Entities."


               Collectively,   at  September  30,  2007,  the  Company  and  the
     Consolidated  Entities  own  a  total  of  2,157  real  estate  facilities,
     consisting  of 1,979  self-storage  facilities  in the United  States,  169
     facilities in Europe, three industrial facilities used by the containerized
     storage operations and six commercial properties.

               At September 30, 2007, the Unconsolidated  Entities are comprised
     of our equity investments in various limited and joint venture partnerships
     owning an aggregate of 33 self-storage facilities, as well as our ownership
     of  approximately  44% of the  common  equity of PS  Business  Parks,  Inc.
     ("PSB"),  which has  interests in  approximately  19.6 million net rentable
     square feet of commercial space at September 30, 2007.

     Deconsolidation of Certain Entities
     -----------------------------------

               On May 24, 2007, a judgment  was rendered  which  resulted in our
     losing effective  control over several entities in which we had acquired an
     interest in connection  with the acquisition of Shurgard  Storage  Centers.
     These entities owned 11 facilities with approximately  624,000 net rentable
     square feet at  September  30,  2007.  Because of our loss of  control,  we
     discontinued consolidation of these entities and therefore began to account
     for  them  on the  equity  method,  effective  the  date  of the  judgment.
     Notwithstanding  our loss of  control,  we  continue  to retain  all of our
     previous financial interests in these partnerships.

               The  deconsolidation of these entities resulted in an increase in
     Investment in Real Estate Entities of  $23,079,000,  and adjustments to the
     following balance sheet accounts, representing the balance sheet amounts of
     these entities:

                                       7


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

                                        Total
                                    --------------
    Real estate facilities, net      $  (41,409)
    Intangible assets..........          (1,816)
    Cash.......................             (65)
    Other assets...............            (344)
    Debt.......................          19,329
    Accrued and other liabilities           544
    Minority interest .........             682
                                    --------------
                                     $  (23,079)
                                    ==============

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

               The  preparation  of the  consolidated  financial  statements  in
     conformity with GAAP 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  do  not  incur  federal  or
     significant  state  tax 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 2007 and, accordingly, no provision
     for income taxes has been made in the accompanying  condensed  consolidated
     financial  statements  on income  produced and  distributed  on real estate
     rental operations.

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

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

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

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

                                       8


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

               Financial   assets  that  are  exposed  to  credit  risk  consist
     primarily of cash and cash  equivalents and accounts  receivable.  Cash and
     cash   equivalents,   consisting  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 small individual customer balances.

               Due to the  acquisition  of European  subsidiaries  in the merger
     with Shurgard, the results of our operations and our financial position are
     affected  by the  fluctuations  in the value of the  euro,  and to a lesser
     extent, other European currencies, against the U.S. dollar.

               Other assets at September 30, 2007 include  investments  totaling
     $745,000  ($6,764,000 at December 31, 2006)  representing  held-to-maturity
     Federal  government  agency  securities  stated at  amortized  cost,  which
     approximates  fair value.  Other assets at September  30, 2007 also include
     derivative  financial  instruments  totaling  $5,660,000   ($11,810,000  at
     December 31, 2006) reported at estimated fair value. See Note 9 for further
     discussion of the fair value of our derivative financial instruments.

     Restricted Cash
     ---------------

               Restricted  cash at  September  30, 2007 and  December  31, 2006,
     consists  of cash held by our  captive  insurance  entities  which,  due to
     insurance  and other  regulations  with  respect to required  reserves  and
     minimum capital requirements, can only be utilized to pay captive claims.

     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.  Costs associated with the sale of
     real estate facilities or interests in real estate investments are expensed
     as  incurred.  Expenditures  for  repairs  and  maintenance  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.

     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, 2006.

               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 impairment was identified
     from our evaluations as of September 30, 2007.

                                       9


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

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

               We  utilize  the Fair  Value  Method  (as  defined in Note 13) of
     accounting for our employee stock options. Restricted share unit expense is
     recorded over the relevant vesting period.  See Note 13 for a discussion of
     our accounting with respect to employee share options and restricted  share
     units.

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

               Other assets primarily consists of prepaid expenses,  investments
     in held-to-maturity debt securities, accounts receivable, assets associated
     with our containerized  storage business,  merchandise inventory and rental
     trucks.  Included  in other  assets is  approximately  $61  million and $65
     million at September 30, 2007 and December 31, 2006, respectively, from our
     European operations.

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

               Accrued and other liabilities  consist primarily of real property
     tax  accruals,  value-added  tax  accruals  with  respect  to our  European
     operations,   prepayments  of  rents,  trade  payables,   losses  and  loss
     adjustment  liabilities for our self-insured  risks (described  below), and
     accrued  interest.  Prepaid rent totaled  $65,154,000 at September 30, 2007
     ($64,291,000  at December 31, 2006),  while  property and  value-added  tax
     accruals  approximated  $110,077,000 at September 30, 2007  ($80,336,000 at
     December 31, 2006).

               We are  self-insured  for a portion of the risks  associated with
     our property and casualty losses, workers compensation, and employee health
     care.  We also  utilize  third-party  insurance  carriers to limit our self
     insurance  exposure.  We accrue  liabilities for uninsured  losses and loss
     adjustment  expense,  which  at  September  30,  2007  totaled  $33,931,000
     ($31,532,000  at  December  31,  2006).  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.

               Through a wholly-owned  subsidiary,  we reinsure policies against
     claims  for  losses  to  goods  stored  by  tenants  in  our   self-storage
     facilities. For our United States operations, we have third-party insurance
     coverage  for  losses  from any  individual  event  that  exceeds a loss of
     $1,500,000,  to a maximum of  $9,000,000.  Estimated  uninsured  losses are
     accrued as ancillary costs of operations.

               While we believe that the amount of estimated accrued liabilities
     with respect to tenant claims,  property,  casualty,  workers compensation,
     and employee healthcare are adequate, the ultimate losses that are actually
     paid may be  different  than what we have  accrued.  The methods for making
     such estimates and for establishing the resulting liabilities are regularly
     reviewed.

               Included  in accrued and other  liabilities  is  $91,783,000  and
     $108,331,000  at September  30, 2007 and  December 31, 2006,  respectively,
     from our European operations.

     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

                                       10


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

     allocation of our goodwill to our business segments  (principally  Domestic
     Self-Storage) 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").

               As a result of the merger  with  Shurgard  (Note 3), we  acquired
     finite-lived  intangible assets comprised  primarily of tenant  intangibles
     valued at $565,341,000 and the "Shurgard"  tradename,  which we continue to
     use in Europe, valued at $18,824,000.  Our intangible assets were increased
     by $14,718,000  during the nine months ended  September 30, 2007 due to the
     impact of changes in exchange rates. During the nine months ended September
     30, 2007, our intangible assets increased $5,135,000 for storage tenants in
     place with respect to self-storage facility  acquisitions.  Also during the
     nine months ended  September  30, 2007,  our  intangible  assets  decreased
     $1,816,000  in connection  with the  deconsolidation  of our  investment in
     certain real estate entities (Note 5). Our finite-lived  intangible  assets
     are  reported  net  of  accumulated  amortization  of  $386,415,000  as  of
     September 30, 2007 ($175,944,000 as of December 31, 2006).

               The  tenant  intangible  assets  are  amortized  relative  to the
     expected benefit of the tenants in place to each period and relative to the
     benefit  of  the  below-market   leases.  The  Shurgard  tradename  has  an
     indefinite life and, accordingly, we do not amortize this asset but instead
     analyze it on an annual basis for impairment.

               Amortization expense of $53,320,000 and $210,471,000 was recorded
     for our finite-lived  intangible assets for the three and nine months ended
     September 30, 2007, respectively. The estimated annual amortization expense
     for our finite-lived intangible assets for the current year and each of the
     next four years ending December 31 is as follows:


        2007 (remainder of)                    $    37,757,000
        2008                                        79,838,000
        2009                                        27,409,000
        2010                                        16,418,000
        2011                                        12,644,000
        2012 and beyond                             29,278,000

     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 and amount
     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.

               During the second  quarter of 2007, a share  offering of Shurgard
     Europe, our European operations,  was initiated to be listed on Eurolist of
     EuronextTM  Brussels.  Due to adverse market conditions,  this offering was
     withdrawn on June 21, 2007.  There is no estimate as to when or if a future
     offering may occur.  We incurred  $9.5  million in expenses  related to the
     proposed offering of shares which is included in general and administrative
     expense for the nine months ended September 30, 2007.

                                       11


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

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

               The local  currency is the  functional  currency for our European
     subsidiaries. Assets and liabilities (other than for intercompany balances,
     which are discussed below) are translated at  end-of-period  exchange rates
     while revenues and expenses are translated at the average exchange rates in
     effect  during the  period.  The Euro was  translated  at an  end-of-period
     exchange rate of approximately  1.426 in U.S. dollars per Euro at September
     30, 2007 (1.319 at December 31,  2006).  Equity is translated at historical
     rates and the resulting cumulative translation  adjustments,  to the extent
     not  included in net income,  are  included as a component  of  accumulated
     other  comprehensive  income (loss) until the  translation  adjustments are
     realized.   Included  in  other  accumulated  comprehensive  income  was  a
     cumulative foreign currency  translation  adjustment gain of $63,685,000 at
     September 30, 2007 ($19,329,000 at December 31, 2006).

               With  respect  to   intercompany   balances  among  our  European
     subsidiaries  and  our  domestic   operations,   when  settlement  of  such
     intercompany  balances are not expected in the near term (generally  within
     one to two years), the impact of end-of-period exchange rate changes on the
     expected  settlement  amounts in U.S.  Dollars are reflected in accumulated
     other  comprehensive  income (loss).  However,  for any other  intercompany
     balances where settlement is expected in the foreseeable future, changes in
     exchange  rates are  recorded  in income in the  period in which the change
     occurs. For the three and nine months ended September 30, 2007, we recorded
     foreign   currency   exchange   gains  of  $30,384,000   and   $40,977,000,
     respectively,   on  our  condensed   consolidated   statements  of  income,
     principally  related to such  intercompany  balances.  Substantially all of
     such  intercompany  balances  are  expected  to settle  in the  foreseeable
     future.  At  September  30,  2007  and  December  31,  2006,  our  European
     subsidiaries  had  intercompany  balances  payable  to  our  United  States
     operations totaling $556,186,000 and $542,162,000, respectively.

     Accounting for Casualty Losses
     ------------------------------

               Our  policy is to record  casualty  losses or gains in the period
     the casualty occurs equal to the differential between (a) the book value of
     assets  destroyed  and (b)  insurance  proceeds,  if any, that we expect to
     receive in accordance  with our insurance  contracts.  Potential  insurance
     proceeds  that are  subject to  uncertainties,  such as  interpretation  of
     deductible  provisions  of the governing  agreements  or the  estimation of
     costs of restoration, are treated as contingent proceeds in accordance with
     Statement  of  Financial  Accounting  Standards  No. 5 ("SFAS 5"),  and not
     recorded until the uncertainties are satisfied. During the first quarter of
     2007,  we recorded a casualty gain totaling  $2,665,000,  representing  the
     realization  of such  contingent  proceeds  relating  to  hurricanes  which
     occurred in 2005.

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

               We have certain derivative financial  instruments held by our two
     joint  ventures in Europe,  including  interest  rate caps,  interest  rate
     swaps,  cross-currency swaps and foreign currency forward contracts.  These
     derivatives  were entered  into by the joint  ventures in order to mitigate
     currency and exchange rate  fluctuation  risk in  connection  with European
     borrowings, and are not for speculative or trading purposes.

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

               As of September 30, 2007, none of the derivatives were considered
     effective  hedges  because we believe it is not highly likely that the debt
     and the related  derivative  instruments will remain  outstanding for their
     entire contractual period.  Accordingly,  all changes in the fair values of
     the  derivatives  are  reflected in  earnings,  along with the related cash
     flows from these instruments,  under "Income from derivatives,  net" on our
     condensed consolidated statements of income.

                                       12



                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

     Other Comprehensive Income
     --------------------------

              Our comprehensive income is as follows (amounts in thousands):



                                                   For the Three Months Ended         For the Nine Months Ended
                                                         September 30,                      September 30,
                                                  -------------------------------   --------------------------------
                                                     2007             2006             2007              2006
                                                  ---------------  --------------   --------------   ---------------
                                                                                          
     Net income................................    $   152,766      $    81,181      $   289,648      $   324,259
     Accumulated  other  comprehensive   income
     (loss):
        Aggregate foreign currency  translation
          adjustments..........................         58,396          (11,269)          85,333          (11,269)
        Less:   foreign  currency   translation
          adjustments reflected in net income..        (30,384)               -          (40,977)               -
                                                  ---------------  --------------   --------------   ---------------
     Total comprehensive income................    $   180,778      $    69,912      $   334,004      $   312,990
                                                  ===============  ==============   ==============   ===============


               Other comprehensive income reflects our net income,  adjusted for
     any portion of currency  translation  adjustments  related to our  European
     subsidiaries  measured  from the  beginning  to the end of each  respective
     period, which have already been reflected in our net income.

     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 our facilities, which individually or in the
     aggregate would be material to our overall business,  financial  condition,
     or results of operations.

     Discontinued Operations
     -----------------------

               We segregate all of our disposed  components that have operations
     that  can be  distinguished  from  the  rest  of the  Company  and  will be
     eliminated  from  the  ongoing  operations  of the  Company  in a  disposal
     transaction. Discontinued operations principally consists of the historical
     operations  related  to  facilities  that were  closed and are no longer in
     operation  and  facilities  that  have  been  disposed  of  either  through
     condemnation by a local governmental  agency or sale. In the three and nine
     months ended September 30, 2007, loss from discontinued  operations totaled
     $1,409,000 and $3,238,000, respectively, as compared to net income totaling
     $1,925,000 and $1,558,000, respectively for the same periods in 2006.

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

               In computing net income allocated to our common shareholders,  we
     first allocate net income to our preferred shareholders. Distributions paid
     to the holders of our Cumulative  Preferred Shares totaling $60,333,000 and
     $176,424,000  for the three  and nine  months  ended  September  30,  2007,
     respectively,  and  $60,265,000  and  $159,256,000  for the  three and nine
     months ended September 30, 2006, respectively,  have been deducted from net
     income to arrive at net income allocable to our common shareholders.

               When  we  call  any  of  our  Cumulative   Preferred  Shares  for
     redemption,  we record an additional  allocation of income to our preferred

                                       13



                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

     shareholders  equal to the  excess of a) the cash  required  to redeem  the
     securities  over b) the "Book  Value" (the net  proceeds  from the original
     issuance of the securities) of the securities.  An additional allocation of
     $21,643,000  was recorded for the three and nine months ended September 30,
     2006.

               The remaining  income  allocated to our common  shareholders  has
     been  further  allocated  among our  regular  common  shares and our Equity
     Shares,  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 shares are determined  according to dividends  declared (or
     accumulated) and participation rights in undistributed earnings.  Under the
     two-class method, the Equity Shares, Series A, were allocated net income of
     $5,356,000  and  $16,068,000  for each of the three and nine  months  ended
     September  30,  2007 and  2006,  respectively.  Income of  $87,077,000  and
     $97,156,000  for the  three  and nine  months  ended  September  30,  2007,
     respectively,  and loss of $6,083,000  and income of  $127,292,000  for the
     three and nine months ended September 30, 2006, respectively, was allocated
     to the regular common shareholders.

               Basic net income per share is computed using the weighted average
     common shares  outstanding  (prior to the dilutive  impact of stock options
     and  restricted  share  units  outstanding).  Diluted net income per common
     share is computed  using the weighted  average  common  shares  outstanding
     (adjusted for the impact if dilutive, of stock options and restricted share
     units outstanding). Weighted average common shares excludes shares owned by
     the  Consolidated  Entities  as  described  in  Note  11  for  all  periods
     presented, as these common shares are eliminated in consolidation.

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

               The  Fair  Value  Option  for  Financial   Assets  and  Financial
               -----------------------------------------------------------------
               Liabilities
               -----------

               In February 2007, the Financial  Accounting  Standards Board (the
     "FASB")  issued SFAS No. 159, "The Fair Value Option for  Financial  Assets
     and  Financial  Liabilities,  including an amendment of FASB  Statement No.
     115" ("SFAS No. 159").  SFAS No. 159 provides  companies  with an option to
     report  selected  financial  assets  and  liabilities  at fair  value.  The
     standard establishes  presentation and disclosure  requirements designed to
     facilitate  comparisons between companies that choose different measurement
     attributes  for similar  types of assets and  liabilities.  SFAS No. 159 is
     effective as of the  beginning of an entity's  first fiscal year  beginning
     after  November 15, 2007.  We do not expect the adoption of SFAS No. 159 to
     have a material impact on our financial condition or results of operations.

               Accounting for Uncertainty in Income Taxes
               ------------------------------------------

               In July 2006, the FASB issued  Interpretation No. 48, "Accounting
     for  Uncertainty in Income Taxes" ("FIN 48").  This  interpretation,  among
     other  things,  creates a two step  approach for  evaluating  uncertain tax
     positions.  Recognition (step one) occurs when an enterprise concludes that
     a   tax   position,    based   solely   on   its   technical   merits,   is
     more-likely-than-not  to be sustained upon  examination.  Measurement (step
     two)  determines  the amount of benefit that  more-likely-than-not  will be
     realized  upon  settlement.  Derecognition  of  a  tax  position  that  was
     previously  recognized would occur when a company  subsequently  determines
     that a tax position no longer meets the  more-likely-than-not  threshold of
     being  sustained.  FIN 48  specifically  prohibits  the use of a  valuation
     allowance as a substitute for  derecognition  of tax positions,  and it has
     expanded  disclosure  requirements.  FIN 48 was  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.  We adopted the provisions of FIN 48 as of January 1,
     2007.  The  adoption  of FIN 48 had no  material  impact  on our  financial
     position,  operating  results  or  cash  flows.  See  Note  16 for  further
     discussion of our adoption of FIN 48.

                                       14


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

               Fair Value Measurement
               ----------------------

               In 2006, the FASB issued SFAS No. 157,  "Fair Value  Measurement"
     (SFAS No.  157).  SFAS No. 157  provides  guidance  for using fair value to
     measure assets and liabilities.  The standard expands required  disclosures
     about the extent to which companies  measure assets and liabilities at fair
     value,  the information  used to measure fair value, and the effect of fair
     value  measurements  on  earnings.  SFAS No.  157  applies  whenever  other
     standards  require (or permit) assets or liabilities to be measured at fair
     value.  SFAS  No.  157  does not  expand  the use of fair  value in any new
     circumstances.  SFAS No. 157 is effective for financial  statements  issued
     for fiscal years  beginning  after November 15, 2007,  and interim  periods
     within  those fiscal  years.  We do not expect the impact to be material to
     our financial condition or results of operations.

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

               On August 22,  2006,  we merged with  Shurgard,  a REIT which had
     interests  in 487  self-storage  facilities  in the  United  States and 160
     self-storage facilities in Europe.

               Shurgard  shareholders  received  0.82 shares of Public  Storage,
     Inc. common stock for each share of Shurgard common stock they owned. Total
     consideration for the merger was approximately $5,323,956,000.

               The  results  of  operations  of  the  facilities  acquired  from
     Shurgard have been included in our consolidated  financial statements since
     the merger date of August 22, 2006.

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

              Activity in real estate facilities is as follows:

                                       15



                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

                                                               Nine Months Ended
                                                              September 30, 2007
                                                              ------------------
                                                                  (Amounts in
                                                                  thousands)
Real estate facilities, at cost:
   Balance at December 31, 2006........................        $   11,261,865
   Newly developed facilities opened for operations....                71,125
   Acquisition of real estate facilities...............                67,652
   Deconsolidation of Entities (Note 2) ...............               (42,473)
   Disposition of real estate facilities...............                (1,239)
   Capital improvements................................                49,453
   Impact of foreign exchange rate changes.............               100,969
                                                              ------------------
   Balance at September 30, 2007.......................            11,507,352
                                                              ------------------
Accumulated depreciation:
   Balance at December 31, 2006........................            (1,754,362)
   Deconsolidation of Entities (Note 2) ...............                 1,064
   Additions during the year...........................              (279,420)
   Dispositions during the year........................                   368
   Impact of foreign exchange rate changes.............                (1,664)
                                                              ------------------
   Balance at September  30, 2007......................            (2,034,014)
                                                              ------------------
Construction in process:
   Balance at December 31, 2006........................                90,038
   Current development.................................                81,134
   Newly developed facilities opened for operations....               (71,125)
   Impact of foreign exchange rate changes.............                 3,610
                                                              ------------------
   Balance at September 30, 2007.......................               103,657
                                                              ------------------
Total real estate facilities at September 30, 2007.....        $    9,576,995
                                                              ==================

               During the nine months ended September 30, 2007, we completed six
     development  and  seven   expansion   projects  which  in  aggregate  added
     approximately  614,000 net rentable square feet of self-storage  space at a
     total cost of  $71,125,000.  In addition,  we acquired  seven  self-storage
     facilities  (511,000  net rentable  square feet) from third  parties for an
     aggregate cost of $72,787,000,  in cash;  $67,652,000 was allocated to real
     estate  facilities and $5,135,000 was allocated to intangibles,  based upon
     the estimated relative fair values of the land, buildings and intangibles.

               Construction  in  process  at  September  30,  2007  includes  39
     projects  in the  United  States  (1,711,000  net  rentable  square  feet),
     consisting of newly developed self-storage facilities,  conversion of space
     at  facilities  that was  previously  used for  containerized  storage  and
     expansions  to existing  self-storage  facilities,  with costs  incurred of
     $43,579,000 at September 30, 2007 and total  estimated costs to complete of
     $106,878,000.  In addition, we have 16 projects to develop new self-storage
     facilities in Europe  (793,000  aggregate net rentable  square feet),  with
     costs  incurred at September 30, 2007 of  $60,078,000  and total  estimated
     costs to complete of $84,184,000.

               We  capitalize  interest  incurred  on debt  during the course of
     construction of our self-storage  facilities.  Interest capitalized for the
     three  and  nine  months  ended  September  30,  2007  was  $1,297,000  and
     $3,011,000,  respectively,  as compared to $530,000 and  $1,599,000 for the
     same periods in 2006.

               During the nine months ended September 30, 2007, we have received
     proceeds for partial  condemnations  and other  disposals to certain of our
     self-storage  facilities for an aggregate of $2,008,000 and recorded a gain

                                       16


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

     of $1,137,000  as a result of these  transactions.  In connection  with the
     sale of limited  liability  partner interests in Shurgard Europe (Note 10),
     we also recorded a gain of  $1,193,000  for the three and nine months ended
     September 30, 2007,  representing the excess of the sales proceeds less the
     book  value  of the  interests  sold.  The  gain  is  reflected  in gain on
     disposition  of  real  estate  investments  on our  accompanying  condensed
     consolidated statements of income.

               Included in real estate facilities, accumulated depreciation, and
     construction  in  process is $1.6  billion  with  respect  to our  European
     operations at September 30, 2007.

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

               Interests in entities for periods that they are either VIE's that
     we are not the primary beneficiary of, or other non-VIE entities that we do
     not have a controlling  financial  interest in, are accounted for using the
     equity method of accounting. At September 30, 2007, our investments in real
     estate  entities  consist  of  ownership  interests  in the  Unconsolidated
     Entities.

               For the  three and nine  months  ended  September  30,  2007,  we
     recognized  earnings  from  our  investments  in real  estate  entities  of
     $3,424,000  and  $10,183,000,  respectively,  as compared to $2,618,000 and
     $9,208,000 for the same periods in 2006.

               We  received  cash  distributions  from our  investments  in real
     estate  entities for the nine months ended  September 30, 2007 and 2006, of
     $17,185,000 and $15,049,000, respectively.

               During the nine months ended  September 30, 2007, our investments
     in real estates entities increased  $23,079,000 due to the  deconsolidation
     of certain  entities we had acquired an interest in, in connection with the
     merger with Shurgard. See Note 2 for further information.

               The  following  table sets forth our  investments  in real estate
     entities at September  30, 2007 and  December  31, 2006,  and our equity in
     earnings  of real  estate  entities  for the  three and nine  months  ended
     September 30, 2007 and 2006 (amounts in thousands):



                                                                    Equity in Earnings of Real      Equity in Earnings of Real
                                   Investments in Real Estate      Estate Entities for the Three   Estate Entities for the Nine
                                          Entities at               Months Ended Septembe 30,       Months Ended September 30,
                                --------------------------------  ------------------------------  -----------------------------
                                 September 30,     December 31,
                                     2007              2006            2007           2006            2007           2006
                                ---------------    -------------- --------------- --------------  -------------   -------------
                                                                                                
PSB..........................   $   277,049        $     283,700    $     2,522    $     2,018    $     8,236     $     7,634
Other Investments............        40,933               18,205            902            600          1,947           1,574
                                ---------------    -------------- --------------- --------------  -------------   -------------
  Total......................   $   317,982        $     301,905    $     3,424    $     2,618    $    10,183     $     9,208
                                ===============    ============== =============== ==============  =============   =============


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

               PS Business  Parks,  Inc. is a REIT traded on the American  Stock
     Exchange, which controls an operating partnership  (collectively,  the REIT
     and the  operating  partnership  are  referred to as "PSB").  We have a 44%
     common equity  interest in PSB as of September 30, 2007. This common equity
     interest is comprised of our ownership of 5,418,273  shares of PSB's common
     stock and 7,305,355 limited partnership units in the operating  partnership
     at both September 30, 2007 and December 31, 2006; these limited partnership
     units are convertible at our option,  subject to certain  conditions,  on a
     one-for-one  basis into PSB common  stock.  Based upon the closing price at
     September 30, 2007 ($56.85 per share of PSB common  stock),  the shares and
     units had a market value of  approximately  $723.3 million as compared to a
     book value of $277.0 million.

                                       17


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

               At September 30, 2007, PSB owned  approximately  19.6 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 selected financial  information of
     PSB;  the amounts  represent  100% of PSB's  balances  and not our pro-rata
     share.



                                                                2007              2006
                                                           ----------------- -----------------
                                                                (Amounts in thousands)
 For the nine months ended September 30,
                                                                        
   Total operating revenue..............................   $      201,471     $      180,050
   Costs of operations and other operating expenses.....          (68,603)           (60,618)
   Other income and expense, net........................            1,013              3,799
   Depreciation and amortization........................          (71,841)           (63,720)
   Discontinued operations..............................                -              1,643
   Minority interest....................................           (9,888)           (13,450)
                                                           ----------------- -----------------
     Net income.........................................   $       52,152     $       47,704
                                                           ================= =================






                                                           At September 30,    At December 31,
                                                                2007              2006
                                                           ----------------- -----------------
                                                                (Amounts in thousands)

                                                                        
   Total assets (primarily real estate).................   $    1,549,951     $    1,462,864
   Total debt...........................................           61,064             67,048
   Preferred equity and preferred minority interests....          811,000            705,250
   Common equity and common minority interests..........          631,199            648,172



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

               Other investments include an aggregate common equity ownership of
     approximately   29%  in  a)  12  entities  that  own  an  aggregate  of  33
     self-storage  facilities that we held on a consistent basis for each of the
     three and nine months ended September 30, 2007 and 2006, respectively,  and
     b)  entities  owning 11  self-storage  facilities  which we  deconsolidated
     effective May 24, 2007 as described in Note 2.

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

                                       18


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

                                             2007           2006
                                         -------------   -----------
                                            (Amounts in thousands)
 For the nine months ended September
     30,
 Total revenue........................   $     17,493    $   17,209
 Cost of operations and other expenses         (7,908)       (6,929)
 Depreciation and amortization........         (2,210)       (2,272)
                                         -------------   -----------
     Net income.......................   $      7,375    $    8,008
                                         =============   ===========

                                        At September 30,  At December 31,
                                              2007             2006
                                       -----------------  ---------------
                                               (Amounts in thousands)

 Total assets (primarily storage
     facilities)......................   $     73,042    $   73,031
 Total liabilities....................         21,205        21,112
 Total Partners' equity...............         51,837        51,919

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

               On December  27, 2006,  we entered into a $300 million  unsecured
     short-term credit agreement (the "Bridge Loan") with a commercial bank that
     matured April 1, 2007.  Pursuant to the credit agreement,  we borrowed $300
     million at an initial  interest rate of LIBOR plus 0.30% (5.63% at December
     31, 2006).  At December 31, 2006,  our  outstanding  borrowings  under this
     facility totaled $300 million.  On January 10, 2007,  borrowings under this
     facility were repaid in full and the Bridge Loan terminated.

               On March 27, 2007, we entered into a five-year  revolving  credit
     agreement (the "Credit  Agreement") with an aggregate limit with respect to
     borrowings  and  letters  of  credit of $300  million,  and bears an annual
     interest rate ranging from the London Interbank Offered Rate ("LIBOR") plus
     0.35% to LIBOR plus 1.00% depending on our credit ratings (LIBOR plus 0.35%
     at September  30,  2007).  In addition,  we are required to pay a quarterly
     facility fee ranging  from 0.10% per annum to 0.25% per annum  depending on
     our credit  ratings  (0.10% per annum at  September  30,  2007).  We had no
     outstanding  borrowings  on our  revolving  line of credit at September 30,
     2007 or at November 8, 2007.

               The  Credit  Agreement  includes  various  covenants,   the  more
     significant  of which  require  us to (i)  maintain  a  leverage  ratio (as
     defined  therein) of less than 0.55 to 1.00,  (ii)  maintain  certain fixed
     charge and interest  coverage ratios (as defined  therein) of not less than
     1.5 to 1.0 and 1.75 to 1.0,  respectively,  and  (iii)  maintain  a minimum
     total shareholders' equity (as defined therein). We were in compliance with
     all covenants of the Credit Agreement at September 30, 2007.

               At September 30, 2007, we had undrawn  standby letters of credit,
     which reduce our borrowing capability with respect to our line of credit by
     the amount of the letters of credit,  totaling $20,408,000  ($21,068,000 at
     December 31, 2006).  The  beneficiaries  of these standby letters of credit
     were primarily  certain  insurance  companies  associated  with our captive
     insurance and tenant re-insurance activities.

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

               The carrying  amounts of our notes  payable at September 30, 2007
     and  December  31,  2006  consist  of  the  following  (dollar  amounts  in
     thousands):

                                       19



                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)




                                                                               September 30,     December 31,
                                                                                    2007             2006
                                                                               --------------   ---------------
  Domestic Unsecured Notes Payable:

  5.875% effective and stated note rate, interest only and payable
                                                                                            
     semi-annually, matures in March 2013................................      $     200,000      $    200,000
  5.73% effective rate, 7.75% stated note rate, interest only and payable
     semi-annually, matures in February 2011 (carrying amount includes
     $11,877 of unamortized premium at September 30, 2007) ..............            211,877          214,033
  6.53% effective rate, 7.625% stated note rate, interest only and payable
     semi-annually, due April 2007.......................................                  -           50,119
  7.66% senior unsecured note due January 2007...........................                  -           11,200

  Domestic Mortgage Notes:

  5.59% average effective rate fixed rate mortgage notes payable, secured by
     53 real estate facilities with a net book value of $410,853 at
     September 30, 2007 and stated note rates between 4.95% and 7.76%, due
     between October 2007 and August 2015 (carrying amount includes $3,392
     of unamortized premium at September 30, 2007) ......................            145,021          166,737
  Variable rate mortgage notes payable...................................                  -            8,428
  5.29% average effective rate fixed rate mortgage notes payable,  secured by
     33  real  estate  facilities  with  a net  book  value  of  $187,678  at
     September  30,  2007,   stated  note  rates  between  5.40%  and  8.75%,
     principal  and interest  payable  monthly,  due at varying dates between
     October 2009 and September  2028  (carrying  amount  includes  $3,771 of
     unamortized premium at September 30, 2007)..........................            87,834            91,489

  European Secured Notes Payable:

  (euro)325 million notes payable due  originally in 2011,  but prepaid in
     January 2007........................................................                 -           428,760
  First Shurgard  credit  agreement,  due in 2008,  secured by 38 real estate
     facilities  with a net book value of  $282,300  at  September  30,  2007
     (interest  rate of EURIBOR + 2.25%,  6.187%  average for the nine months
     ended  September  30,  2007,  6.659%  rate at  September  30, 2007 which
     approximate market rates)...........................................           185,111           172,832
  Second Shurgard credit agreement, due in 2009, secured by 26 real estate
     facilities with a net book value of $199,200 at September 30, 2007
     (interest rate of EURIBOR + 2.25%, 6.187% average for the nine months
     ended September 30, 2007, 6.659% rate at September 30, 2007 which
     approximate market rates)...........................................           167,570           116,086
  Liability under Capital Leases.........................................             7,094             6,600
                                                                               --------------   ---------------
         Total notes payable.............................................      $  1,004,507       $ 1,466,284
                                                                               ==============   ===============



               The 5.875% and 5.73%  effective  rate  domestic  unsecured  notes
     payable were recorded at their estimated fair value upon  assumption  based
     upon estimated market rates for debt with similar terms and ratings.  As of
     September   30,  2007  the   aggregate   fair  value  of  these  notes  was
     approximately  $415,344,000  as compared to the actual assumed  balances of
     $400,000,000.  This initial  premium of $15,344,000 is being amortized over
     the remaining term of the notes using the effective interest method.

                                       20


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

               The domestic  unsecured  notes  payable have various  restrictive
     covenants, the more significant of which require us to (i) maintain a ratio
     of debt to total  assets (as  defined  therein)  of less than 0.60 to 1.00,
     (ii) maintain a ratio of secured debt to total assets (as defined  therein)
     of less than 0.40 to 1.00, (iii) maintain a debt service coverage ratio (as
     defined therein) of greater than 1.50 to 1.00, and (iv) maintain a ratio of
     unencumbered  assets to unsecured debt (as defined therein) of greater than
     150%, all of which have been met at September 30, 2007.

               The 5.59% average  effective  rate fixed rate  domestic  mortgage
     notes were recorded at their  estimated fair value based upon the estimated
     market  rate upon  assumption  of  approximately  5.59%,  an  aggregate  of
     approximately $184,592,000 as compared to the actual assumed balances of an
     aggregate of  $179,827,000.  This initial  premium of  $4,765,000  is being
     amortized over the remaining term of the mortgage notes using the effective
     interest  method.  These  mortgage  notes  require  interest and  principal
     payments to be paid monthly and have various restrictive covenants,  all of
     which we believe have been met at September 30, 2007.

               On   January   2,  2007,   we  repaid   the   (euro)325   million
     collateralized  European notes that were otherwise payable in 2011. We also
     terminated the related European currency and interest rate hedges.

               First Shurgard and Second Shurgard, joint venture partnerships in
     which we have a 20% interest,  (see Note 10) have senior credit  agreements
     denominated  in euros to borrow,  in  aggregate,  up to  (euro)271  million
     ($386.5  million as of September 30, 2007).  As of September 30, 2007,  the
     available  amounts under those credit  facilities  were, in the  aggregate,
     (euro)22.5 million ($32.1 million).  Our draws under the First Shurgard and
     Second  Shurgard  credit  facilities  can be limited if the  completion  of
     projects is not timely and if we have  certain  cost  overruns.  The credit
     facilities  also  require  us to  maintain  a maximum  loan to value of the
     collateral  ratio and a minimum debt  service  ratio.  As of September  30,
     2007, we were in compliance with these financial covenants.

               At September 30, 2007,  approximate  principal  maturities of our
     notes payable are as follows (amounts in thousands):



                                     Domestic         Domestic                       Liabilities
                                    Unsecured      Mortgage Notes      European          under
                                  Notes Payable        Payable      Notes Payable   Capital Leases    Total
                                ----------------  ---------------  ---------------  --------------  -------------
                                                                                     
2007 (remainder of)..........      $        808      $    2,097       $     856       $     18      $      3,779
2008.........................             3,404          20,505          184,256           112           208,277
2009.........................             3,605           8,707          167,569           123           180,004
2010.........................             3,817          10,584                -            85            14,486
2011.........................           200,243          27,355                -           782           228,380
Thereafter...................           200,000         163,607                -         5,974           369,581
                                ----------------  ---------------  ---------------  --------------  -------------
                                   $    411,877      $  232,855       $  352,681      $  7,094      $  1,004,507
                                ================  ===============  ===============  ==============  =============
Weighted average effective rate            5.8%            5.5%             6.2%          9.9%              5.9%
                                ================  ===============  ===============  ==============  =============



               We incurred  interest  expense with respect to our notes payable,
     capital  leases,   debt  to  joint  venture  partner  and  line  of  credit
     aggregating $51,783,000 and $14,351,000 for the nine months ended September
     30,  2007  and  2006,   respectively.   These  amounts  were  comprised  of
     $55,375,000 and $15,189,000 in cash for the nine months ended September 30,
     2007 and 2006,  respectively,  less $3,592,000 and $838,000 in amortization
     of premium net of increase in debt to Joint  Venture  Partner  described in
     Note 8, respectively.

               The net book value of the  properties  under  capital  leases was
     $33,451,000  as  of  September  30,  2007,  which  is  net  of  accumulated
     depreciation of $1,241,000.

                                       21


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

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

               On December 31, 2004, we sold seven self-storage facilities to an
     unconsolidated  affiliated  joint venture for  $22,993,000.  On January 14,
     2005, we sold an 86.7% interest in three additional self-storage facilities
     to the joint venture for an aggregate amount of $27,424,000.  Our partner's
     combined  equity  contribution  with  respect  to  these  transactions  was
     $35,292,000.  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  in  these
     facilities as, in substance,  debt  financing.  Accordingly,  our partner's
     investment with respect to these facilities is accounted for as a liability
     on our  accompanying  consolidated  balance sheets.  Our partner's share of
     operations  with  respect to these  facilities  has been  accounted  for as
     interest expense on our accompanying consolidated statements of income.

               The  outstanding  balances of $37,395,000 and $37,258,000 due the
     joint  venture  partner as of  September  30, 2007 and  December  31, 2006,
     respectively, approximate the fair value of our partner's interest in these
     facilities as of each respective  date. On a quarterly basis, we review the
     fair value of this  liability,  and to the extent  fair value  exceeds  the
     carrying  value of the  liability,  an  adjustment  is made to increase the
     liability  to fair value,  and to  increase  other  assets,  with the other
     assets  amortized over the remaining  period term of the joint venture.  We
     increased  the note  balance by  $1,386,000  during 2006 as a result of our
     periodic review of fair value.

               A total of  $2,375,000  and  $2,276,000  was recorded as interest
     expense on our condensed consolidated  statements of income with respect to
     our Debt to Joint Venture  Partner  during the nine months ended  September
     30, 2007 and 2006, respectively,  representing our partner's pro rata share
     of net earnings with respect to the  properties we sold to the  Acquisition
     Joint Venture (an 8.5% return on their  investment).  This interest expense
     was comprised of a total of  $2,239,000  and  $2,146,000  paid to our joint
     venture  partner (an 8.0% return payable  currently in accordance  with the
     partnership  agreement) during the nine months ended September 30, 2007 and
     2006,  respectively,  and increases in the Debt to Joint Venture Partner of
     $136,000  and $130,000  for the nine months  ended  September  30, 2007 and
     2006, 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.   Derivative Financial Instruments
     --------------------------------

               As described in Note 2, under Derivative  Financial  Instruments,
     we report  these  derivative  financial  instruments  at fair  value on our
     consolidated  balance  sheet and changes in fair values for the nine months
     ended September 30, 2007, have been recognized in earnings.  The respective
     balances of these  financial  instruments  are included in other assets and
     accrued and other liabilities as follows:

                                                    September 30,   December 31,
                                                        2007            2006
                                                    --------------  ------------
                                                      (Amounts in thousands)
Assets:
   Interest rate contracts.........................    $   5,660    $  11,810
                                                    ==============  ============
Liabilities:
   Interest rate contracts.........................    $       -    $  (4,162)
   Foreign currency exchange contracts.............       (1,146)      (7,837)
                                                    --------------  ------------
                                                       $  (1,146)   $ (11,999)
                                                    ==============  ============

               For the nine months ended  September  30,  2007,  net income from
     derivatives of $1,126,000 was comprised of a change in value of the related
     instruments  representing  gain of  $1,205,000,  offset by  $79,000  in net
     payments incurred during the period under the underlying instruments.

                                       22


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

               On January 2, 2007,  in  connection  with our  prepayment  of the
     (euro)325  million  collateralized  notes at our  European  operations,  we
     terminated the related European currency and interest rate hedges.

10.  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.

     Preferred Partnership Interests

               The following table  summarizes the preferred  partnership  units
     outstanding at September 30, 2007 and December 31, 2006:



                                                           September 30, 2007          December 31, 2006
                    Earliest Redemption
                       Date or Dates      Distribution     Units       Carrying       Units        Carrying
      Series              Redeemed            Rate      Outstanding     Amount     Outstanding      Amount
-----------------   --------------------  ------------  -----------   ------------ -----------    -----------
                                                                       (Amounts in thousands)
                                                                                
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       4,000         100,000
                                                        ------------  ------------  -----------   -----------
Total............                                           13,000    $   325,000      13,000     $   325,000
                                                        ============  ============  ===========   ===========


               Income  allocated to the  preferred  minority  interests  totaled
     $16,209,000  and  $13,652,000  for the nine months ended September 30, 2007
     and 2006, respectively, comprised of distributions paid.

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

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

               Income is allocated to the  minority  interests  based upon their
     pro rata interest in the operating  results of the  Consolidated  Entities.
     The following tables set forth the minority interests at September 30, 2007
     and December 31, 2006 as well as the income allocated to minority interests
     for the  three  and nine  months  ended  September  30,  2007 and 2006 with
     respect to the other partnership interests (amounts in thousands):

                                       23


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

                                          Minority Interest at
                                    --------------------------------
                                    September 30,     December 31,
           Description                 2007                2006
----------------------------------  ---------------  ---------------
European joint ventures...........    $   140,893      $   140,034
European investors................          3,607                -
Convertible Partnership Units.....          5,494            5,710
Other consolidated partnerships...         31,778           35,286
                                    ---------------  ---------------
Total other partnership interests.    $   181,772      $   181,030
                                    ===============  ===============




                                          Minority Interests               Minority Interests
                                           in Income (Loss)                 in Income (Loss)
                                      for the Three Months Ended         for the Nine Months Ended
                                   --------------------------------   --------------------------------
                                   September 30,     September 30,    September 30,     September 30,
           Description                 2007               2006             2007              2006
--------------------------------   ---------------  ---------------   ---------------   --------------
                                                                             
European joint ventures..........    $    (1,456)     $    (1,279)     $    (7,275)      $    (1,279)
European investors...............           (109)               -             (109)                -
Convertible Partnership Units....            121              120              132               356
Other consolidated partnerships..          4,345            4,346           12,654            11,748
                                   ---------------  ---------------   ---------------   --------------
Total other partnership interests    $     2,901      $     3,187      $     5,402       $    10,825
                                   ===============  ===============   ===============   ==============


               Distributions  paid to minority  interests  for the three  months
     ended   September  30,  2007  and  2006  were  $5,471,000  and  $3,689,000,
     respectively,  and for the nine months  ended  September  30, 2007 and 2006
     were  $15,828,000  and  $11,037,000,   respectively.   Minority   interests
     increased  $8,134,000  as a  result  of  the  impact  of  foreign  currency
     translation in the nine months ended September 30, 2007.

                                       24


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

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

               Through the merger with Shurgard,  we acquired an interest in two
     joint venture  entities:  First Shurgard SPRI ("First  Shurgard") formed in
     January 2003 and Second  Shurgard  SPRL ("Second  Shurgard")  formed in May
     2004.  Those  joint  ventures  were  expected  to  develop or acquire up to
     approximately  75  storage  facilities  in Europe.  Through a  wholly-owned
     subsidiary,  we have a 20%  interest  in each of  these  ventures.  We have
     determined  that First Shurgard and Second Shurgard are each VIEs, and that
     we are the primary  beneficiary.  Accordingly,  First  Shurgard  and Second
     Shurgard have been consolidated in our consolidated  financial  statements.
     At September  30, 2007,  First  Shurgard and Second  Shurgard had aggregate
     total assets of $559.4 million ($501.0 million at December 31, 2006), total
     liabilities of $380.4 million  ($320.9  million at December 31, 2006),  and
     credit facilities  collateralized by assets with a net book value of $481.5
     million.  At September 30, 2007,  First  Shurgard's  and Second  Shurgard's
     creditors  had no  recourse  to the  general  credit of Public  Storage  or
     Shurgard Europe other than a commitment, to subscribe for up to $20 million
     and an additional $10.7 million as of September 30, 2007 in preferred bonds
     in order for First  Shurgard  to fulfill its  obligations  under its senior
     credit agreement. We have an option to put 80% of the bonds issued by First
     Shurgard to  Crescent  Euro Self  Storage  Investments,  Shurgard  Europe's
     partner in the joint venture.

               On September 5, 2006, we informed the joint  venture  partners of
     First  Shurgard  and Second  Shurgard of our  intention  to purchase  their
     interests  in First  Shurgard  and Second  Shurgard,  pursuant  to an "exit
     procedure"  that we believe is provided for in the  respective  agreements.
     The exit procedure can, in certain  circumstances,  result in a third party
     acquiring the facilities owned by First and Second Shurgard,  including our
     interest in these facilities.  Our joint venture partners currently contest
     whether we have the right to purchase their interests under this procedure.
     On January 17, 2007, we filed an arbitration  action with our joint venture
     partner related to our intention to terminate the joint venture early.  See
     Note 15 for further discussion of the arbitration proceedings.

               European Investors
               ------------------

               In the second quarter of 2007,  one of our European  subsidiaries
     sold limited  liability  partner  interests  ("LLP  Interests")  it held in
     Shurgard Self-Storage SCA ("Shurgard Europe"),  also an indirect subsidiary
     of Public Storage, to various officers of the Company, other than our chief
     executive officer. The aggregate proceeds of the sale were $4,909,000.  The
     sale price for the LLP  Interests  was the net asset value per LLP Interest
     using,  among other items,  information  provided by an  independent  third
     party  appraisal firm of the net asset value of Shurgard Europe as of March
     31, 2007.  The Company has a right to repurchase the LLP Interests upon (1)
     upon a purchaser's  termination of employment or (2) for any reason,  on or
     after May 14, 2008.  The  repurchase  price is set at the lesser of (1) the
     then net asset value per share or (2) the  original  purchase  price with a
     10%  compounded  annual  return.  In connection  with the sale of these LLP
     Interests,  we  recorded a gain of  $1,193,000  for the nine  months  ended
     September 30, 2007,  representing the excess of the sales proceeds over the
     book value of the LLP  Interests  sold.  The gain is  reflected  in gain on
     disposition  of  real  estate  investments  on our  accompanying  condensed
     consolidated statements of income. The investment of these various officers
     is included  in  minority  interest - other  partnership  interests  on our
     accompanying condensed consolidated balance sheet at September 30, 2007 and
     their pro rata share of the  earnings of Shurgard  Europe are  reflected in
     minority  interest  in  income  -  other   partnership   interests  on  our
     accompanying condensed consolidated  statements of income for the three and
     nine months ended September 30, 2007.

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

               At  September  30,  2007  and  December  31,  2006,  one  of  the
     Consolidated  Entities had approximately  231,978  convertible  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 common shares of
     the Company at the option of the unit-holder.  Minority  interest in income
     with respect to 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.


                                       25


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

               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.

               In connection with the merger with Shurgard,  we obtained partial
     equity  interests  in certain  joint  ventures.  Following  the merger with
     Shurgard,  in 2006 we acquired the  minority  interests in certain of these
     joint ventures, for an aggregate of approximately $62,300,000 in cash. As a
     result of these transactions, we obtained the remaining interest in a total
     of 68 self-storage facilities. This acquisition was recorded as a reduction
     in minority interest totaling $12,177,000,  with the remainder allocated to
     real estate ($50,123,000).

               In May 2007 we discontinued the consolidation of certain of these
     joint  ventures due to our losing control of these  entities.  As a result,
     minority  interest in income with  respect to these joint  ventures  ceased
     effective May 2007, and $682,000 in minority  interest was eliminated.  See
     Note 2 for further information.

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

               At  September   30,  2007  and  December  31,  2006,   the  Other
     Consolidated  Partnerships  reflect common equity  interests that we do not
     own in 33 entities owning an aggregate of 117 self-storage facilities.

               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 below, we implemented SFAS
     No. 150 on July 1, 2003,  and the adoption  had no impact on our  financial
     statements.

               The  provisions of SFAS No. 150 indicate that the Other  Minority
     Interests  would  have  to  be  treated  as  a  liability,   because  these
     partnerships have termination dates that cannot be unilaterally extended by
     us and,  upon  termination,  the net  assets  of  these  entities  would be
     liquidated  and paid to the minority  interest  and us based upon  relative
     ownership  interests.  However,  on October 29,  2003,  the FASB decided to
     defer  indefinitely a portion of the  implementation of SFAS No. 150, which
     thereby  deferred our  requirement  to recognize  these  minority  interest
     liabilities.  We  estimate  that the fair  value of the  Other  Partnership
     Interests is approximately  $450 million at December 31, 2006 and September
     30, 2007.

                                       26


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

11.  Shareholders' Equity
     --------------------

               Cumulative Preferred Shares
               ---------------------------

               At September 30, 2007 and December 31, 2006, we had the following
     series of Cumulative Preferred Shares of beneficial interest outstanding:



                                                           At September 30, 2007          At December 31, 2006
                           Earliest                    -----------------------------   -----------------------------
                          Redemption      Dividend        Shares        Carrying         Shares         Carrying
       Series                Date           Rate        Outstanding      Amount        Outstanding       Amount
-------------------     -------------   -------------  --------------  --------------  --------------  -------------
                                                                      (Dollar amounts in thousands)
                                                                                  
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           4,200        105,000
Series I                    5/3/11            7.250%          20,700        517,500          20,700        517,500
Series K                    8/8/11            7.250%          18,400        460,000          18,400        460,000
Series L                  10/20/11            6.750%           9,200        230,000           9,200        230,000
Series M                    1/9/12            6.625%          20,000        500,000               -              -
Series N                    7/2/12            7.000%           6,900        172,500               -              -
                                                       --------------  --------------  --------------  -------------
     Total Cumulative Preferred Shares                     1,739,500    $ 3,527,500       1,712,600    $ 2,855,000
                                                       ==============  ==============  ==============  =============


               The  holders of our  Cumulative  Preferred  Shares  have  general
     preference rights with respect to liquidation and quarterly  distributions.
     Holders of the preferred  shares,  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  shares  (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 until events of default have been cured.  At
     September  30, 2007,  there were no dividends in arrears and the Debt Ratio
     was 8.2%.

               Upon issuance of our  Cumulative  Preferred  Shares of beneficial
     interest,  we classify the  liquidation  value as  preferred  equity on our
     condensed  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.

               On January 9, 2007, we issued 20,000 depositary shares, with each
     depositary share  representing  1/1,000 of a share of our 6.625% Cumulative
     Preferred Shares,  Series M. The offering resulted in $500,000,000 of gross
     proceeds.

                                       27


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

               On July 2,  2007,  we issued  6,900,000  depositary  shares  each
     representing 1/1,000 of our 7.000% Cumulative  Preferred Shares,  Series N,
     for gross proceeds of approximately $172,500,000.

               During  2006,  we  issued  four  series of  Cumulative  Preferred
     Shares:  Series  H  -  issued  January  19,  2006,  net  proceeds  totaling
     $101,492,000,  Series  I -  issued  May  3,  2006,  net  proceeds  totaling
     $501,601,000,  Series K - issued  August 8,  2006,  net  proceeds  totaling
     $445,852,000 and Series L - issued October 20, 2006, net proceeds  totaling
     $223,623,000.

               During  2006,  we redeemed  our Series R and Series S  Cumulative
     Preferred Shares at par value plus accrued dividends.  In December 2006, we
     called  for  redemption  our  Series T and  Series U  Cumulative  Preferred
     Shares,  at par. The aggregated  redemption  value of $302,150,000 of these
     two series was classified as a liability at December 31, 2006 and repaid in
     the nine months ended September 30, 2007.

               Equity Shares
               -------------

               The Company is authorized to issue  100,000,000  Equity Shares of
     beneficial   interest.   The  Articles  of  Amendment  and  Restatement  of
     Declaration of Trust provide that the Equity Shares may be issued from time
     to time in one or more series and give our Board broad authority to fix the
     dividend and distribution rights,  conversion and voting rights, redemption
     provisions and liquidation rights of each series of Equity Shares.

               Equity Shares, Series A
               -----------------------

               At September  30, 2007 and December  31, 2006,  we had  8,744,193
     depositary  shares  outstanding,  each  representing  1/1,000  of an Equity
     Share,  Series A ("Equity  Shares A").  The Equity  Shares A rank on parity
     with our common shares and junior to the Cumulative  Preferred  Shares with
     respect to general  preference  rights and have 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  shares  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  representing the
     Equity  Shares A 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,
     each of the  depositary  shares  will be  convertible  at the option of the
     shareholder  into .956 common shares.  The depositary  shares are otherwise
     not convertible into common shares.  Holders of depositary shares vote as a
     single class with holders of our common shares on shareholder  matters, but
     the  depositary  shares  have the  equivalent  of  one-tenth  of a vote per
     depositary share.

               Equity Shares, Series AAA
               -------------------------

               In November  1999,  we sold  $100,000,000  (4,289,544  shares) of
     Equity  Shares,  Series  AAA  ("Equity  Shares  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  Shares,   Series  AAA  and  related  dividends  are  eliminated  in
     consolidation.

               Common Shares
               -------------

               During  the nine  months  ended  September  30,  2007,  we issued
     258,413 common shares in connection with employee stock-based compensation.

                                       28


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

               At September 30, 2007 and December 31, 2006,  certain entities we
     consolidate  owned  1,146,207  common shares.  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.

               Dividends
               ---------

               The following table summarizes dividends declared and paid during
     the nine months ended September 30, 2007:

                                      Distributions Per Share      Total
                                       or Depositary Share      Distributions
                                       ---------------------  ---------------
Preferred Shares:
Series T..............................       $0.090           $     548,000
Series U..............................       $0.259               1,557,000
Series V..............................       $1.406               9,703,000
Series W..............................       $1.219               6,459,000
Series X..............................       $1.209               5,805,000
Series Y..............................       $1.284               2,055,000
Series Z..............................       $1.172               5,274,000
Series A..............................       $1.148               5,283,000
Series B..............................       $1.336               5,811,000
Series C..............................       $1.238               5,694,000
Series D..............................       $1.159               6,258,000
Series E..............................       $1.266               7,152,000
Series F..............................       $1.209              12,093,000
Series G..............................       $1.313               5,250,000
Series H..............................       $1.303               5,473,000
Series I..............................       $1.359              28,139,000
Series K..............................       $1.359              25,012,000
Series L..............................       $1.266              11,644,000
Series M..............................       $1.210              24,200,000
Series N..............................       $0.437               3,014,000
                                                              ---------------
                                                                176,424,000
Common Shares:
Equity Shares, Series A...............       $1.838              16,068,000
Common ...............................       $1.500             255,022,000
                                                              ---------------
   Total dividends....................                        $ 447,514,000
                                                              ===============

               The dividend rate on our common shares was $0.50 per common share
     and $1.50 per common  share for the three and nine months  ended  September
     30,  2007.  The  dividend  rate  on the  Equity  Share  A was  $0.6125  per
     depositary  share and $1.8375 per  depositary  share for the three and nine
     months ended September 30, 2007, respectively.


12.  Segment Information
     -------------------

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

               Our reportable segments reflect significant  operating activities
     that are  evaluated  separately by  management,  comprised of the following
     segments which are organized based upon their operating characteristics.

                                       29


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

               Our domestic self-storage segment comprises the direct ownership,
     development,  and operation of traditional  storage facilities in the U.S.,
     and the  ownership  of  equity  interests  in  entities  that  own  storage
     properties  in the U.S. Our European  self-storage  segment  comprises  our
     self-storage and associated  activities owned by affiliated  entities based
     in Europe.

               Our domestic  ancillary  operating segment  represents all of our
     other  segments,  which are reported as a group,  including with respect to
     our domestic operations (i) containerized storage, (ii) commercial property
     operations,  which reflects our interest in the ownership,  operation,  and
     management of commercial  properties both directly and through our interest
     in PSB (iii) the reinsurance of policies  against losses to goods stored by
     tenants in our  self-storage  facilities,  (iv) sale of  merchandise at our
     self-storage  facilities,  (v) truck rentals at our self-storage facilities
     and  (vi)  management  of  facilities  owned  by  third-party   owners  and
     facilities owned by the Unconsolidated Entities.

               Measurement  of  Segment  Income  (Loss)  and  Segment  Assets  -
               -----------------------------------------------------------------
               Domestic Self-Storage and Domestic Ancillary
               --------------------------------------------

               The domestic  self-storage  and domestic  ancillary  segments are
     evaluated by management  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,  and corporate general and  administrative
     expense. 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 these  segments  because
     management  does not utilize them to evaluate the results of  operations of
     each segment.  In addition,  there is no presentation of segment assets for
     these  other  segments  because  total  assets  are not  considered  in the
     evaluation of these segments.

               Measurement  of  Segment  Income  (Loss)  and  Segment  Assets  -
               -----------------------------------------------------------------
               European Operations
               -------------------

               The European segment operations are primarily  independent of the
     other segments, with separate management,  debt, financing activities,  and
     capital  allocation  decisions.  The operations of our European segment are
     included  in our  financial  statements  effective  August 23, 2006 when we
     completed the merger with Shurgard.  Accordingly, this segment is evaluated
     by  management  as a  stand-alone  business  unit and the European  segment
     presentation includes all of the revenues, expenses, and operations of this
     business  unit,  including  interest  expense  paid to outside  parties and
     general and administrative  expense.  Assets of our European  operations at
     September 30, 2007,  include real estate with a book value of approximately
     $1.6 billion ($1.4 billion at December 31, 2006),  intangibles  with a book
     value of  approximately  $110 million  ($167 million at December 31, 2006),
     and other  assets  with a book  value of  approximately  $61  million  ($65
     million at December 31, 2006).  At September 30, 2007,  liabilities  of our
     European  operations include;  intercompany  payables of $556 million ($542
     million at  December  31,  2006),  debt of $360  million  ($724  million at
     December 31, 2006) and accrued and other  liabilities  of $92 million ($108
     million at December 31, 2006). At December 31, 2006, assets of our European
     operations   included   approximately   $480  million  in  cash  (of  which
     approximately  $429  million was  utilized on January 2, 2007 to prepay the
     (euro)325M collateralized notes).

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

               The following  table  reconciles the performance of each segment,
     in terms of segment  income,  to our  consolidated  net income  (amounts in
     thousands):

                                       30



                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

For the three months ended September 30, 2007



                                                                                          Domestic    Other Items Not
                                                         Domestic       European         Ancillary      Allocated to       Total
                                                       Self-Storage    Operations        Operations      Segments      Consolidated
                                                     ---------------  ------------    -------------   --------------- --------------
                                                                                   (Amounts in thousands)
Revenues:
                                                                                                       
   Self-storage rental income....................     $    377,877     $   50,072      $        -      $         -    $    427,949
   Ancillary operating revenue...................                -          4,775          32,979                -          37,754
   Interest and other income.....................                -              -               -            3,257           3,257
                                                     ---------------  ------------    -------------   --------------- --------------
                                                           377,877         54,847          32,979            3,257         468,960
                                                     ---------------  ------------    -------------   --------------- --------------
Expenses:
  Cost of operations (excluding depreciation and
      amortization below):
      Self-storage facilities....................          121,949         21,422               -                -         143,371
      Ancillary operations.......................                -          1,427          21,260                -          22,687
  Depreciation and amortization..................          114,965         31,899             903                -         147,767
  General and administrative.....................                -          2,193               -            9,223          11,416
  Interest expense...............................                -          5,917               -            9,340          15,257
                                                     ---------------  ------------    -------------   --------------- --------------
                                                           236,914         62,858          22,163           18,563         340,498
                                                     ---------------  ------------    -------------   --------------- --------------
Income (loss) from continuing operations before
   equity in earnings of real estate entities,
   gain on disposition of real estate
   investments, foreign currency exchange gain,
   income from derivatives and minority interest
   in income.....................................          140,963         (8,011)         10,816          (15,306)        128,462

Equity in earnings of real estate entities.......              902              -               -            2,522           3,424
Gain on disposition of real estate investments...                -              -               -               92              92
Foreign currency exchange gain...................                -         30,384               -                -          30,384
Income from derivatives, net.....................                -            117               -                -             117
Minority interest in (income) loss...............           (4,466)         1,565               -           (5,403)         (8,304)
                                                     ---------------  ------------    -------------   --------------- --------------
Income (loss) from continuing operations.........          137,399         24,055          10,816          (18,095)        154,175
Discontinued operations..........................                -           (151)              -           (1,258)         (1,409)
                                                     ---------------  ------------    -------------   --------------- --------------
Net income (loss)................................     $    137,399     $   23,904      $   10,816      $   (19,353)   $    152,766
                                                     ===============  ============    =============   =============== ==============


                                       31



                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

For the three months ended September 30, 2006




                                                                                          Domestic    Other Items Not
                                                         Domestic       European         Ancillary      Allocated to       Total
                                                       Self-Storage    Operations        Operations      Segments      Consolidated
                                                     ---------------  ------------    -------------   --------------- --------------
                                                                                   (Amounts in thousands)

Revenues:
                                                                                                       
   Self-storage rental income....................     $    311,434     $   17,348      $        -      $         -    $    328,782
   Ancillary operating revenue...................                -          1,562          28,265                -          29,827
   Interest and other income.....................                -              -               -           12,651          12,651
                                                     ---------------  ------------    -------------   --------------- --------------
                                                           311,434         18,910          28,265           12,651         371,260
                                                     ---------------  ------------    -------------   --------------- --------------
Expenses:
  Cost of operations (excluding depreciation and
      amortization below):
      Self-storage facilities....................          100,582          8,524               -                -         109,106
      Ancillary operations.......................                -            636          17,878                -          18,514
  Depreciation and amortization..................           97,634         15,020             809                -         113,463
  General and administrative.....................                -          4,642               -           31,600          36,242
  Interest expense...............................                -          3,432               -            5,891           9,323
                                                     ---------------  ------------    -------------   --------------- --------------
                                                           198,216         32,254          18,687           37,491         286,648
                                                     ---------------  ------------    -------------   --------------- --------------
Income (loss) from continuing operations before
   equity in earnings of real estate entities,
   gain on disposition of real estate
   investments, foreign currency exchange loss,
   income from derivatives and minority interest
   in income.....................................          113,218        (13,344)          9,578          (24,840)         84,612

Equity in earnings of real estate entities.......              600              -               -            2,018           2,618
Gain on disposition of real estate investments...                -              -               -              756             756
Foreign currency exchange loss...................                -           (172)              -                -            (172)
Income from derivatives, net.....................                -             32               -                -              32
Minority interest in income......................           (4,466)         1,279               -           (5,403)         (8,590)
                                                     ---------------  ------------    -------------   --------------- --------------
Income (loss) from continuing operations.........          109,352        (12,205)          9,578          (27,469)         79,256
Discontinued operations..........................                -            (21)              -            1,946           1,925
                                                     ---------------  ------------    -------------   --------------- --------------
Net income (loss)................................     $    109,352     $  (12,226)     $    9,578      $   (25,523)   $     81,181
                                                     ===============  ============    =============   =============== ==============


                                       32


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

For the nine months ended September 30, 2007




                                                                                          Domestic    Other Items Not
                                                         Domestic       European         Ancillary      Allocated to       Total
                                                       Self-Storage    Operations        Operations      Segments      Consolidated
                                                     ---------------  ------------    -------------   --------------- --------------
                                                                                   (Amounts in thousands)

Revenues:
                                                                                                       
   Self-storage rental income....................     $  1,097,655     $  140,291      $        -      $         -    $  1,237,946
   Ancillary operating revenue...................                -         12,878          95,025                -         107,903
   Interest and other income.....................                -              -               -            6,337           6,337
                                                     ---------------  ------------    -------------   --------------- --------------
                                                         1,097,655        153,169          95,025            6,337       1,352,186
                                                     ---------------  ------------    -------------   --------------- --------------
Expenses:
  Cost of operations (excluding depreciation and
      amortization below):
      Self-storage facilities....................          374,075         67,582               -                -         441,657
      Ancillary operations.......................                -          4,125          59,294                -          63,419
  Depreciation and amortization..................          378,975        110,101           2,649                -         491,725
  General and administrative.....................                -         16,922               -           32,475          49,397
  Interest expense...............................                -         16,247               -           32,525          48,772
                                                     ---------------  ------------    -------------   --------------- --------------
                                                           753,050        214,977          61,943           65,000       1,094,970
                                                     ---------------  ------------    -------------   --------------- --------------
Income (loss) from continuing operations before
   equity in earnings of real estate entities,
   casualty gain, gain on disposition of real
   estate investments, foreign currency exchange
   gain, income from derivatives and minority
   interest in income............................          344,605        (61,808)         33,082          (58,663)        257,216

Equity in earnings of real estate entities.......            1,947              -               -            8,236          10,183
Casualty gain....................................            2,665              -               -                -           2,665
Gain on disposition of real estate investments...                -              -               -            2,330           2,330
Foreign currency exchange gain...................                -         40,977               -                -          40,977
Income from derivatives, net.....................                -          1,126               -                -           1,126
Minority interest in (income) loss...............          (12,677)         7,275               -          (16,209)        (21,611)
                                                     ---------------  ------------    -------------   --------------- --------------
Income (loss) from continuing operations.........          336,540        (12,430)         33,082          (64,306)        292,886
Discontinued operations..........................                -           (281)              -           (2,957)         (3,238)
                                                     ---------------  ------------    -------------   --------------- --------------
Net income (loss)................................     $    336,540     $  (12,711)     $   33,082      $   (67,263)   $    289,648
                                                     ===============  ============    =============   =============== ==============


                                       33


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

For the nine months ended September 30, 2006




                                                                                          Domestic    Other Items Not
                                                         Domestic       European         Ancillary      Allocated to       Total
                                                       Self-Storage    Operations        Operations      Segments      Consolidated
                                                     ---------------  ------------    -------------   --------------- --------------
                                                                                   (Amounts in thousands)

Revenues:
                                                                                                       
   Self-storage rental income....................     $    825,013     $   17,348      $        -      $         -    $    842,361
   Ancillary operating revenue...................                -          1,562          75,938                -          77,500
   Interest and other income.....................                -              -               -           27,773          27,773
                                                     ---------------  ------------    -------------   --------------- --------------
                                                           825,013         18,910          75,938           27,773         947,634
                                                     ---------------  ------------    -------------   --------------- --------------
Expenses:
  Cost of operations (excluding depreciation and
      amortization below):
      Self-storage facilities....................          277,680          8,524               -                -         286,204
      Ancillary operations.......................                -            636          49,679                -          50,315
  Depreciation and amortization..................          194,625         15,020           2,412                -         212,057
  General and administrative.....................                -          4,642               -           45,354          49,996
  Interest expense...............................                -          3,432               -            9,320          12,752
                                                     ---------------  ------------    -------------   --------------- --------------
                                                           472,305         32,254          52,091           54,674         611,324
                                                     ---------------  ------------    -------------   --------------- --------------
Income (loss) from continuing operations before
   equity in earnings of real estate entities,
   casualty gain, gain on disposition of real
   estate investments, foreign currency exchange
   loss, income from derivatives and minority
   interest in income............................          352,708        (13,344)         23,847          (26,901)        336,310

Equity in earnings of real estate entities.......            1,574              -               -            7,634           9,208
Gain on disposition of real estate investments...                -              -               -            1,222           1,222
Foreign currency exchange loss...................                -           (172)              -                -            (172)
Income from derivatives, net.....................                -             32               -                -              32
Minority interest in income......................          (12,104)         1,279               -          (13,652)        (24,477)
                                                     ---------------  ------------    -------------   --------------- --------------
Income (loss) from continuing operations.........          342,178        (12,205)         23,847          (31,697)        322,123
Cumulative effect of a change in accounting
   principle.....................................                -              -               -              578             578
Discontinued operations..........................                -            (21)              -            1,579           1,558
                                                     ---------------  ------------    -------------   --------------- --------------
Net income (loss)................................     $    342,178      $ (12,226)     $   23,847      $   (29,540)   $    324,259
                                                     ===============  ============    =============   =============== ==============


13.   Share-Based Compensation
      ------------------------

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

               We have various stock option plans  (collectively  referred to as
     the "PS Plans").  Under the PS Plans, the Company has granted non-qualified
     options to certain trustees,  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 PS
     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 between eight years and ten years after
     the date they became  exercisable.  The PS Plans 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 our Board.

                                       34


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

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

               For the  three  and  nine  months  ended  September  30,  2007 we
     recorded   $695,000   and   $1,301,000,   respectively,   in  stock  option
     compensation  expense  related to options granted after January 1, 2002, as
     compared to $360,000 and $958,000, for the same periods in 2006.

               A total of 240,000  stock  options were  granted  during the nine
     months ended  September 30, 2007,  191,095  shares were  exercised,  and no
     shares were forfeited.  A total of 1,651,839 stock options were outstanding
     at September 30, 2007 (1,602,934 at December 31, 2006).

               Restricted Share Units
               ----------------------

               Outstanding restricted share 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 share 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  share units in exchange  for the
     units.

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

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

               Outstanding  restricted share 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 shares on that date.

               During  the  nine  months  ended  September  30,  2007,   170,175
     restricted  share units were granted,  69,992  restricted  share units were
     forfeited, and 100,477 restricted share units vested. This vesting resulted
     in the  issuance  of  67,318  shares of the  Company's  common  shares.  In
     addition,  cash compensation was paid to employees in lieu of 30,485 common
     shares  based upon the market  value of the shares at the date of  vesting,
     and used to settle the employees' tax liability generated by the vesting.

               At September 30, 2007,  approximately  616,176  restricted  share
     units  were  outstanding  (616,470  at  December  31,  2006).  A  total  of
     $1,751,000 and $6,013,000 in restricted  share expense was recorded for the
     three and nine months ended September 30, 2007,  respectively,  as compared
     to $1,200,000 and $3,629,000, for the same periods in 2006.

                                       35


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

14.  Related Party Transactions
     --------------------------

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

               Mr. Hughes and his family (collectively the "Hughes Family") have
     ownership   interests  in,  and  operate   approximately   48  self-storage
     facilities in Canada under the name "Public Storage" ("PS Canada") pursuant
     to a  license  agreement  with the  Company.  We  currently  do not own any
     interests in these  facilities nor do we own any facilities in Canada.  The
     Hughes Family owns  approximately  27% of our common shares  outstanding at
     September  30, 2007.  We have a right of first refusal to acquire the stock
     or assets of the corporation that manages the 48 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  consolidated  entities,  we continue  to reinsure  risks
     relating to loss of goods stored by tenants in the self-storage  facilities
     in Canada.  During  the nine  months  ended  September  30,  2007 and 2006,
     respectively,   we  received  $666,000  and  $759,000,   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.

               The Company  and Mr.  Hughes are  co-general  partners in certain
     consolidated  entities and affiliated  entities of the Company that are not
     consolidated,  and the Hughes  Family  owns 47.9% of the voting  stock of a
     private  REIT in which the Company  holds 46% of the voting and 100% of the
     nonvoting stock of the entity and substantially all the economic  interest.
     The Hughes  Family also owns  limited  partnership  interests in certain of
     these  partnerships and holds securities in PSB. The Company and the Hughes
     Family receive  distributions  from these  entities in accordance  with the
     terms of the partnership agreements or other organizational documents.

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

               Ronald L. Havner,  Jr. is our  Vice-Chairman  and Chief Executive
     Officer, and he is Chairman of the Board of PSB.

               Dann V.  Angeloff,  a  trustee  of the  Company,  is the  general
     partner  of a  limited  partnership  formed  in June of  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 $55,000 for the
     three and nine months ended September 30, 2007,  respectively,  compared to
     $18,000 and $49,000 for the three and nine months ended September 30, 2006,
     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 $177,000  and $542,000 for the three and nine
     months ended September 30, 2007, respectively,  as compared to $147,000 and
     $442,000  for  the  three  and  nine  months  ended   September  30,  2006,
     respectively,  in management fees with respect to PSB's property management
     services.  At September 30, 2007,  included in other liabilities are normal
     recurring amounts owed to PSB of $204,000  ($871,000 at December 31, 2006),
     for unpaid management fees and certain other operating  expenses related to
     the managed  facilities  which are initially  paid by PSB on our behalf and
     then reimbursed by us.

                                       36


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

               PSB  recently  acquired  commercial   facilities  which  included
     self-storage  space. We are managing this self-storage space for them for a
     management fee of 6% of revenues.  We recorded management fees with respect
     to these facilities amounting to $11,000 and $35,000 for the three and nine
     months ended September 30, 2007 (none for the same periods in 2006).

               Pursuant to a cost-sharing and administrative services agreement,
     PSB  reimburses us for certain  administrative  services that we provide to
     them. PSB's share of these costs totaled approximately $76,000 and $228,000
     for the three and nine months ended  September 30, 2007,  respectively,  as
     compared  to  $80,000  and  $240,000  for the three and nine  months  ended
     September 30, 2006, respectively.

               We manage our wholly-owned self-storage facilities as well as the
     facilities owned by the Consolidated  Entities and affiliated entities that
     are not  consolidated 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 amount of such expenses allocated to
     Unconsolidated  Entities was approximately  $599,000 and $1,895,000 for the
     three and nine months ended September 30, 2007,  respectively,  as compared
     to $503,000 and  $1,770,000  for the three and nine months ended  September
     30, 2006, respectively.

               Stor-RE,  a  consolidated   entity,  and  third  party  insurance
     carriers provided PS Canada, the Company,  PSB, and other affiliates of the
     Company with  liability  and casualty  insurance  coverage  until March 31,
     2004.  PS  Canada  owns a 2.2%  interest  and PSB owns 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.

               On May 14, 2007,  one of our European  subsidiaries  sold limited
     liability  partner  interests ("LLP Interests") it held in Shurgard Europe,
     also an indirect  subsidiary of Public Storage,  to various officers of the
     Company,  other than our chief executive officer. The aggregate proceeds of
     the sale were $4,909,000.  The sale price for the LLP Interests was the net
     asset value per LLP Interest using, among other items, information provided
     by an  independent  third  party  appraisal  firm of the net asset value of
     Shurgard Europe as of March 31, 2007. The Company has a right to repurchase
     the LLP Interests (1) upon a purchaser's  termination  of employment or (2)
     for any reason,  on or after May 14, 2008. The  repurchase  price is set at
     the  lesser of (1) the then net asset  value per share or (2) the  original
     purchase price with a 10% compounded  annual return. In connection with the
     sale of these LLP  Interests,  we recorded a gain of $1,193,000  during the
     three  months  ended June 30,  2007,  representing  the excess of the sales
     proceeds  over  the  book  value  of the LLP  Interests  sold.  The gain is
     reflected  in  gain  on  disposition  of  real  estate  investments  on our
     accompanying condensed consolidated statements of income. The investment of
     these various officers is included in minority interest - other partnership
     interests  on our  accompanying  condensed  consolidated  balance  sheet at
     September  30,  2007 and their pro rata share of the  earnings  of Shurgard
     Europe are  reflected  in minority  interest in income - other  partnership
     interests on our accompanying condensed  consolidated  statements of income
     for the three and nine months ended September 30, 2007.

15.  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

                                       37


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

     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.

               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.

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

               This is a companion  case to the Serrao matter  discussed  above.
     The  plaintiff  alleges the same set of operative  facts and seeks the same
     relief  as in Serrao  against  Shurgard,  whose  liability  Public  Storage
     assumed  following the merger of Public  Storage and Shurgard on August 22,
     2006. In June 2007, the Court certified a class of all Shurgard renters who
     rented a storage unit at a Shurgard facility in California that was smaller
     than  represented.  The maximum  potential  liability  cannot  presently be
     estimated.  We intend to vigorously  contest the substantive  merits of the
     class certification while seeking an appellate writ challenging the Court's
     certifications of the class.

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

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

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

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

               The plaintiff sued the Company on behalf of a purported  class of
     California  non-exempt  employees based on various California wage and hour
     laws and seeking  monetary  damages and injunctive  relief.  In May 2006, a
     motion  for  class   certification   was  filed  seeking  to  certify  five
     subclasses.   Plaintiff  sought   certification  for  alleged  meal  period
     violations, rest period violations, failure to pay for travel time, failure
     to pay for mileage  reimbursement,  and for wage statement  violations.  In

                                       38



                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

     October  2006,  the  Court  declined  to  certify  three  out of  the  five
     subclasses.  The Court did,  however,  certify  subclasses based on alleged
     meal period and wage statement violations.  Subsequently, the Company filed
     a motion  for  summary  judgment  seeking  to  dismiss  the  matter  in its
     entirety.  On June 22,  2007,  the  Court  granted  the  Company's  summary
     judgment  motion  as to the  causes of action  relating  to the  subclasses
     certified and dismissed those claims.  The only surviving  claims are those
     relating to the named  plaintiff only. The plaintiff has filed an appeal to
     the Court's June 22, 2007 summary judgment ruling.

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

               The plaintiff  brought this action  against the Company on behalf
     of a  purported  class  who  bought  insurance  coverage  at the  Company's
     facilities alleging that the Company does not have a license to offer, sell
     and/or transact storage insurance.  The action was originally brought under
     California Business and Professions Code Section 17200 and seeks retention,
     monetary damages and injunctive relief. The Company filed a demurrer to the
     complaint.  While the  demurrer  was  pending,  the  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.  Ultimately  all  claims  except for unjust
     enrichment  were dismissed.  A subsequent  demurrer was filed and sustained
     without leave to amend. The case was therefore dismissed. The plaintiff has
     appealed the trial court's ruling.

               European Joint Venture Arbitration Proceeding
               ---------------------------------------------

               The Company holds  indirectly a 20% interest in each of two joint
     ventures in Europe,  First Shurgard and Second Shurgard,  that collectively
     own 66 self-storage  properties in Europe. On August 24, 2006, the Company,
     through  its  affiliate,  Shurgard  Europe,  served  an exit  notice on the
     European joint venture partners informing them of its intention to purchase
     their interests in First Shurgard and Second Shurgard  pursuant to an early
     exit procedure that the Company  believes is provided for in the respective
     joint venture agreements.  The exit notice offered to pay the joint venture
     partners an amount for their interests in accordance with the provisions of
     the joint venture  agreements.  The joint ventures  partners have contested
     both the valuation of their interests and whether the Company has the right
     to purchase its interests under this early exit procedure.  Accordingly, it
     is uncertain as to whether the Company will acquire such interests pursuant
     to the early exit notice served. On January 17, 2007, Shurgard Europe filed
     an arbitration request with the International Chamber of Commerce to compel
     arbitration of the matter. The arbitration proceedings are ongoing.

               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
               ---------------------------

               We have historically carried comprehensive  insurance,  including
     property, earthquake,  general liability and workers compensation,  through
     nationally  recognized insurance carriers and through our captive insurance
     programs. Our insurance programs also insure affiliates of the Company. Our
     estimated maximum annual exposure for losses that are below the deductibles
     set  forth  in  the  third-party  insurance  contracts,  assuming  multiple
     significant  events occur, is approximately  $37 million.  In addition,  if
     losses exhaust the  third-party  insurers' limit of coverage of $75 million
     for property coverage including  earthquake  coverage ((euro)25 million for
     Europe) and $102  million  for general  liability,  our  exposure  could be
     greater.  These limits are higher than estimates of maximum probable losses
     that could occur from individual  catastrophic events (i.e.  earthquake and
     wind damage) determined in recent engineering and actuarial studies.

                                       39


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

               Our tenant insurance  program  reinsures  policies against claims
     for losses to goods stored by tenants at our  self-storage  facilities.  We
     have third-party  insurance  coverage for claims paid exceeding  $1,500,000
     resulting from any individual event, to a limit of $9,000,000. At September
     30, 2007,  we had  approximately  481,000  reinsured  policies  outstanding
     representing aggregate coverage of approximately $1.2 billion.

               Development and Acquisition of Real Estate Facilities
               -----------------------------------------------------

               We  currently  have  55  projects  in our  development  pipeline,
     consisting  of newly  developed  self-storage  facilities,  expansions  and
     enhancements to existing self-storage facilities.  The total estimated cost
     of these facilities is approximately $295 million of which $103,657,000 has
     been  spent  at  September  30,  2007.   These   projects  are  subject  to
     contingencies.  We expect to incur these expenditures over the next 12 - 24
     months.

               Operating Lease Obligations
               ---------------------------

               We lease trucks,  land,  equipment and office space. At September
     30, 2007, the future minimum rental  payments  required under our operating
     leases for the years ending December 31, principally  representing  amounts
     payable  under land leases for our  European  subsidiaries,  are as follows
     (amounts in thousands):

  2007 (remainder of).......................    $    7,318
  2008......................................        19,257
  2009......................................        15,817
  2010......................................        12,083
  2011......................................        10,774
  Thereafter................................       205,398
                                                -----------
                                                $  270,647
                                                ===========

               We lease trucks,  land,  equipment and office space under various
     operating leases. Certain leases are cancelable with substantial penalties.
     Certain of our European  land  operating  leases have  indefinite  terms or
     extension  options  exercisable at the  discretion of the lessee.  For such
     land  leases  we  have  disclosed  operating  lease  obligations  over  the
     estimated useful life of the related property.

               Expenses under operating leases were approximately $7,397,000 and
     $22,168,000  for the  three  and nine  months  ended  September  30,  2007,
     respectively,  as compared to $7,482,000 and  $12,052,000 for the three and
     nine months ended  September  30, 2006,  respectively.  Certain of our land
     leases include escalation clauses,  and we recognize related lease expenses
     on a straight-line basis.

16.  Income Taxes
     ------------

               For all taxable years  subsequent to 1980, the Company  qualified
     and we intend to continue  to qualify the Company as a REIT,  as defined in
     Section  856 of the  Internal  Revenue  Code.  As a REIT,  we do not  incur
     federal or  significant  state tax 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 2007 and, accordingly, no
     provision  for  income  taxes has been made in the  accompanying  condensed
     consolidated  financial  statements on income  produced and  distributed on
     real estate rental operations.

               Domestic  operations  other than rental real estate are primarily
     conducted  through  taxable REIT  subsidiaries.  Income of our taxable REIT
     subsidiaries  is subject to federal,  state and local income taxes.  We are
     subject to the income tax provisions of the various  European  countries in
     which we have rental real estate operations.

                                       40


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007
                                   (Unaudited)

               We adopted the provisions of Financial Accounting Standards Board
     ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes
     - an  interpretation  of FASB  Statement No. 109" ("FIN 48"), on January 1,
     2007.  FIN 48 clarifies  the  accounting  for  uncertainty  in income taxes
     recognized in an enterprise's  financial  statement in accordance with FASB
     Statement 109,  "Accounting for Income Taxes", and prescribes a recognition
     threshold and measurement process for financial  statement  recognition and
     measurement  of a tax  position  taken  or  expected  to be  taken in a tax
     return.  FIN 48 also provides  guidance on  derecognition,  classification,
     interest and  penalties,  accounting in interim  periods,  disclosures  and
     transition.

               Based on our  evaluation,  we have  concluded  that  there are no
     significant  uncertain tax positions requiring recognition in our financial
     statements.  Our  evaluation was performed for the tax years ended December
     31, 2003, 2004, 2005, 2006 and the first three quarters of 2007.

               We may from time to time be  assessed  interest or  penalties  by
     certain tax jurisdictions,  although any such assessments have historically
     been minimal and immaterial to our financial results.  In the event we have
     received  an  assessment  for  interest  and/or  penalties,   it  has  been
     classified  in the  financial  statements  as  general  and  administrative
     expense.

                                       41



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,"
"plans," "would,"  "should," "may," "estimates" and similar  expressions.  These
forward-looking  statements are made pursuant to the  safe-harbor  provisions of
Section 21E of the Securities Exchange Act of 1934, as amended,  and Section 27A
of the  Securities  Act of 1933, as amended.  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. As a result, you should
not rely on these forward-looking statements as predictions of future events.

     Factors and risks that may impact future results and  performance  include,
but are not limited to, those described in Item 1A, "Risk Factors" in the Public
Storage,  Inc.  Annual Report on Form 10-K for the year ended  December 31, 2006
and in our other  filings with the  Securities  and Exchange  Commission.  These
risks include the following:  changes in general economic  conditions and in the
markets in which we operate;  the impact of  competition  from new and  existing
storage and commercial facilities and other storage  alternatives;  difficulties
in our ability to  successfully  evaluate,  finance and  integrate  acquired and
developed  properties  into  our  existing  operations;  risks  associated  with
international  operations;  the impact of the regulatory  environment as well as
national,  state, and local laws and regulations including,  without limitation,
those governing  REITs;  difficulties  in raising  capital at reasonable  rates;
delays in the development process; and economic uncertainty due to the impact of
war or terrorism.

     We caution you not to place undue reliance on  forward-looking  statements,
which speak only as the date of this report or as of the dates  indicated in the
statements.  All of our  forward  looking  statements,  including  those in this
report,  are  qualified  in their  entirely  by this  statement.  We  assume  no
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 U.S.  generally  accepted  accounting  principles
("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  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 the Company's 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.  We also  believe that  Shurgard  qualified as a REIT. 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 for
income earned and distributed related to REIT operations. This estimate could be

                                       42


incorrect,  because  due  to  the  complex  nature  of  the  REIT  qualification
requirements,   the  ongoing  importance  of  factual   determinations  and  the
possibility of future changes in our circumstances, we cannot be assured that we
actually have satisfied or will satisfy the  requirements for taxation as a REIT
for any  particular  taxable  year.  For any  taxable  year that we fail or have
failed to qualify as a REIT and applicable  relief  provisions did not apply, we
would be taxed at the  regular  corporate  rates on all of our  taxable  income,
whether  or not we made or  make  any  distributions  to our  shareholders.  Any
resulting  requirement  to pay corporate  income tax,  including any  applicable
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. In
addition,  if  Shurgard  failed to qualify as a REIT,  we  generally  would have
succeeded to or incurred significant tax liabilities.

     IMPAIRMENT OF LONG-LIVED ASSETS: Substantially all of our assets consist of
long-lived  assets,  including  real  estate and other  intangible  assets.  The
evaluation of our long-lived assets for impairment includes  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 our 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 15 to our condensed  consolidated financial statements,
we retain certain risks with respect to property perils,  legal  liability,  and
other  such  risks.  In  addition,  a  wholly-owned  subsidiary  of the  Company
reinsures  policies  against claims for losses to goods stored by tenants in our
self-storage facilities.  In connection with these risks, we accrue losses based
upon the estimated level of losses incurred using certain actuarial  assumptions
followed  in the  insurance  industry  and  based  on  recommendations  from  an
independent actuary that is a member of the American Academy of Actuaries. While
we believe  that the amounts of the accrued  losses are  adequate,  the ultimate
liability  may be in excess of or less than the amounts  recorded.  At September
30, 2007, we had approximately  481,000 reinsured  policies in the United States
outstanding representing aggregate coverage of approximately $1.2 billion.

     ACCRUALS FOR CONTINGENCIES:  We are exposed to business and legal liability
risks with respect to events that have occurred, but in accordance with GAAP, 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 15 to our
condensed consolidated financial statements.

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

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

                                       43


     EUROPEAN NET OPERATING LOSSES - INCOME TAX TREATMENT: The Shurgard European
real estate operations generated  significant operating losses from inception to
the date of our merger with  Shurgard.  We recorded a deferred tax asset arising
from the net operating  loss  carryforward  as of the date of  acquisition,  and
concluded  that a valuation  allowance  was  required  for the net amount of the
deferred tax asset.  To the extent that we determine the valuation  allowance is
no longer required,  the change in the valuation allowance will first be treated
as a reduction of goodwill and other  intangible  assets related to the Shurgard
merger before being treated as a reduction to the provision for income taxes.

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

RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007:

     Net income for the three months ended  September 30, 2007 was  $152,766,000
compared to $81,181,000 for the same period in 2006, representing an increase of
$71,585,000.  This increase in net income is primarily due to a foreign currency
exchange  gain,  reduction  in general and  administrative  expense and improved
operations from our real estate facilities.  These factors were partially offset
by increased depreciation and amortization expense.

     Comparisons  of  our  revenues,   expenses,  and  weighted  average  shares
outstanding are significantly impacted by the merger with Shurgard, which closed
on August  23,  2006.  The  operating  results  with  respect  to the assets and
liabilities  acquired in the merger with  Shurgard are included in our operating
results from August 23, 2006 through September 30, 2006 during the quarter ended
September 30, 2006, as compared to the entire quarter ended September 30, 2007.

     During the quarter  ended  September  30,  2007,  we  recognized  a foreign
currency  exchange gain of $30.4 million relating to intercompany  loans between
our U.S. and  European  subsidiaries.  The gain was the result of the  continued
weakening of the US Dollar relative to the Euro during the quarter. See "Foreign
Exchange Gain" below for further information.

     General and  administrative  expense  declined $24.8 million in the quarter
ended  September  30, 2007 as compared to the same period in 2006.  This decline
was primarily due to the reduction in integration  expenses  associated with the
Shurgard merger,  contract  termination  costs, and development  costs that were
expensed with respect to terminated  projects;  these expenses  aggregated $29.6
million in the quarter ended  September 30, 2006 as compared to $1.4 million for
the same period in 2007.

     Our Same Store net operating income, before depreciation expense, increased
by  approximately  $2,901,000  to  $161,374,000,  or 1.8%, as a result of a 1.7%
improvement  in  revenues  partially  offset  by a  1.5%  increase  in  cost  of
operations.  Aggregate net operating  income for our newly  developed,  recently
expanded and acquired facilities (other than the Shurgard facilities)  increased
by approximately  $4,368,000 to $30,208,000 compared to the same period in 2006.
This increase was largely due to the impact of facilities acquired in 2005, 2006
and 2007,  combined with continued  fill-up of our newly developed and expansion
facilities.

                                       44


         For those facilities that were acquired in the Shurgard merger, net
operating income was approximately $92,996,000 for the quarter ended September
30, 2007 as compared to $35,363,000 (which reflects the operations of these
facilities from August 23, 2006 through September 30, 2006) for the same period
in 2006.

     Depreciation and  amortization  expense for the quarter ended September 30,
2007  increased by $34.3 million,  as compared to the same period in 2006.  This
increase is primarily due to increased  depreciation  and  amortization  expense
with respect to the buildings and intangible  assets acquired in the merger with
Shurgard.

     For the three months ended September 30, 2007, net income  allocable to our
common  shareholders  (after  allocating  net income to our preferred and equity
shareholders)  was  $87,077,000  or $0.51 per  common  share on a diluted  basis
compared  to a net loss of  $6,083,000  or $0.04 per  common  share on a diluted
basis for the same period in 2006,  representing  an increase of  $93,160,000 or
$0.55 per diluted common share.  The increase in net income  allocable to common
shareholders  on an aggregate and per-share basis is due primarily to the impact
of the factors described above,  combined with a decrease in income allocated to
preferred shareholders, as described below.

     For the three  months  ended  September  30,  2007 and 2006,  we  allocated
$60,333,000  and $60,265,000 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.  In 2006, we also recorded allocations of income to
our preferred  shareholders  with respect to the application of EITF Topic D-42,
totaling  $21,643,000  (or $0.15 per diluted  common share) for the three months
ended  September  30,  2006 in  connection  with  the  redemption  of  preferred
securities.

     Weighted  average  diluted shares  increased to  170,085,000  for the three
months  ended  September  30, 2007 from  145,387,000  for the three months ended
September  30, 2006.  The  increase in weighted  average  diluted  shares is due
primarily  to the impact of the issuance of 38.9  million  shares in  connection
with our merger with Shurgard,  with  approximately  16.7 million of such shares
being included in our operating results for the quarter ended September 30, 2006
(representing  the weighted  average  outstanding of such shares from August 23,
2006  through  September  30,  2006).  The increase  also  includes the weighted
average impact of the exercise of approximately 1.8 million stock options issued
in connection with the merger with Shurgard principally during the quarter ended
September 30, 2006.

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007:

     Net income for the nine months ended  September  30, 2007 was  $289,648,000
compared to $324,259,000 for the same period in 2006, representing a decrease of
$34,611,000.  This  decrease is primarily  due to a $279.7  million  increase in
depreciation  and  amortization  expense,  due  primarily  to  depreciation  and
amortization  with  respect to the  buildings  and  intangibles  acquired in the
merger  with  Shurgard.  Increased  depreciation  and  amortization  expense was
partially  offset by a  foreign  currency  exchange  gain of $41.0  million  and
improved operations from our real estate facilities.

     Comparisons  of  our  revenues,   expenses,  and  weighted  average  shares
outstanding are significantly impacted by the merger with Shurgard, which closed
on August 23,  2006.  The  results  with  respect to the assets and  liabilities
acquired in the merger with Shurgard are included in our operating  results from
August  23,  2006  through  September  30,  2006  during the nine  months  ended
September  30, 2006,  as compared to the entire nine months ended  September 30,
2007.

     During the nine months ended  September  30, 2007,  we recognized a foreign
currency exchange gain aggregating $41.0 million relating to intercompany  loans
between  our U.S.  and  European  subsidiaries.  The gain was the  result of the
continued  weakening of the US Dollar relative to the Euro during the nine month
period ended  September 30, 2007. See "Foreign  Exchange Gain" below for further
information.

     Same Store net operating income, before depreciation expense,  increased by
$9,479,000  to  $461,150,000,  or 2.1%,  as a result  of a 2.1%  improvement  in

                                       45


revenues  partially  offset by a 2.1% increase in cost of operations.  Aggregate
net operating  income for our newly  developed,  recently  expanded and acquired
self-storage   facilities  (excluding  the  Shurgard  facilities)  increased  by
approximately $12,090,000 to $81,213,000.

     For those  facilities  that  were  acquired  in the  Shurgard  merger,  net
operating  income  was  approximately  $253,926,000  for the nine  months  ended
September 30, 2007, as compared to $35,363,000 (which reflects the operations of
these  facilities from August 23, 2006 through  September 30, 2006) for the same
period in 2006.

     Net income  allocable  to our common  shareholders  (after  allocating  net
income to our preferred and equity  shareholders)  was  $97,156,000 or $0.57 per
common  share on a diluted  basis for the nine months ended  September  30, 2007
compared to  $127,292,000  or $0.94 per common share on a diluted  basis for the
same  period in 2006,  representing  a decrease  of $0.37 per common  share,  or
39.4%. The decrease in net income allocable to common  shareholders and earnings
per  common  diluted  share  are due  primarily  to the  impact  of the  factors
described above, partially offset by a decrease in income allocated to preferred
shareholders, as described below.

     For the nine  months  ended  September  30,  2007 and  2006,  we  allocated
$176,424,000 and $159,256,000 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
preferred  securities issued. In 2006, we also recorded allocations of income to
our preferred  shareholders  with respect to the application of EITF Topic D-42,
totaling  $21,643,000  (or $0.16 per diluted  common  share) for the nine months
ended  September  30,  2006 in  connection  with  the  redemption  of  preferred
securities.

     Weighted  average  diluted  shares  increased to  170,166,000  for the nine
months  ended  September  30, 2007 from  134,851,000  for the nine months  ended
September  30, 2006.  The  increase in weighted  average  diluted  shares is due
primarily  to the impact of the issuance of 38.9  million  shares in  connection
with our merger with  Shurgard,  with  approximately  5.6 million of such shares
being included in our operating results for the quarter ended September 30, 2006
(representing  the weighted  average  outstanding of such shares from August 23,
2006 through  September  30, 2006) and all such shares  included in our weighted
average  shares for the same period in 2007.  The  increase  also  includes  the
weighted  average  impact of the  exercise of  approximately  1.8 million  stock
options issued in connection  with the merger with Shurgard  principally  during
the quarter ended September 30, 2006.

REAL ESTATE OPERATIONS

     DOMESTIC SELF-STORAGE OPERATIONS:  Our domestic self-storage operations are
by  far  the  largest  component  of  our  operating  activities,   representing
approximately 81% of our total revenues generated for each of the three and nine
month  periods  ended  September  30,  2007.  Rental  income with respect to our
domestic  self-storage  operations  has grown from $311 million and $825 million
for the three and nine months ended  September 30, 2006,  respectively,  to $378
million and $1,098  million for the three and nine months  ended  September  30,
2007, respectively,  representing increases of $67 million, or approximately 22%
for the three months ended September 30, 2007 and $273 million, or approximately
33%  for  the  nine  months  ended   September  30,  2007.  The   year-over-year
improvements  in rental income are due to  improvements  in the  performance  of
those  facilities  that we owned  prior to  January  1, 2005 (our  "Same  Store"
facilities), and the addition of new facilities to our portfolio, either through
our acquisition or development activities.

                                       46


     To enhance year-over-year comparisons,  the following table summarizes, and
the ensuing  discussion  describes the operating  results of these three groups,
our Same Store group, acquisition facilities and development facilities.




Domestic Self - Storage Operations Summary:            Three Months Ended                     Nine Months Ended
-------------------------------------------        ------------------------  -----------   ------------------------  -----------
                                                        September 30,                         September 30,
                                                                             Percentage                              Percentage
                                                      2007         2006        Change         2007         2006        Change
                                                   -----------  -----------  -----------   -----------  -----------  -----------
(Dollar amounts in thousands)

Rental income:
                                                                                                        
   Same Store Facilities - Public Storage......    $   237,434  $   233,420     1.7        $   693,272   $   679,069      2.1%
   Same Store Facilities - Shurgard............         69,313       27,876   148.6%           200,804        27,876    620.3%
   Other Facilities............................         71,130       50,138    41.9%           203,579       118,068     72.4%
                                                       -------      -------    ----          ---------       -------     ----
     Total rental income.......................        377,877      311,434    21.3%         1,097,655       825,013     33.0%
                                                       -------      -------    ----          ---------       -------     ----
Cost of operations before depreciation and
    amortization (a):
   Same Store Facilities - Public Storage......         76,060       74,947     1.5%          232,122       227,398       2.1%
   Same Store Facilities - Shurgard............         21,818        8,516   156.2%           67,324         8,516     690.6%
   Other Facilities............................         24,071       17,119    40.6%           74,629        41,766      78.7%
                                                       -------      -------    ----          ---------       -------     ----
      Total cost of operations.................        121,949      100,582    21.2%          374,075       277,680      34.7%
                                                       -------      -------    ----          ---------       -------     ----
Net operating income before depreciation and
    amortization(a):
   Same Store Facilities - Public Storage......        161,374      158,473     1.8%          461,150       451,671       2.1%
   Same Store Facilities - Shurgard............         47,495       19,360   145.3%          133,480        19,360     589.5%
   Other Facilities............................         47,059       33,019    42.5%          128,950        76,302      69.0%
   Total net operating income before                   -------      -------    ----          ---------       -------     ----
        depreciation and amortization (a)......        255,928      210,852    21.4%          723,580       547,333      32.2%
                                                       -------      -------    ----          ---------       -------     ----
Depreciation and amortization expense:
   Same Store Facilities - Public Storage......        (40,553)     (41,294)  (1.8)%         (121,350)     (121,643)    (0.2)%
   Same Store Facilities - Shurgard............        (44,595)     (35,304)   26.3%         (161,976)      (35,304)    358.8%
   Other Facilities............................        (29,817)     (21,036)   41.7%          (95,649)      (37,678)    153.9%
                                                       -------      -------    ----          ---------       -------     ----
   Total depreciation and amortization expense.       (114,965)     (97,634)   17.8%         (378,975)     (194,625)     94.7%
                                                       -------      -------    ----          ---------       -------     ----
Net operating income (loss):
   Same Store Facilities - Public Storage......        120,821      117,179     3.1%          339,800       330,028       3.0%
   Same Store Facilities - Shurgard............          2,900      (15,944) (118.2)%         (28,496)      (15,944)     78.7%
   Other Facilities............................         17,242       11,983    43.9%           33,301        38,624    (13.8)%
                                                       -------      -------    ----          ---------       -------     ----
   Total net operating income..................    $   140,963  $   113,218    24.5        $  344,605    $  352,708     (2.3)%
                                                       -------      -------    ----          ---------       -------     ----
Weighted average square foot occupancy during
   the period..................................          89.2%        88.4%    0.9%             88.8%         88.0%       0.9%
Number of self-storage facilities (at end of
   period).....................................                                                 1,979         1,979       0.0%
Net rentable square feet (in thousands, at end
   of period):.................................                                               124,364       123,738       0.5%


(a)  Total net operating income before depreciation and amortization or "NOI" is
     a non-GAAP  (generally accepted  accounting  principles)  financial measure
     that excludes the impact of depreciation and amortization expense. See Note
     12 to our September 30, 2007 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.   Although  depreciation  and  amortization  are
     operating  expenses,  we  believe  that  NOI  is a  meaningful  measure  of
     operating  performance,  because we utilize  NOI in making  decisions  with
     respect to capital  allocations,  in determining  current  property values,
     segment  performance,  and comparing  period-to-period and market-to-market
     property  operating  results.  NOI is not a  substitute  for net  operating
     income after  depreciation  and  amortization  in evaluating  our operating
     results.

                                       47


     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.

     In the above  table,  the  significant  increases  in revenues  and cost of
operations, in the three and nine months ended September 30, 2007 as compared to
the same periods in 2006, are primarily due to the  acquisition of  self-storage
facilities  in connection  with the merger with Shurgard  which was completed on
August 23, 2006 (see Note 3 to the condensed consolidated financial statements).
As a result of the merger, we acquired interests in 487 self-storage  facilities
(32.3 million net rentable square feet) located in the United States,  including
459  wholly-owned  facilities and 28 facilities owned by joint ventures in which
we have an interest. Effective May 24, 2007, due to a loss in control of certain
partnerships, we began deconsolidating 11 of these facilities containing 624,000
net rentable  square feet.  Included in the line item "Other  Facilities" in the
table  above is the  operating  data with  respect to these 11  facilities  from
August 23, 2006 through May 24, 2007. The operating  results of all of the other
facilities  acquired in the merger and located in the United States are included
in our financial  statements  and in the above table for the period we owned the
facilities.

     Immediately  preceding  the  close  of the  merger,  all  of  the  acquired
facilities in the United  States were  integrated  into our property  management
systems,  centralized  pricing  systems,  national  call  center,  and  website.
Temporary  signage,  re-branding  the  facilities  from  "Shurgard"  to  "Public
Storage", was also put into place immediately after the close of the merger.

     Our property  management  personnel worked  diligently to absorb this large
acquisition  of facilities.  Training and hiring new property  managers were key
elements for the  successful  integration  process.  New employees  needed to be
trained on how to use our property  management  systems and follow our operating
policies and  procedures.  As expected in a merger of this  nature,  immediately
following  the close of the merger,  turnover at the property  manager level was
higher than we normally experience.  In anticipation of such turnover,  we began
to hire additional  "bench"  property  managers in the second quarter of 2006 to
fill openings when  turnover  occurred.  Although this strategy was effective at
keeping  properties opened for business,  it did result in incurring  additional
payroll  costs in the  second,  third  and  fourth  quarters  of 2006 due to the
additional head count.

     As  a  result  of  the  merger,   the  amount  of  vacant  space  increased
significantly in our system.  The acquired Shurgard  portfolio of 487 facilities
in the United States had  aggregate  average  square foot  occupancy of 84.4% at
August 31,  2006,  which was 530 basis  points  below the 89.7% for the existing
Public Storage  portfolio.  Average rental rates were approximately the same for
each of the  portfolios.  Our goal has been to increase  our  overall  portfolio
occupancy in order to be in a position to drive rental rates.  The primary focus
in meeting our goal has been to work to improve the Shurgard portfolio's overall
occupancy level to the occupancy level experienced by our existing portfolio.

     In order to increase  move-in  volumes and  ultimately  increase  occupancy
levels as quickly as  possible,  and because  there is  typically  low  seasonal
demand in the  fourth  and first  quarters,  we were  much  more  aggressive  at
reducing  our  pricing,  and  increasing  promotional  discounts  and  marketing
programs  during the fourth  quarter of 2006 and  continued  doing so during the
first nine months of 2007. We have substantially increased our media advertising
expenditures  to $5.2  million  and $21.8  million for the three and nine months
ended  September  30,  2007 as  compared  to $1.6  million  and  $10.2  million,
respectively, in the same periods in 2006.

     We have made  significant  progress in improving the occupancy level of the
Shurgard portfolio.  However,  this improvement has come somewhat at the expense
of in a reduction in the Public Storage Same Store  Facilities'  occupancies and
reduced  growth  in rates.  We  believe  that the more  aggressive  pricing  and
discounting at the Shurgard properties, combined with the fact that the Shurgard
properties  have relatively more vacant spaces to rent, has resulted in shifting
of new tenant  flow not only from our  competitors,  but also from our  existing
portfolio to the Shurgard  properties during the past nine months,  putting some
pressure on occupancies and rental rate growth for the Public Storage Same Store
Facilities.

     Short-term  occupancy  increases,  like  those we have  experienced  in the
Shurgard portfolio,  tend to result in a higher proportion of short-term tenants
and a resulting  increase in  move-out  ratios,  which  subsides  over time.  We
believe this is related to the nature of the  occupancy  stabilization  process,
which we have  observed  to have two  principal  stages -- first,  the  physical
fill-up of the  facilities,  then the  achievement  of a stable tenant base with
historical  levels of move-outs,  as  successive  groups of tenants move in, the
tenants in such groups with short-term  needs (such as moving) move out, and the
tenants with long-term storage needs remain.

     Until  recently,  it has been difficult to see the benefits of the strategy
we are employing to increase  occupancies in our short-term  operating  results,

                                       48


because promotional discounts and marketing expense adversely affect earnings in
the month the  customer  moves in,  while the  revenue  from these  tenants  are
reflected in our operating results throughout their tenancy.

     However,  as the  occupancies  of the Shurgard Same Store  Facilities  have
approached the Public Storage  historical  levels for the last two quarters,  we
believe we are close to achieving a tenant base with historical  move-out rates.
As a result,  the more  aggressive  pricing and discounting at the Shurgard Same
Store Facilities has begun to subside,  providing rental rate growth and putting
less  pressure on the Public  Storage Same Store  Facilities.  Realized rent per
occupied  square foot for the  Shurgard  Same Store  Facilities  for the quarter
ended  September 30, 2007 was 1.2% higher as compared to the same period in 2006
(compared to a 1.3% reduction during the first six months of 2007 as compared to
the same period in 2006). We believe that achieving our goal of high occupancies
with a  stabilized  tenant base will  continue to  positively  impact our future
operating income by a) allowing us to reduce customer  acquisition costs such as
advertising  and  promotion,  as we will have to  attract  fewer new  tenants to
replace  vacating  tenants and b) allowing us to be more  aggressive  in raising
rental rates to new and existing tenants.

     In addition to our strategy to increase Shurgard occupancies, our operating
results have been,  and will  continue to be,  impacted by the general  economic
trends that affect the self-storage business.  While it is difficult to quantify
the impact of these economic trends, and even more difficult to predict what the
impact will be in the future, we do believe that several such factors, including
the slowdown in the national  housing  market as well as reduced  year-over-year
demand in markets which had enhanced self-storage demand in 2005 and 2006 due to
the hurricanes (such as in Florida), have impacted our operating results.

    We expect to continue with aggressive  pricing,  promotional  discounts
and  marketing  in the fourth  quarter to continue to drive  improvement  in our
overall occupancy levels. We expanded our media programs in the third quarter of
2007 and were on television in approximately 24 markets versus 14 markets in the
third  quarter  of  2006.   Future  media   advertising   expenditures  are  not
determinable  at this  time,  and  will be  driven  in  part by  demand  for our
self-storage  spaces, our current occupancy levels, as well as our evaluation of
the most effective mix of yellow page, media, and Internet advertising.

     We continue  to believe  that the  acquisition  of the  Shurgard  portfolio
provides  operational  efficiencies,  specifically  in the  areas of  marketing,
national call center, and indirect overhead costs that support the operations of
the facilities. We do not believe that these efficiencies are fully realized and
reflected  in our  operating  results due to the recent  integration,  increased
property manager head count and increased marketing costs, as noted above.

         SAME STORE FACILITIES - PUBLIC STORAGE

     The facilities included in the Public Storage Same Store Facilities are all
stabilized  and have been  owned  since  January 1, 2005 and  therefore  provide
meaningful  comparative  data for 2006 and 2007.  The Public  Storage Same Store
Facilities  contain   approximately  77.8  million  net  rentable  square  feet,
representing  approximately 63% of the aggregate net rentable square feet of our
consolidated  domestic 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 - Public Storage."
The following  table sets forth  additional  operating  data with respect to the
Same Store Facilities:

                                       49





SAME STORE FACILITIES - PUBLIC STORAGE                      Three Months Ended                     Nine Months Ended
-------------------------------------------             ------------------------  -----------   ------------------------  ----------
                                                                September 30,                         September 30,
                                                                                  Percentage                              Percentage
                                                            2007         2006        Change         2007         2006       Change
                                                        -----------  -----------  -----------   -----------  -----------  ----------
                                                               (Dollar amounts in thousands, except weighted average amounts)

                                                                                                            
Rental income......................................      $ 226,794    $  222,884       1.8%      $  662,57   $  649,036       2.1%
Late charges and administrative fees collected.....         10,640        10,536       1.0%         30,695       30,033       2.2%
                                                         ---------    ----------     -------     ----------  -----------    -------
   Total rental income.............................        237,434       233,420       1.7%        693,272      679,069       2.1%
                                                         ---------    ----------     -------     ----------  -----------    -------
Cost of operations before depreciation and amortization:
     Direct property payroll.......................         15,433        16,528     (6.6)%         47,672       48,671     (2.1)%
     Property taxes................................         22,718        21,700       4.7%         67,219       64,418       4.3%
     Repairs and maintenance.......................          7,924         7,319       8.3%         21,981       21,860       0.6%
     Advertising and promotion.....................          5,947         4,772      24.6%         21,836       18,793      16.2%
     Utilities.....................................          5,583         5,582       0.0%         16,123       15,511       3.9%
     Property insurance............................          2,104         3,021    (30.4)%          6,935        8,326    (16.7)%
     Telephone reservation center..................          1,995         2,155     (7.4)%          6,246        6,402     (2.4)%
     Other cost of management......................         14,356        13,870       3.5%         44,110       43,417       1.6%
                                                         ---------    ----------     -------     ----------   ----------    -------
   Total cost of operations........................         76,060        74,947       1.5%        232,122      227,398       2.1%
Net operating income before depreciation and             ---------    ----------     -------     ----------   ----------    -------
amortization (e)...................................        161,374       158,473       1.8%        461,150      451,671       2.1%
Depreciation and amortization......................        (40,553)      (41,294)    (1.8)%       (121,350)    (121,643)    (0.2)%
                                                         ---------    ----------     -------     ----------  -----------    -------
 Net operating income..............................      $ 120,821    $  117,179       3.1%      $ 339,800   $  330,028       3.0%
                                                         =========    ==========     =======     ==========  ===========    =======

Gross margin (before depreciation and amortization)          68.0%         67.9%       0.1%          66.5%        66.5%           -

Weighted average for the fiscal year:
   Square foot occupancy (a).......................          90.5%         91.3%     (0.9)%          90.6%        91.2%     (0.7)%
   Realized annual rent per occupied square foot (b)     $  12.89     $    12.55       2.7%      $   12.54   $    12.20       2.8%
   REVPAF (c)......................................      $  11.66     $    11.46       1.7%      $   11.36   $    11.13       2.1%

 Weighted average at September 30:
   Square foot occupancy...........................                                                  89.5%        90.5%     (1.1)%
   In place annual rent per occupied square foot (d)                                             $   13.97   $    13.54       3.2%
Total net rentable square feet (in thousands)......                                                  77,782      77,782        -
Number of facilities...............................                                                   1,316       1,316        -


(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 or "NOI" is
     a non-GAAP  (generally accepted  accounting  principles)  financial measure
     that excludes the impact of depreciation and amortization  expense, 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  "domestic  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 12 to our  September  30, 2007
     condensed   consolidated   financial  statements,   "Segment  Information."
     Although  depreciation and amortization are operating expenses,  we believe
     that NOI is a  meaningful  measure  of  operating  performance,  because we
     utilize NOI in making  decisions  with respect to capital  allocations,  in
     determining  current property values,  segment  performance,  and comparing
     period-to-period  and  market-to-market  property operating results. NOI is
     not  a  substitute  for  net  operating   income  after   depreciation  and
     amortization in evaluating our operating results.

                                       50


     Rental income increased  approximately  1.7% and 2.1% in the three and nine
months ended  September 30, 2007 as compared to the same periods in 2006.  These
increases were primarily  attributable to higher average  realized annual rental
rates per occupied square foot, which were 2.7% and 2.8% higher in the three and
nine months  ended  September  30, 2007 as compared to the same periods in 2006,
offset partially by lower occupancy levels.

     In the  beginning of 2006,  the quarterly  year-over-year  growth in rental
income was consistent for each quarter, as rental income growth was 5.5% for the
quarter ended March 31, 2006, and started  accelerating  to 5.9% for the quarter
ended June 30, 2006 and 6.3% for the quarter ended  September 30, 2006.  For the
quarter  ended  December 31, 2006,  the  year-over-year  growth in rental income
slowed to 3.5%. In 2007,  rental  income for the quarters  ended March 31, 2007,
June 30, 2007 and  September  30, 2007 were 2.9%,  1.7% and 1.7%,  respectively.
This reduction in growth was the result of lower occupancy  levels combined with
a reduction in year-over-year growth in realized rents.

     It is difficult  for us to pinpoint the exact causes for this slow down and
the degree to which such causes have  negatively  affected  the growth in rental
income. We believe,  however,  that the reduction was due to a number of factors
including; (i) the increased number of vacant spaces added to our overall system
as a result of the Shurgard merger and our aforementioned focus on improving the
occupancies  of the Shurgard  portfolio,  (ii)  hurricane  activity that created
unusual demand for storage space in our Florida markets in 2005 and 2004, making
year-over-year trends in 2007 less favorable, (iii) general economic conditions,
specifically  the slow down in  housing  sales  and  moving  activity,  and (iv)
increased competition. Many of these factors are beyond our control.

     As indicated  above,  it has been our  objective to close the occupancy gap
between the acquired  Shurgard  properties  versus the Public  Storage  existing
portfolio  and achieve a stabilized  tenant base.  We believe that this strategy
has put  pressure on  occupancies  and rental rate growth on our  existing  Same
Store facilities since the merger, as demand appears to have shifted somewhat to
the acquired Shurgard  facilities as we have adjusted the level of discounts and
monthly  rents at the  acquired  Shurgard  facilities  to  accelerate  occupancy
growth.  Because it was important for us to maintain our occupancy levels in the
Public Storage Same Store  portfolio,  we adjusted rental rates and the level of
promotional  discounts  offered  to new  tenants  as a means to  expand  move-in
volumes  throughout the entire  portfolio.  It has been  challenging to maintain
occupancy  levels at our Same Store group of facilities,  while at the same time
trying to continue  to improve the  occupancy  levels of the  acquired  Shurgard
facilities and achieve a stabilized tenant base.

     However, since we believe that we have now closed the occupancy gap between
the acquired Shurgard  properties  versus the Public Storage existing  portfolio
and have  achieved a  stabilized  tenant  base,  we expect that the  pressure on
Public  Storage Same Store  portfolio  should  subside.  Despite  this  positive
development,  the other aforementioned factors noted above may still continue to
have a negative impact on our revenue  growth,  and as a result it is unclear as
to when we may  achieve  substantially  higher  levels of revenue  growth in the
Public Storage Same Store pool than we have been achieving so far in 2007.

     Cost of operations (excluding  depreciation and amortization)  increased by
1.5% and 2.1% in the three and nine months ended  September 30, 2007 as compared
to the same periods in 2006.

     Payroll expense has decreased by 6.6% and 2.1% in the three and nine months
ended  September 30, 2007 as compared to the same periods in 2006.  The decrease
experienced is primarily due to a reduction in payroll hours incurred  resulting
from improved staffing levels, over-staffing in the second and third quarters of
2006 due to the accelerated  hiring of "bench" property managers in anticipation
of the Shurgard merger, offset partially by higher wage rates.

     Property tax expense  increased  4.7% and 4.3% in the three and nine months
ended September 30, 2007, respectively, as compared to the same periods in 2006,
due to higher assessments.

     Repairs and maintenance  expenditures  increased 8.3% and 0.6% in the three
and nine months ended  September 30, 2007,  respectively.  We expect repairs and
maintenance  expenditures  to be higher in the  remainder of 2007 as compared to
the same period in 2006.

                                       51


     Advertising and promotion is comprised principally of media (television and
radio), yellow page, and Internet advertising. Our Same Stores pro rata share of
advertising  and promotion costs increased 24.6% and 16.2% in the three and nine
months ended September 30, 2007 as compared to the same periods in 2006.

     Media  advertising for the Same Store properties  increased from $1,049,000
in the three months ended  September  30, 2006 to $2,885,000 in the three months
ended  September  30,  2007.  We expect to  continue  with  aggressive  pricing,
promotional  discounts and marketing in the fourth  quarter to continue to drive
improvement in our overall occupancy levels, however,  comparisons to prior year
with respect to marketing and advertising should be more favorable in the fourth
quarter  because we  significantly  increased our television  advertising in the
fourth  quarter of 2006 as compared to the third  quarter of 2006.  Future media
advertising  expenditures  are not determinable at this time, and will be driven
in part by demand for our self-storage  spaces, our current occupancy levels, as
well as our  evaluation  of the most  effective mix of yellow page,  media,  and
Internet advertising.

     Our Internet  advertising  expenses  decreased  from $828,000 for the three
months  ended  September  30, 2006 to  $687,000  for the same period in 2007 and
increased  from  $2,167,000  for the nine  months  ended  September  30, 2006 to
$2,234,000 for the same period in 2007. We expect that Internet advertising will
continue to grow as that marketing  channel  becomes a more important  source of
new tenants.

     Yellow page  advertising  expenditures  for the Public  Storage  Same Store
portfolio  decreased from $2,134,000 and $6,777,000 in the three and nine months
ended  September 30, 2006 to $1,839,000  and  $6,148,000 in the three months and
nine months ended September 30, 2007, respectively.  The decrease is a result of
certain  efficiencies  related to the merger  with  Shurgard,  specifically  the
allocation of costs over a larger pool of properties.

     Utility  expenses  remained flat for the three ended September 30, 2007 and
increased from  $15,511,000 to $16,123,000  for the nine months ended  September
30, 2007,  respectively,  due  principally to higher energy costs as compared to
the same periods in 2006.  Continued levels of increases are expected during the
remainder of 2007.

     Insurance  expense  decreased  30.4% and 16.7% in the three and nine months
ended September 30, 2007, respectively,  as compared to the same periods in 2006
reflecting  significant decreases in property insurance resulting primarily from
the softer insurance markets.

     Telephone  reservation  center costs decreased slightly from $2,155,000 and
$6,402,000 in the three and nine months ended September 30, 2006,  respectively,
to $1,995,000  and  $6,246,000 in the three and nine months ended  September 30,
2007, respectively.  We continue to evaluate our telephone reservation center as
we evaluate the appropriate  staffing levels and location of personnel  relative
to our expanded portfolio,  and as a result, expect telephone reservation center
costs  to  remain  somewhat  volatile  during  the  remainder  of 2007  until we
determine our appropriate ongoing level of expenses.

                                       52


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




                                                        For the Quarter Ended
                                      ------------------------------------------------------------------------------------------
                                         March 31            June 30        September 30         December 31        Entire Year
                                      -------------       ------------     --------------       -------------      -------------
                                                        (Amounts in thousands, except for per square foot amount)

Total rental income:
                                                                   
     2007                               $   225,677          $  230,161        $  237,434                 -                   -
     2006                               $   219,297          $  226,352        $  233,420         $  227,007         $  906,076

Total cost of operations (excluding depreciation and amortization):
     2007                               $    77,828          $  78,234         $   76,060                 -                   -
     2006                               $    75,802          $  76,649         $   74,947         $   72,149         $  299,547

Property tax expense:
     2007                               $    22,871          $  21,630         $   22,718                 -                   -
     2006                               $    21,988          $  20,730         $   21,700         $   18,844         $   83,262

Media advertising expense:
     2007                               $     3,365          $   5,333         $    2,885                 -                   -
     2006                               $     4,130          $   2,802         $    1,049         $    3,823         $   11,804

REVPAF:
     2007                               $    11.09           $  11.32          $   11.66                  -                   -
     2006                               $    10.79           $  11.13          $   11.46          $    11.16         $    11.13

Weighted average realized annual rent per occupied square foot:
     2007                               $    12.35          $   12.37          $   12.89                   -                  -
     2006                               $    11.97          $   12.08          $   12.55          $    12.42         $    12.26

Weighted average occupancy levels for the period:
     2007                                    89.8%              91.5%              90.5%                  -                   -
     2006                                    90.1%              92.1%              91.3%               89.8%              90.8%


                                       53




ANALYSIS OF REGIONAL TRENDS

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



                                                 Three Months Ended                       Nine Months Ended
                                             -------------------------  -----------    -------------------------   ----------
                                                   September 30,                             September 30,
                                                                         Percentage                                 Percentage
                                                2007           2006        Change         2007           2006        Change
                                             -----------   -----------  -----------    -----------    -----------  ----------
                                                   (Amounts in thousands, except for weighted average data)
Same Store Facilities Operating Trends
by Region

Rental income:
                                                                                                   
   Southern California  (133 facilities)     $  38,406     $  37,390        2.7%       $ 112,680      $ 109,598         2.8%
   Northern California  (133 facilities)        28,794        28,031        2.7%          84,092         81,453         3.2%
   Texas  (156 facilities)..........            21,554        20,880        3.2%          62,309         60,338         3.3%
   Florida  (141 facilities)........            26,303        27,095      (2.9)%          78,597         79,932       (1.7)%
   Illinois  (92 facilities)........            17,381        16,804        3.4%          50,190         48,191         4.1%
   Georgia  (60 facilities).........             8,231         8,322      (1.1)%          24,248         24,139         0.5%
   All other states  (601 facilities)           96,765        94,898        2.0%         281,156        275,418         2.1%
                                             -----------   -----------  -----------    -----------    -----------  ----------
Total rental income.................           237,434       233,420        1.7%         693,272        679,069         2.1%

Cost of operations before depreciation and amortization:
   Southern California..............             8,112         8,002        1.4%          24,961         25,289       (1.3)%
   Northern California..............             7,008         7,041      (0.5)%          21,445         21,413         0.1%
   Texas............................             8,942         9,016      (0.8)%          27,056         27,024         0.1%
   Florida..........................             9,210         8,958        2.8%          27,186         25,845         5.2%
   Illinois.........................             6,834         6,415        6.5%          21,863         21,083         3.7%
   Georgia..........................             2,734         2,646        3.3%           8,280          8,091         2.3%
   All other states.................            33,220        32,869        1.1%         101,331         98,653         2.7%
                                             -----------   -----------  -----------    -----------    -----------  ----------
Total cost of operations............            76,060        74,947        1.5%         232,122        227,398         2.1%

Net operating income before depreciation and amortization:
   Southern California..............            30,294        29,388        3.1%          87,719         84,309         4.0%
   Northern California..............            21,786        20,990        3.8%          62,647         60,040         4.3%
   Texas............................            12,612        11,864        6.3%          35,253         33,314         5.8%
   Florida..........................            17,093        18,137      (5.8)%          51,411         54,087       (4.9)%
   Illinois.........................            10,547        10,389        1.5%          28,327         27,108         4.5%
   Georgia..........................             5,497         5,676      (3.2)%          15,968         16,048       (0.5)%
   All other states.................            63,545        62,029        2.4%         179,825        176,765         1.7%
                                             -----------   -----------  -----------    -----------    -----------  ----------
Total net operating income before
   depreciation and amortization....         $ 161,374     $ 158,473        1.8%      $  461,150     $  451,671         2.1%

Weighted average occupancy:
   Southern California..............             90.4%        91.0%       (0.7)%           90.7%         91.4%        (0.8)%
   Northern California..............             89.9%        90.5%       (0.7)%           90.3%         90.6%        (0.3)%
   Texas............................             91.7%        91.5%         0.2%           91.2%         91.1%          0.1%
   Florida..........................             89.4%        92.6%       (3.5)%           90.4%         93.1%        (2.9)%
   Illinois.........................             90.0%        91.0%       (1.1)%           89.8%         89.8%          0.0%
   Georgia..........................             91.0%        92.6%       (1.7)%           90.8%         92.9%        (2.3)%
   All other states.................             90.6%        91.2%       (0.7)%           90.6%         90.8%        (0.2)%
                                              -----------   -----------  -----------    -----------    -----------  ----------
Total weighted average occupancy....             90.5%        91.3%       (0.9)%           90.6%         91.2%        (0.7)%

REVPAF:
   Southern California..............         $  17.63      $ 17.16          2.7%      $   17.24      $  16.78           2.7%
   Northern California..............            15.14        14.76          2.6%          14.75         14.30           3.1%
   Texas............................             8.32         8.05          3.4%           8.02          7.76           3.4%
   Florida..........................            11.95        12.33        (3.1)%          11.90         12.13         (1.9)%
   Illinois.........................            11.77        11.39          3.3%          11.35         10.90           4.1%
   Georgia..........................             8.56         8.66        (1.2)%           8.40          8.39           0.1%
   All other states.................            10.67        10.45          2.1%          10.35         10.12           2.3%
                                             -----------   -----------  -----------    -----------    -----------  ---------
Total REVPAF........................         $  11.66      $ 11.46          1.7%      $   11.36      $  11.13           2.1%



                                       54





   Same Store Facilities Operating              Three Months Ended                        Nine Months Ended
   Trend by Region (Continued)               -------------------------  -----------    -------------------------   ----------
                                                   September 30,                             September 30,
                                                                         Percentage                                Percentage
                                                2007           2006        Change         2007           2006        Change
                                             -----------   -----------  -----------    -----------    -----------  ----------
                                                   (Amounts in thousands, except for weighted average data)
Realized annual rent per occupied square foot:
                                                                                                      
   Southern California..............         $  19.50      $  18.86         3.4%      $   19.01      $  18.36           3.5%
   Northern California..............            16.85         16.31         3.3%          16.33         15.79           3.4%
   Texas............................             9.08          8.80         3.3%           8.79          8.52           3.2%
   Florida..........................            13.37         13.31         0.5%          13.17         13.03           1.1%
   Illinois.........................            13.08         12.52         4.5%          12.64         12.14           4.1%
   Georgia..........................             9.41          9.36         0.5%           9.25          9.03           2.4%
   All other states.................            11.78         11.46         2.8%          11.42         11.15           2.4%
                                             -----------   -----------  -----------   -----------    -----------   ----------
Total realized rent per square foot.         $  12.89      $  12.55         2.7%      $   12.54      $  12.20           2.8%
                                             ===========   ===========  ===========   ===========    ===========   ==========

In place annual rent per occupied square foot at September 30:
Southern California.................                                                  $   20.45      $  19.74           3.6%
Northern California.................                                                      17.66         17.08           3.4%
Texas...............................                                                       9.45          9.27           1.9%
Florida.............................                                                      14.30         13.99           2.2%
Illinois............................                                                      13.55         13.10           3.4%
Georgia.............................                                                      10.10          9.88           2.2%
All other states....................                                                      12.30         12.06           2.0%
                                                                                      -----------    -----------   ----------
Total in place rent per occupied square foot:                                         $   13.97      $  13.54           3.2%
                                                                                      ===========    ===========   ==========


     The Southern  California  Market  consists  principally  of the greater Los
Angeles area and San Diego, and has historically  been a source of strong growth
due to its  diverse  economy  and  continued  population  growth.  In  addition,
barriers  to entry  in the form of  difficult  permitting  requirements  tend to
reduce the potential for increased  competition in the infill locations where we
focus our operations.

     The Northern  California  market consists  principally of San Francisco and
related  peripheral areas.  While this area has a vibrant economy and relatively
strong population  growth,  it has been subject to general economic  conditions,
principally issues associated with the technology sector. In addition, there has
been increased competition in the areas that we do business,  principally in the
peripheral  areas near San Francisco,  due to new supply.  As a result,  revenue
growth in this area has been average relative to our other markets.

     The Texas market principally includes Dallas, Houston and San Antonio. This
market has  historically  been subject to volatility  due to minimal  regulatory
restraint upon building, which results in cycles of overbuilding and absorption.
For the  last few  years,  we have  been in a period  of  increased  supply  and
competition  in the areas we operate,  and as a result  revenue  growth has been
average relative to other markets.

     The Florida market  principally  includes Miami,  Orlando,  Tampa, and West
Palm Beach.  These markets were our strongest in terms of revenue growth in 2005
and 2006, due in part to increased  moving and storage demand resulting from the
impact of  hurricane  activity  in 2005 and 2004.  However,  growth in  revenues
during the first nine months of 2007 has  moderated due primarily to the lack of
hurricane activity during the 2006 season resulting in difficult  year-over-year
comparisons,  and we expect this trend to  continue  throughout  2007.  Over the
longer  term,  we  believe  that this  market  benefits  from  continued  strong
population growth and barriers to entry.

                                       55


         SAME STORE FACILITIES - SHURGARD

     In  connection  with the  Shurgard  merger,  we acquired  487  self-storage
facilities in the United States located in 23 states.  A total of 343 facilities
have been  operating at a  stabilized  occupancy  level for several  years under
Shurgard  management  prior to the  merger  and then  under the  Public  Storage
management following the merger. These stabilized  facilities are referred to as
"Shurgard Same Store Facilities."

     As  reflected  in a  preceding  table  entitled  "Domestic  self -  storage
operations  summary" above, the historical  operating  results for this group of
facilities  increased  significantly  for both the three and nine  months  ended
September  30, 2007 as compared to the same periods in 2006.  This  increase was
primarily the result of having only a partial period's  operating results in the
2006  periods;  from  August 23,  2006  (date of the  Shurgard  merger)  through
September 30, 2006.

     To provide  additional  comparative  operating  data,  the table below sets
forth the  operations  of the  Shurgard  Same  Store  Facilities  for the entire
periods  presented  without regard to the timing of the merger.  We believe that
this presentation more effectively portrays how these facilities are performing,
notwithstanding  that the data  presented  for the 2006 periods do not represent
that actual results included in our operations for the 2006 periods.



Shurgard Domestic Same Store Facilities: (a)                  Three Months Ended                      Nine Months Ended
                                                        -------------------------  ---------    --------------------------  --------
                                                              September 30,                          September 30,
                                                                                   Percentage                             Percentage
                                                            2007         2006        Change        2007         2006        Change
                                                        ------------   ----------  ---------    -----------   ----------   ---------
Revenues:                                                      (Dollar amounts in thousands, except weighted average amounts)

                                                                                                              
    Rental income.................................       $   67,041     $ 62,826       6.7%     $   194,351   $  185,603        4.7%
    Late charges and administrative fees collected            2,272        2,364     (3.9)%           6,453        6,569      (1.8)%
                                                         ------------   ----------  ---------   ------------  -----------   --------
    Total revenues (b)............................           69,313       65,190       6.3%         200,804      192,172        4.5%
                                                         ------------   ----------  ---------   ------------  -----------   --------
Cost of operations (excluding depreciation):
    Property taxes ...............................            6,713        6,329       6.1%          19,907       18,499        7.6%
    Direct property payroll.......................            4,214        6,922    (39.1)%          13,208       22,273     (40.7)%
    Advertising and promotion.....................            1,513        1,323      14.4%           5,625        3,218       74.8%
    Utilities.....................................            1,870        1,963     (4.7)%           5,526        5,378        2.8%
    Repairs and maintenance.......................            2,034        1,299      56.6%           6,032        4,251       41.9%
    Telephone reservation center..................              519          162     220.4%           1,626          162      903.7%
    Property insurance............................              625          491      27.3%           2,032        1,172       73.4%
    Other costs of management.....................            4,330        5,190    (16.6)%          13,368       17,139     (22.0)%
                                                         ------------   ----------  ---------   ------------  -----------   --------
  Total cost of operations (b)....................           21,818       23,679     (7.9)%          67,324       72,092      (6.6)%
                                                         ------------   ----------  ---------   ------------  -----------   --------
   Net operating income (excluding depreciation) (c)     $   47,495     $ 41,511      14.4%     $   133,480   $  120,080       11.2%
                                                         ============   ==========  =========   ============  ===========   ========
Gross margin (before depreciation)................            68.5%        63.7%       7.5%           66.5%        62.5%        6.4%
Weighted average for the period:
  Square foot occupancy (d).......................            89.4%        84.8%       5.4%          88.7%         84.2%        5.3%
  Realized annual rent per occupied square foot (e)      $    13.76     $  13.60       1.2%     $    13.40    $    13.48      (0.6)%
  REVPAF (f) (g)..................................       $    12.30     $  11.53       6.7%     $    11.89    $    11.35        4.8%

Weighted average at September 30:
  Square foot occupancy...........................                                                   88.5%        84.7%        4.5%
  In place annual rent per occupied square foot (h)                                             $   14.68     $   14.60        0.5%

Total net rentable square feet (in thousands).....                                                  21,797       21,797         -
Number of facilities..............................                                                     343          343         -


(a)  Operating data reflects the operations of these  facilities  without regard
     to the time period in which Public Storage owned the facilities.

                                       56


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

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

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

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

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

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

(h)  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.

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

     As noted above, the Public Storage Same-Store Facilities had occupancies of
approximately 90.6% at September 30, 2007, as compared to 88.7% for the acquired
Shurgard Same Store  Facilities.  It has been our objective to continue to close
this occupancy gap in order to increase REVPAF. In attempting to accomplish this
objective,  we significantly  expanded our domestic  pricing,  promotional,  and
media  programs,  and as a result,  aggregate media costs increased in the first
two  quarters of 2007 versus the  aggregate  level of spending  incurred for the
same period in 2006.

     As a result,  we have  improved the  occupancy  of the Shurgard  Same-Store
Facilities,  with average occupancy up 5.3% at September 30, 2007 as compared to
September 30, 2006.  As we have raised the occupancy of the Shurgard  Same-Store
facilities, we have recently been able to be less aggressive on pricing and as a
result our trends in realized rent per occupied square foot trends have improved
from a reduction of 1.3% in the first six months of 2007 as compared to the same
period in 2006,  to a 1.2%  increase in the third quarter of 2007 as compared to
the same  period in 2006.  For the  fourth  quarter of 2007,  we expect  revenue
growth for this group of  properties  to be higher than the Public  Storage Same
Store group, primarily due to a higher year-over year occupancy spread.

     Property tax expense  increased  6.1% and 7.6% in the three and nine months
ended September 30, 2007, respectively, as compared to the same periods in 2006,
due  to  higher  assessments  following  the  merger,  including  properties  in
California.

                                       57


     Beginning  January 2007, former Shurgard  employees became  participants in
the Public Storage  compensation  and benefit plan,  which in general has lower
wage rates and  benefit  plan  costs than the  historical  Shurgard  plan.  This
decline is reflected in direct  payroll  costs,  which have  declined  39.1% and
40.7% in the three and nine months ended  September 30, 2007,  respectively,  as
compared  to the same  periods  in 2006.  We expect  these  reduction  trends to
moderate in the fourth  quarter of 2007,  because  turnover  of former  Shurgard
employees  was high  immediately  following  the  merger  and as a result in the
fourth  quarter of 2006 the  proportion  of legacy  Shurgard  employees,  at the
higher wage rates and benefit plan costs, was lower than in the third quarter of
2006.

     Overall  advertising  and promotion  increased 14.4% and 74.8% in the three
and nine months ended September 30, 2007, respectively,  as compared to the same
periods in 2006,  due primarily to our media  advertising  expenditures,  offset
partially by lower yellow page  advertising  expense.  As noted  previously,  we
increased  advertising  and  promotional  activities  immediately  following the
merger  with  Shurgard  and  continued  through the first nine months of 2007 in
order to improve the occupancy levels of the facilities acquired in the merger.

     Utility expense decreased 4.7% in the three months ended September 30, 2007
and increased  2.8% in the nine months ended  September 30, 2007, as compared to
the same periods in 2006, due primarily to higher utility rates.

     Other  cost of  management,  which  principally  includes  supervisory  and
indirect  overhead  costs,  decreased  by 16.6% and 22.0% for the three and nine
months ended September 30, 2007, as compared to the same periods in 2006.  These
reductions  principally  represent the  synergies  created by the merger and the
elimination of duplicative operating functions.

                                       58


         OTHER FACILITIES

     In  addition  to the Public  Storage  and  Shurgard  Same  Store  groups of
facilities,  at  September  30,  2007,  we had  320  facilities  that  were  not
classified  into  either  of these  pools.  These  properties  include  recently
acquired  facilities,  recently  developed  facilities and facilities  that were
recently  expanded  by  adding  additional  storage  units.  In  general,  these
facilities are not stabilized  with respect to occupancies or rental rates. As a
result of the fill-up  process and timing of when the  facilities  were put into
place, year-over-year changes can be significant.

     The  following  table  summarizes  operating  data  with  respect  to these
facilities.



OTHER FACILITIES - NON STABILIZED                        Three Months Ended                       Nine Months Ended
                                                             September 30                           September 30,
                                                       -----------------------    ---------    ----------------------     ----------
                                                            2007         2006        Change         2007        2006         Change
                                                       ----------   ----------    ---------    ----------   ---------     ----------
                                                                 (Dollar amounts in thousands, except square foot amounts)
Rental income:
                                                                                                      
   Facilities put in place in 2007...............       $     799   $       -     $      799    $   1,189   $      -       $  1,189
   Facilities put in place in 2006...............          34,241      16,709         17,532       98,319      25,792        72,527
   Facilities put in place prior to 2006.........          14,320      12,955          1,365       40,940      35,916         5,024
   Deconsolidated Shurgard facilities (a)........               -         585           (585)       2,198         585         1,613
   Expansion facilities..........................          21,770      19,889          1,881       60,933      55,775         5,158
                                                        ---------   ----------    ----------    ----------   ---------     ---------
   Total rental income...........................          71,130      50,138         20,992      203,579     118,068        85,511
                                                        ---------   ----------    ----------    ----------   ---------     ---------
Cost of operations before depreciation and
    amortization:
   Facilities put in place in 2007...............       $     396   $      -      $      396    $     613   $      -       $    613
   Facilities put in place in 2006...............          11,875       5,981          5,894       37,402       8,757        28,645
   Facilities put in place prior to 2006.........           4,598       4,382            216       14,078      13,238           840
   Deconsolidated Shurgard facilities (a)........               -         234           (234)         916         234           682
   Expansion facilities..........................           7,202       6,522            680       21,620      19,537         2,083
                                                        ---------   ----------    ----------    ----------   ---------     ---------
   Total cost of operations                                24,071      17,119          6,952       74,629      41,766        32,863
                                                        ---------   ----------    ----------    ----------   ---------     ---------
Net operating income before depreciation and
    amortization:
   Facilities put in place in 2007...............       $     403   $     -       $     403     $    576    $     -        $    576
   Facilities put in place in 2006...............          22,366      10,728        11,638       60,917      17,035         43,882
   Facilities put in place prior to 2006.........           9,722       8,573         1,149       26,862      22,678          4,184
   Deconsolidated Shurgard facilities (a)........               -         351          (351)       1,282         351            931
   Expansion facilities..........................          14,568      13,367         1,201       39,313      36,238          3,075
                                                        ---------   ----------    ----------    ----------   ---------     ---------
   Total net operating income before depreciation and
      amortization (b)                                     47,059      33,019        14,040      128,950      76,302         52,648
Depreciation and amortization....................         (29,817)    (21,036)       (8,781)     (95,649)    (37,678)       (57,971)
                                                        ---------   ----------    ----------    ----------  ---------      ---------
   Net operating income..........................       $  17,242   $  11,983     $   5,259     $ 33,301    $ 38,624       $ (5,323)
                                                        =========   ==========    ==========    ==========  =========      =========
Weighted average square foot occupancy during the
period:
   Facilities put in place in 2007...............          59.7%         -              -          61.9%         -              -
   Facilities put in place in 2006...............          85.9%        80.2%          7.1%        83.4%        80.2%          4.0%
   Facilities put in place prior to 2006.........          86.7%        84.5%          2.6%        86.0%        82.1%          4.8%
   Deconsolidated Shurgard facilities (a)........           -           84.6%           -          89.0%        84.6%          5.2%
   Expansion facilities                                    82.9%        82.3%          0.7%        81.6%        79.9%          2.1%
                                                        ---------   ----------    ----------    ----------  ---------      ---------
                                                           84.7%        81.8%          3.5%        83.1%        80.6%          3.1%
                                                        =========   ==========    ==========    ==========  =========      =========


                                       59





OTHER FACILITIES - NON STABILIZED                        Three Months Ended                       Nine Months Ended
                                                             September 30                           September 30,
                                                       -----------------------    ---------    ----------------------     ----------
                                                          2007         2006        Change        2007        2006          Change
                                                       ----------   ----------    ---------    ----------   ---------     ----------
Weighted average realized annual rent per occupied
square foot for the period:

                                                                                            
   Facilities put in place in 2007...............      $   15.41    $      -          -        $   15.12    $      -            -
   Facilities put in place in 2006...............          12.74        12.32        3.4%          12.41        11.91          4.2%
   Facilities put in place prior to 2006 ........          14.74        13.71        7.5%          14.17        13.06          8.5%
   Deconsolidated Shurgard facilities (a)........              -         9.82         -             9.52         9.82        (3.1)%
   Expansion facilities                                    13.12        12.81        2.4%          12.83        12.43          3.2%
                                                       ----------   ----------    ---------    ----------   ---------      ---------
                                                       $   13.33    $   12.89        3.4%      $   12.91    $   12.51          3.2%
                                                       ==========   ==========    =========    ==========   =========      =========
In place annual rent per occupied square foot at
September 30:
   Facilities put in place in 2007...............                                              $   16.79    $     -              -
   Facilities put in place in 2006...............                                                  13.89        13.57           2.4%
   Facilities put in place prior to 2006 ........                                                  15.89        14.87           6.9%
   Deconsolidated Shurgard facilities (a)........                                                     -         14.62            -
   Expansion facilities                                                                            14.15        13.82           2.4%
                                                                                               ----------   ---------     ----------
                                                                                               $   14.37    $   13.90           3.4%
                                                                                               ==========   =========     ==========
At September 30:
    Number of Facilities:
      Facilities put in place in 2007............                                                      9            -             9
      Facilities put in place in 2006 (c)........                                                    166          164             2
      Facilities put in place prior to 2006 .....                                                     58           58             -
      Deconsolidated Shurgard facilities (a).....                                                      -           11           (11)
      Expansion facilities.......................                                                     87           87             -
                                                                                               ----------   ---------     ----------
                                                                                                     320          320             -
                                                                                               ==========   =========     ==========
    Net rentable square feet (in thousands):
      Facilities put in place in 2007............                                                    613            -           613
      Facilities put in place in 2006............                                                 12,057       11,819           238
      Facilities put in place prior to 2006......                                                  4,352        4,352             -
      Deconsolidated Shurgard facilities (a).....                                                      -          624          (624)
      Expansion facilities.......................                                                  7,763        7,424           339
                                                                                               ----------   ---------     ----------
                                                                                                  24,785       24,219           566
                                                                                               ==========   =========     ==========


(a)  Represents  the  operations  of 11  facilities  acquired in the merger with
     Shurgard  which  we no  longer  consolidate  in  our  financial  statements
     effective May 24, 2007. The operations for these facilities from August 23,
     2006 through May 24, 2007 are included in this table.

(b)  Total net operating income before depreciation and amortization or "NOI" is
     a non-GAAP  (generally accepted  accounting  principles)  financial measure
     that excludes the impact of depreciation and amortization  expense, for our
     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 12 to our  September  30, 2007
     condensed   consolidated   financial  statements,   "Segment  Information."
     Although  depreciation and amortization are operating expenses,  we believe
     that NOI is a  meaningful  measure  of  operating  performance,  because we
     utilize NOI in making  decisions  with respect to capital  allocations,  in
     determining  current property values,  segment  performance,  and comparing
     period-to-period  and  market-to-market  property operating results. NOI is
     not  a  substitute  for  net  operating   income  after   depreciation  and
     amortization in evaluating our operating results.

(c)  Includes  133  facilities  acquired in the  Shurgard  merger  which are not
     stabilized,  as well as 33 other  facilities  that were  acquired  or newly
     developed in 2006.

                                       60


     The  properties  denoted  under  "Facilities  put in  place  in  2007"  and
"Facilities  put in place in 2006"  were put into  operation  within  the Public
Storage system at various dates throughout each period  presented.  Accordingly,
rental income, cost of operations,  depreciation, net operating income, weighted
average square foot occupancies and realized rents per square foot represent the
operating results for the partial period that we owned the facilities during the
year acquired. In addition, in place rents per occupied square foot at September
30, 2007 and 2006,  reflect the amounts for those facilities we owned at each of
those respective dates.

     In the first nine months of 2007, we acquired seven  facilities,  in single
property  transactions,  for an aggregate cost of $72,787,000.  These facilities
contain, in aggregate approximately,  511,000 net rentable square feet, with one
facility  located in Hawaii and the  remainder in  California.  In addition,  we
completed  development  of two  facilities  with  aggregate  square  footage  of
approximately 102,000 and cost of $13,710,000.

     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  non-stabilized  facilities  will  continue  to provide
earnings  growth  during  2007 and into  2008 as these  facilities  continue  to
improve their occupancy levels as well as realized rental rates.

     We acquired 487 self-storage facilities in 23 U.S. states with 32.3 million
net rentable square feet in connection with the Shurgard  merger.  Effective May
24, 2007, due to a loss in control of the related  partnerships that owned these
facilities, we began deconsolidating 11 of these facilities with an aggregate of
624,000 net rentable square feet (referred to hereinafter as "The Deconsolidated
Shurgard  Properties.").  The  476  Shurgard  facilities  that  continue  to  be
consolidated  on our financial  statements at September 30, 2007 are referred to
as the  "Consolidated  Shurgard  Properties."  With respect to the  Consolidated
Shurgard  Properties,  the operating  data presented in the table above reflects
the historical data from January 1 through  September 30, 2007, the period owned
and  operated by Public  Storage.  With respect to the  Deconsolidated  Shurgard
Properties,  the operating  data  presented  includes the  historical  data from
August 23, 2006  through  May 24,  2007.  Our  pro-rata  share of the  operating
results  of the  Deconsolidated  Shurgard  Properties  after  May 24,  2007  are
presented as a component of Equity in Earnings of Real Estate Entities.

     Development of self-storage  facilities causes short-tem  earnings dilution
because 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  increase  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 increased in  construction  cost,  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.

                                       61


         SHURGARD EUROPEAN OPERATING DATA

     In the merger with Shurgard,  we acquired 160  facilities  located in seven
European  countries  with an aggregate of  8,385,000  net rentable  square feet.
During 2007,  we opened four  facilities  in Europe with an aggregate of 203,000
net  rentable  square  feet.  At September  30,  2007,  our European  operations
comprise 169 facilities with an aggregate of 8,846,000 net rentable square feet,
of which,  96 of these  facilities  are  referred  to as the  Europe  Same Store
Facilities  (defined  below).  Of the 169 facilities,  103 facilities are wholly
owned, with the remaining 66 facilities owned by the European  Development Joint
Venture, in which we have a 20% equity interest.



Europe self - storage operations summary:                Three Months Ended                  Nine Months Ended
-----------------------------------------                  September 30,                       September 30,
                                                   ------------------------  -----------  --------------------------   ------------
                                                                             Percentage                                 Percentage
                                                      2007         2006        Change         2007         2006          Change
                                                   -----------  -----------  -----------   ----------   ------------    -----------
                                                                           (Dollar amounts in thousands)
Rental income:
                                                                                                         
   Same Store Facilities - Shurgard Europe (a).     $   32,798   $   12,012     173.0       $  93,393    $   12,012        677.5%
   Other wholly-owned facilities (b)...........          2,250          955     135.6%          6,768           955        608.7%
   Joint Venture Facilities (c) (d)............         15,024        4,381     242.9%         40,130         4,381        816.0%
                                                    -----------  -----------  -----------   ----------   ------------    -----------
     Total rental income.......................         50,072       17,348     188.6%        140,291        17,348        708.7%
                                                    -----------  -----------  -----------   ----------   ------------    -----------
Cost of operations before depreciation and
    amortization (e):
   Same Store Facilities - Shurgard Europe.....         12,033        5,048     138.4%         37,756         5,048        647.9%
   Other wholly-owned facilities...............            816          375     117.6%          2,646           375        605.6%
   Joint Venture Facilities....................          8,573        3,101     176.5%         27,180         3,101        776.5%
                                                    -----------  -----------  -----------   ----------   ------------    -----------
      Total cost of operations.................         21,422        8,524     151.3%         67,582         8,524        692.8%
                                                    -----------  -----------  -----------   ----------   ------------    -----------
Net operating income before depreciation and
    amortization (e):
   Same Store Facilities - Shurgard Europe.....         20,765        6,964     198.2%         55,637         6,964         698.9%
   Other wholly-owned facilities...............          1,434          580     147.2%          4,122           580         610.7%
   Joint Venture Facilities....................          6,451        1,280     404.0%         12,950         1,280         911.7%
                                                    -----------  -----------  -----------   ----------   ------------    -----------
   Total net operating income before
        depreciation and amortization (e)......         28,650        8,824     224.7%         72,709         8,824         724.0%
Depreciation and amortization expense..........        (31,899)     (15,020)    112.4%       (110,101)      (15,020)        633.0%
                                                    -----------  -----------  -----------   ----------   ------------    -----------
Net operating loss.............................     $   (3,249)  $   (6,196)    (47.6)%     $ (37,392)   $   (6,196)        503.5%
                                                    ===========  ===========  ===========   ==========   ============    ===========
Weighted average square foot occupancy during
   the period..................................
     Same Store Facilities - Shurgard Europe...          91.0%        87.5%       4.0%          89.7%         87.5%           2.5%
     Other wholly-owned facilities.............          88.1%        89.2%      (1.2)%         88.1%         89.2%         (1.2)%
     Joint Venture Facilities..................          78.6%        70.6%      11.3%          73.3%         70.6%           3.8%
                                                    -----------  -----------  -----------   ----------   ------------    -----------
                                                         86.4%        81.9%       5.5%          83.6%         81.9%           2.1%
                                                    ===========  ===========  ===========   ==========   ============    ===========
At September 30:
   Number of Facilities:
     Same Store Facilities - Shurgard Europe...                                                    96            96             -
     Other wholly-owned facilities.............                                                     7             7             -
     Joint Venture Facilities..................                                                    66            57          15.8%
                                                                                            ----------   ------------    -----------
                                                                                                  169           160           5.6%
                                                                                            ==========   ============    ===========

   Net rentable square feet (in thousands):
     Same Store Facilities - Shurgard Europe...                                                 5,286         5,286             -
     Other wholly-owned facilities.............                                                   291           291             -
     Joint Venture Facilities..................                                                 3,269         2,808          16.4%
                                                                                            ----------   ------------    -----------
                                                                                                8,846         8,385           5.5%
                                                                                            ==========   ============    ===========


                                       62


(a)  The European Same Store  facilities,  described  below, are comprised of 96
     facilities  that are wholly owned.  (b) The other  wholly-owned  facilities
     include  seven  facilities  that we wholly  own,  which are not  considered
     European Same Store facilities.

(c)  There are four facilities,  which were acquired or developed the first nine
     months  of  2007  for an  aggregate  of  approximately  $31,271,000.  These
     facilities are owned by the European Development Joint Venture.

(d)  The  European  Development  Joint  Venture,  in which we have a 20%  equity
     interest, owns an additional 62 facilities which were acquired or developed
     from 2003 to 2006.

(e)  Total net operating income before depreciation and amortization or "NOI" is
     a non-GAAP  (generally accepted  accounting  principles)  financial measure
     that excludes the impact of depreciation and amortization  expense, for our
     commercial  property  segment  is  presented  in Note  12 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.  Although depreciation and amortization are
     operating  expenses,  we  believe  that  NOI  is a  meaningful  measure  of
     operating  performance,  because we utilize  NOI in making  decisions  with
     respect to capital  allocations,  in determining  current  property values,
     segment  performance,  and comparing  period-to-period and market-to-market
     property  operating  results.  NOI is not a  substitute  for net  operating
     income after  depreciation  and  amortization  in evaluating  our operating
     results.

     Amounts  presented  in the table above  reflect  significant  increases  in
revenues and cost of  operations,  in the three and nine months ended  September
30,  2007 as  compared  to the same  periods  in 2006,  due to the  merger  with
Shurgard  which was  completed  on August 23, 2006 (see Note 3 to the  condensed
consolidated  financial  statements).  The  operating  results  of  all  of  the
facilities  acquired  in the merger and  located in Europe are  included  in our
financial  statements  and in the  table  above  for the  period  we  owned  the
facilities.

     The  Joint  Venture  opened  four  facilities  in 2007  with  an  aggregate
development  cost of $31,271,000.  Revenues and expenses  presented in the table
above  with  respect  to  these   properties   totaled  $231,000  and  $486,000,
respectively,  for the three  months ended  September  30, 2007 and $325,000 and
$1,102,000, respectively for the nine months ended September 30, 2007.

     The operating data presented in the table below reflect the historical data
from January 1 to September  30, 2006,  the period for which the 96  facilities,
which have been operated by Shurgard since January 1, 2005,  with the historical
data from January 1 through September 30, 2007, the period operated under Public
Storage. In addition,  such amounts are reflected utilizing the average exchange
rates for the three months ended September 30, 2007,  rather than the respective
exchange  rates in  effect  for each  period.  We  present  this  data on such a
"constant exchange rate" basis because we believe it allows comparability of the
various  periods,  and isolates the impact of exchange rates with respect to the
trends in revenues and cost of operations.

     As a result,  the data presented  below does not reflect the actual results
included in our  operations  for the three and nine months ended  September  30,
2006,  and does not  represent  the actual  amounts  reflected in our  financial
statements  for the quarter or nine months ended  September  30,  2007.  We have
applied our  definition  of what  qualifies  as a Same Store.  As a result,  the
number of properties  included in the Shurgard European Same Store portfolio has
decreased  from 123 facilities (as reported by Shurgard in the second quarter of
2006) to 96 facilities as is currently being reported.

                                       63






Selected  Operating  Data  for  the  96  facilities
operated by Shurgard  Europe on a  stabilized  basis
since   January   1,  2005   ("Europe   Same  Store
Facilities"): (a)
--------------                                             Three Months Ended                         Nine Months Ended
                                                             September 30,                              September 30,
                                                       ------------------------             ----------------------------------------
                                                                                Percentage                             Percentage
                                                          2007         2006       Change         2007       2006         Change
                                                       ------------ ----------- ----------- ------------ ------------ --------------
                                                      (Dollar amounts in thousands, except weighted average data, utilizing constant
                                                                                      exchange rates) (b)
Revenues:

                                                                                                           
    Rental income.................................     $    32,475  $    29,660       9.5%  $    92,478  $   84,229          9.8%
    Late charges and administrative fees collected             323          286      12.9%          915         820         11.6%
                                                       ------------ ----------- ----------- ------------ ------------ --------------
    Total revenues (c)............................          32,798       29,946       9.5%       93,393      85,049          9.8%


Cost of operations (excluding depreciation):
    Property taxes ...............................           1,525        1,359      12.2%        4,187       3,978          5.3%
    Direct property payroll.......................           3,680        4,159    (11.5)%       10,889      12,288       (11.4)%
    Advertising and promotion.....................             738        1,270    (41.9)%        3,270       4,725       (30.8)%
    Utilities.....................................             630          749    (15.9)%        2,202       2,457       (10.4)%
    Repairs and maintenance.......................             790          967    (18.3)%        2,351       2,685       (12.4)%
    Property insurance............................             231          373    (38.1)%          932       1,114       (16.3)%
    Other costs of management.....................           4,439        4,712     (5.8)%       13,925      14,053        (0.9)%
                                                       ------------ ----------- ----------- ------------ ------------ --------------
  Total cost of operations (c)....................          12,033       13,589    (11.5)%       37,756      41,300        (8.6)%
                                                       ------------ ----------- ----------- ------------ ------------ --------------
   Net operating income (excluding depreciation) (d)   $   20,765   $   16,357       26.9%  $   55,637   $  43,749          27.2%
                                                       ============ =========== =========== ============ ============ ==============
Gross margin (before depreciation)................           63.3%        54.6%      15.9%        59.6%       51.4%         16.0%
Weighted average for the period:
  Square foot occupancy (e).......................           91.0%        86.7%       5.0%        89.7%       84.0%          6.8%
  Realized annual rent per occupied square foot (f)         $27.00       $25.89       4.3%       $26.01      $25.29          2.8%
  REVPAF (g) (h)..................................          $24.57       $22.44       9.5%       $23.33      $21.25          9.8%

Weighted average at September 30:
  Square foot occupancy...........................                                                91.4%       88.4%          3.4%
  In place annual rent per occupied square foot (i)                                              $28.34      $26.41          7.3%
Total net rentable square feet (in thousands).....                                               5,286        5,286             -




(a)  Operating data reflects the operations of these  facilities  without regard
     to the time period in which Public Storage owned the  facilities;  only the
     amounts for the period January 1 through September 30, 2007 are included in
     our consolidated operating results.

(b)  The majority of our  European  operations  are  denominated  in Euros.  For
     comparative purposes, amounts for the three months ended September 30, 2006
     and 2007 are translated at constant exchange rates representing the average
     exchange rates for the three months ended  September 30, 2007.  Amounts for
     the nine months ended  September  30, 2006 and 2007 are also  translated at
     constant  exchange rates,  representing  the average exchange rates for the
     nine months ended  September  30, 2007.  The average  exchange rate for the
     Euro was  approximately  1.374 and 1.344,  respectively,  in US Dollars per
     Euro for the three and nine months ended September 30, 2007, respectively.

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

(d)  Net  operating  income  (excluding  depreciation)  or "NOI"  is a  non-GAAP
     (generally accepted accounting  principles) financial measure that excludes
     the impact of depreciation  expense.  Although depreciation is an operating
     expense,  we  believe  that  NOI  is  a  meaningful  measure  of  operating
     performance,  because we utilize NOI in making  decisions  with  respect to
     capital  allocations,  in  determining  current  property  values,  segment

                                       64


     performance,  and comparing  period-to-period and market-to-market property
     operating  results.  NOI is not a substitute for net operating income after
     depreciation  in evaluating  our operating  results.  We have not presented
     depreciation  and  amortization  expense for these  facilities  because the
     depreciation and amortization  expense is based upon historical cost, which
     is substantially different before the merger and after.

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

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

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

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

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

         The European  Same Store  properties  continue to reflect above average
growth. With occupancy stabilized at above 90%, we believe we have pricing power
and expect to generate  additional  growth  through rental rate  increases.  The
properties  are also  benefiting  from  expense  control,  resulting in negative
expense  growth.  The European team is selectively  adapting  various  operating
strategies  we use in the  United  States  and  incorporating  them  into  their
operating model.

         The following  table sets forth certain  regional  trends in the Europe
Same Store facilities:



                                                   Three Months Ended                     Nine Months Ended
                                                      September 30,                         September 30,
                                                 -------------------------            --------------------------------------
                                                                           Percentage                             Percentage
                                                    2007         2006        Change         2007         2006        Change
                                                 ------------  ----------- ---------- -----------   ------------  ----------
                                                         (Dollar amounts in thousands, except per square foot amounts)
Rental income:
                                                                                                   
   Belgium.....................................   $    4,072   $    3,709     9.8%    $   11,589    $   10,735       8.0%
   Denmark.....................................        1,501        1,315    14.1%         4,265         3,733       14.3%
   France......................................        8,298        7,709     7.6%        23,747        21,846        8.7%
   Netherlands.................................        6,680        5,838    14.4%        18,813        16,634       13.1%
   Sweden......................................        6,833        6,358     7.5%        19,568        18,239        7.3%
   United Kingdom..............................        5,414        5,017     7.9%        15,411        13,862       11.2%
                                                 ------------  ----------- ---------- -----------   ------------  ----------
     Total rental income.......................   $   32,798   $   29,946     9.5%    $   93,393    $   85,049        9.8%
                                                 ============  =========== ========== ===========   ============  ==========
Cost of operations before depreciation and
    amortization (a):

   Belgium.....................................   $    1,669   $    2,021   (17.4)%   $    5,034    $    6,090      (17.3)%
   Denmark.....................................          452          653   (30.8)%        1,529         1,956      (21.8)%
   France......................................        3,204        3,609   (11.2)%       10,316        10,737       (3.9)%
   Netherlands.................................        2,407        2,624    (8.3)%        7,471         8,059       (7.3)%
   Sweden......................................        2,317        2,571    (9.9)%        7,447         8,181       (9.0)%
   United Kingdom..............................        1,984        2,111    (6.0)%        5,959         6,277       (5.1)%
                                                 ------------  ----------- ---------- -----------   ------------  ----------
     Total cost of operations before
     depreciation and amortization.............   $   12,033   $   13,589    (11.5)%  $   37,756    $   41,300       (8.6)%
                                                 ============  =========== ========== ===========   ============  ==========



                                       65







                                                   Three Months Ended                     Nine Months Ended
                                                      September 30,                         September 30,
                                                 -------------------------            --------------------------------------
                                                                           Percentage                             Percentage
                                                    2007         2006        Change       2007          2006        Change
                                                 ------------  ----------- ---------- -----------   ------------  ----------
                                                         (Dollar amounts in thousands, except per square foot amounts)

Weighted average occupancy levels for the period:
                                                                                                     
   Belgium.....................................        88.8%        81.3%       9.2%       86.5%         79.2%         9.2%
   Denmark.....................................        93.7%        91.1%       2.9%       93.9%         90.0%         4.3%
   France......................................        91.1%        89.2%       2.1%       90.4%         86.1%         5.0%
   Netherlands.................................        90.1%        84.8%       6.3%       88.5%         81.4%         8.7%
   Sweden......................................        92.7%        90.5%       2.4%       92.1%         88.6%         4.0%
   United Kingdom..............................        92.5%        85.6%       8.1%       90.1%         81.6%        10.4%
                                                 ------------  ----------- ---------- -----------   ------------  ----------
                                                       91.0%        86.7%       5.0%       89.7%         84.0%         6.8%
                                                 ============  =========== ========== ===========   ============  ==========
Weighted average realized annual rent per
    occupied square foot:
   Belgium.....................................    $   18.13   $    18.06       0.4%   $   17.66    $    17.91        (1.4)%
   Denmark.....................................        30.26        27.29      10.9%       28.59         26.15         9.3%
   France......................................        29.14        27.56       5.7%       28.00         26.97         3.8%
   Netherlands.................................        25.07        23.29       7.6%       23.96         23.03         4.0%
   Sweden......................................        25.84        24.70       4.6%       24.86         24.11         3.1%
   United Kingdom..............................        43.15        43.21      (0.1)%      42.04         41.76         0.7%
                                                 ------------  ----------- ---------- -----------   ------------  ----------
                                                   $   27.00   $    25.89       4.3%   $   26.01    $    25.29         2.8%
                                                 ============  =========== ========== ===========   ============  ==========
Net rentable square feet (in thousands):
   Belgium.....................................                                              999           999            -
   Denmark.....................................                                              210           210            -
   France......................................                                            1,236         1,236            -
   Netherlands.................................                                            1,172         1,172            -
   Sweden......................................                                            1,130         1,130            -
   United Kingdom..............................                                              539           539            -
                                                                                      -----------   ------------  ----------
                                                                                           5,286         5,286            -
                                                                                      ===========   ============  ==========
Number of facilities:
   Belgium.....................................                                               17            17            -
   Denmark.....................................                                                4             4            -
   France......................................                                               23            23            -
   Netherlands.................................                                               22            22            -
   Sweden......................................                                               20            20            -
   United Kingdom..............................                                               10            10            -
                                                                                      -----------   ------------  ----------
                                                                                              96            96            -
                                                                                      ===========   ============  ==========


                                       66



         ANCILLARY OPERATIONS:  Ancillary operations include (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)
containerized  storage  operations,  (iv)  truck  rentals  at  our  self-storage
facilities  and (v)  commercial  property  operations,  and (vi)  management  of
facilities  owned by third-party  owners and facilities owned by affiliates that
are not included in our consolidated financial statements.

         The following table sets forth our ancillary operations:




                                             Three Months Ended                       Nine Months Ended
                                                September 30,                           September 30,
                                          ------------------------               -------------------------
                                             2007         2006        Change         2007         2006       Change
                                          ------------ -----------  ----------   ------------- ----------- ------------
                                                                    (Amounts in thousands)
Revenues:
                                                                                          
    Tenant reinsurance.............       $    15,646  $    9,790   $  5,856      $    44,254  $   24,379   $ 19,875
    Merchandise sales...............           10,072       7,566      2,506           29,178      18,879     10,299
    Containerized storage...........            3,952       4,313       (361)          11,259      12,438     (1,179)
    Truck rentals...................            3,640       4,106       (466)           9,795      10,535       (740)
    Commercial property operations..            3,777        3,408       369           11,391        9,413     1,978
    Property management.............              667         644         23            2,026       1,856        170
                                          ------------ -----------  ----------   ------------- ----------- ------------
       Total revenues...............      $    37,754  $   29,827   $  7,927      $   107,903  $   77,500   $ 30,403
                                          ------------ -----------  ----------   ------------- ----------- ------------
Cost of operations:
    Tenant reinsurance .............            5,981       3,714       2,267          15,261       9,929      5,332
    Merchandise sales...............            7,708       6,347       1,361          22,812      16,541      6,271
    Containerized storage...........            3,565       3,570          (5)          9,923      10,476       (553)
    Truck rentals...................            3,883       3,328         555          10,848       9,089      1,759
    Commercial property operations..            1,486       1,497         (11)          4,393       4,080        313
    Property management.............               64          58           6             182         200        (18)
                                          ------------ -----------  ----------   ------------- ----------- ------------
       Total cost of operations.....           22,687      18,514       4,173          63,419      50,315     13,104
                                          ------------ -----------  ----------   ------------- ----------- ------------

Depreciation and amortization:
    Tenant reinsurance.............                 -           -          -                -           -          -
    Merchandise sales...............                -           -          -                -           -          -
    Containerized storage...........              239         166         73              657         635         22
    Truck rentals...................                -           -          -                -           -          -
    Commercial property operations..              664         643         21            1,992       1,777        215
    Property management.............                -           -          -                -           -          -
                                          ------------ -----------  ----------   ------------- ----------- ------------
       Total depreciation...........              903         809         94            2,649       2,412        237
                                          ------------ -----------  ----------   ------------- ----------- ------------

Net Income:

    Tenant reinsurance.............             9,665       6,076      3,589           28,993      14,450     14,543
    Merchandise sales...............            2,364       1,219      1,145            6,366       2,338      4,028
    Containerized storage...........              148         577       (429)             679       1,327       (648)
    Truck rentals...................             (243)        778     (1,021)          (1,053)      1,446     (2,499)
    Commercial property operations..            1,627       1,268        359            5,006       3,556      1,450
    Property management.............              603         586         17            1,844       1,656        188
                                          ------------ -----------  ----------   ------------- ----------- ------------
    Total net operating income......      $    14,164  $   10,504   $  3,660      $    41,835  $   24,773   $ 17,062
                                          ============ ===========  ==========   ============= =========== ============



         Our ancillary operations have increased  significantly in the three and
nine months  ended  September  30, 2007 as compared to the same periods in 2006.
This  increase is  attributable  primarily  to the  self-storage  facilities  we
acquired in the Shurgard  merger,  which has given us more locations in which to
conduct our tenant  reinsurance  and merchandise  activities,  as well as due to
additional commercial space acquired in the merger with Shurgard.

                                       67


         Tenant reinsurance  operations:  We reinsure policies offered through a
non-affiliated insurance broker 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, as well as claims adjusting
expenses.

         The  significant   increase  in  tenant  reinsurance  revenues  is  due
primarily to the  increase in  properties  associated  with the  acquisition  of
Shurgard. For the three months ended September 30, 2006 and 2007,  respectively,
tenant insurance  revenues  included $745,000 and $2,453,000 with respect to the
Shurgard  facilities in the United States;  for the nine months ended  September
30, 2006 and 2007,  tenant insurance  revenues  included $745,000 and $6,992,000
with  respect to the Shurgard  facilities  in the United  States.  For the three
months  ended  September  30,  2006 and  2007,  respectively,  tenant  insurance
revenues   included  $784,000  and  $2,544,000  with  respect  to  the  Shurgard
facilities  in Europe;  for the nine months ended  September  30, 2006 and 2007,
tenant insurance  revenues  included $784,000 and $6,820,000 with respect to the
Shurgard facilities in Europe.

         Further  contributing  to our increase in tenant  reinsurance  revenues
were higher rates,  and an increase in the  percentage  of our existing  tenants
retaining such policies,  with respect to our tenant insurance activities in the
United  States.  For the  three  and  nine  months  ended  September  30,  2007,
approximately 44.4% and 43.3%, respectively, of our self-storage tenant base had
such policies, as compared to approximately 33.2% and 32.7% for the same periods
in 2006.

         The future level of tenant  reinsurance  revenues is largely  dependent
upon the number of new  tenants  electing  to  purchase  policies,  the level of
premiums  charged for such  insurance,  and the number of tenants that  continue
participating in the insurance program.

         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.

         Merchandise and truck rental  operations:  Our subsidiaries 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
subsidiaries maintain 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  primary  factors  impacting  the  level  of  operations  of  these
activities  is the level of  customer  traffic at our  self-storage  facilities,
including  the  level of  move-ins.  The  significant  increase  in  merchandise
revenues is due  primarily to the  increase in  properties  associated  with the
acquisition of Shurgard. For the three months ended September 30, 2006 and 2007,
respectively, merchandise revenues included $929,000 and $2,260,000 with respect
to the  Shurgard  facilities  in the United  States;  for the nine months  ended
September  30,  2006  and  2007,  merchandise  revenues  included  $929,000  and
$6,738,000 with respect to the Shurgard facilities in the United States. For the
three  months  ended  September  30,  2006 and 2007,  respectively,  merchandise
revenues   included  $778,000  and  $2,231,000  with  respect  to  the  Shurgard
facilities  in Europe;  for the nine months ended  September  30, 2006 and 2007,
merchandise  revenues  included  $778,000  and  $6,058,000  with  respect to the
Shurgard facilities in Europe.

         For the three months ended  September 30, 2006 and 2007,  respectively,
truck  revenues  included  $290,000  and  $524,000  with respect to the Shurgard
facilities in the United  States;  for the nine months ended  September 30, 2006
and 2007,  truck revenues  included  $290,000 and $1,353,000 with respect to the
Shurgard facilities in the United States.

         Containerized   storage  operations:   We  have  containerized  storage
facilities  located in eight densely populated markets with  above-average  rent
and income.

                                       68


         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.  Direct operating costs principally  includes payroll,  equipment lease
expense, utilities and vehicle expenses (fuel and insurance).

         We closed certain containerized storage locations; the results of these
facilities for all periods presented have been reclassified to the line item
"discontinued operations."

         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's operations, based on which
we have closed certain of these facilities in recent years, and we may decide to
close additional facilities in the future.

         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 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," below.

         Our  commercial  operations  are  comprised of  1,561,000  net rentable
square feet of commercial space, which is principally operated at certain of the
self-storage  facilities.   The  significant  increase  in  commercial  property
revenues is due  principally  to commercial  space in the facilities we acquired
from  Shurgard in the United  States.  For the three months ended  September 30,
2006 and 2007, respectively,  commercial revenues included $391,000 and $701,000
with respect to the  facilities we acquired from  Shurgard.  For the nine months
ended  September  30,  2006 and  2007,  respectively,  these  acquired  Shurgard
facilities generated $391,000 and $2,136,000 in revenues.

         Our commercial property operations consist primarily of facilities that
are at a stabilized level of operations, and generally reflect the conditions in
the  markets in which they  operate.  Other than the  continuing  year-over-year
growth due to the increase in commercial space in the Shurgard properties, we do
not expect any significant  growth in net operating  income from this segment of
our business for 2007.

         EQUITY  IN  EARNINGS  OF  REAL  ESTATE  ENTITIES:  In  addition  to our
ownership of equity interests in PSB, we have interests in 12 entities owning 33
properties  at  September  30,  2007.  (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 manage each
of  these  facilities  for a  management  fee  that is  included  in  "Ancillary
Operations."

         Equity  in  earnings  of real  estate  entities  for the three and nine
months ended  September 30, 2007 and 2006 consists of our pro-rata  share of the
Unconsolidated  Entities based upon our ownership  interest for the period.  The
following table sets forth the  significant  components of equity in earnings of
real estate entities:

                                       69





                                                 Three Months Ended                      Nine Months Ended
                                                   September 30,                           September 30,
                                             -------------------------               -------------------------
                                                  2007         2006        Change        2007         2006        Change
                                             ------------  -----------  ------------ ------------ ------------ ------------
                                                                         (Amounts in thousands)
Property operations:
                                                                                              
  PSB                                         $  20,890     $  18,664    $   2,226    $  60,952    $ 54,775     $   6,177
  Deconsolidated Shurgard Facilities.....           709             -          709          992            -          992
  Other investments (1)..................           845           873          (28)       2,400        2,438          (38)
                                             ------------  -----------  ------------ ------------ ------------ ------------
                                                 22,444        19,537        2,907       64,344       57,213        7,131
                                             ------------  -----------  ------------ ------------ ------------ ------------
Depreciation:
  PSB....................................       (11,117)       (9,779)      (1,338)     (31,547)     (28,034)      (3,513)
  Deconsolidated Shurgard Facilities.....          (149)            -         (149)        (234)           -         (234)
  Other investments (1)..................          (253)         (252)          (1)        (772)        (717)         (55)
                                             ------------  -----------  ------------ ------------ ------------ ------------
                                                (11,519)      (10,031)      (1,488)     (32,553)     (28,751)      (3,802)
                                             ------------  -----------  ------------ ------------ ------------ ------------
Other: (2)
  PSB (3)................................        (7,251)       (6,867)        (384)     (21,169)     (19,107)      (2,062)
  Deconsolidated Shurgard Facilities.....          (270)            -         (270)        (398)           -         (398)
  Other investments (1)..................            20           (21)          41          (41)        (147)         106
                                             ------------  -----------  ------------ ------------ ------------ ------------
                                                 (7,501)       (6,888)        (613)     (21,608)     (19,254)      (2,354)
                                             ------------  -----------  ------------ ------------ ------------ ------------
Total equity in earnings of real estate
entities..................................    $   3,424     $   2,618    $     806    $  10,183    $   9,208    $     975
                                             ============  ===========  ============ ============ ============ ============


(1)  Amounts reflect equity in earnings  recorded for investments that have been
     held  consistently  throughout  each of the  three  and nine  months  ended
     September 30, 2007 and 2006.

(2)  "Other" reflects our share of general and administrative expense,  interest
     expense, interest income, and other non-property;  non-depreciation related
     operating  results  of these  entities.  The  amount  of  interest  expense
     included  in  "other" is  $819,000  and  $1,870,000  for the three and nine
     months ended September 30, 2007, respectively,  as compared to $271,000 and
     $729,000  for  the  three  and  nine  months  ended   September  30,  2006,
     respectively.

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

         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  September  30, 2006 and a net  increase  of $293,000  for the nine months
ended September 30, 2006 (none for the same periods in 2007).

         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.

         The Deconsolidated  Shurgard  Facilities include 11 properties in which
we have a partial equity  interest,  acquired in the merger with  Shurgard,  and
which are subject to mortgage  loans  aggregating  approximately  $19 million at
September 30, 2007. We commenced  deconsolidating these properties effective May
24,  2007 due to a loss of  control in the  entities  owning  these  properties;
accordingly,  equity in earnings of real estate entities includes, the operating
results of these 11 properties  and the  associated  interest  expense  incurred
after May 24, 2007.

         The "Other Investments" are comprised five limited partnerships,  which
own 22 properties,  for which we held an approximate  consistent level of equity
interest  throughout  each of the periods  presented.  Our future  earnings with

                                       70


respect to the "Other  Investments" will be dependent upon the operating results
of the 22  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 our
self-storage facilities as discussed above.

         See Note 5 to our condensed  consolidated  financial statements for the
operating  results  of  these  entities  for the  three  and nine  months  ended
September 30, 2007 and 2006.

OTHER INCOME AND EXPENSE ITEMS

         INTEREST AND OTHER INCOME: Interest and other income was $3,257,000 and
$6,337,000 for the three and nine months ended September 30, 2007, respectively,
as compared to $12,651,000  and  $27,773,000 for the three and nine months ended
September  30, 2006,  respectively.  These  decreases are due primarily to lower
average cash balances. We had significant levels of uninvested cash in the three
and nine months ended September 30, 2006 as we had issued  preferred  securities
in anticipation of our cash requirements with respect to the Shurgard merger.

         DEPRECIATION AND  AMORTIZATION:  Depreciation and amortization  expense
was  $147,767,000 and $491,725,000 for the three and nine months ended September
30, 2007,  respectively,  as compared to $113,463,000  and  $212,057,000 for the
three and nine months ended September 30, 2006,  respectively.  The increases in
depreciation  and amortization for the three months ended September 30, 2007, as
compared  to the  same  period  in 2006 are due  primarily  to  $53,320,000  and
$210,471,000 in amortization  expense  recorded during the three and nine months
ended September 30, 2007,  respectively,  on the intangible  assets,  which were
primarily  acquired in the Shurgard merger.  These intangible assets were valued
in our purchase  accounting  analysis at  $565,341,000  and are being  amortized
relative to the expected  future benefit of the tenants in place to each period.
Amortization  of  the  intangible   assets  is  expected  to  be   approximately
$37,757,000 in the fourth quarter of 2007.

         The remainder of the increase in depreciation  and amortization for the
three and nine months ended  September  30, 2007 as compared to the same periods
in 2006 is due primarily to buildings acquired in the Shurgard merger and to our
newly  developed  and acquired  facilities.  See Notes 2 and 3 to our  condensed
consolidated  financial statements for further discussion of the Shurgard merger
and the acquisition of tangible and intangible assets.

         GENERAL  AND  ADMINISTRATIVE:  General and  administrative  expense was
$11,416,000  and  $49,397,000  for the three and nine months ended September 30,
2007, respectively, as compared to $36,242,000 and $49,996,000 for the three and
nine months ended September 30, 2006,  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.

         For  the  three  months   ended   September   30,  2007,   general  and
administrative  expense  includes (i) development  costs that were expensed with
respect to terminated  projects totaling $1.3 million ($9.3 million for the same
period in 2006) and (ii) ongoing general and  administrative  expense related to
our  European  operations  for the  entire  quarter  ended  September  30,  2007
(includes  amounts  only from August 23, 2006 with respect to the same period in
2006). In addition,  for the three months ended September 30, 2006,  general and
administrative expense includes integration expenses incurred in connection with
the merger with  Shurgard  totaling  approximately  $18.1  million and  contract
termination cost  aggregating $2.2 million.  For the nine months ended September
30, 2007, general and administrative expense includes (i) development costs that
were expensed with respect to  terminated  projects  totaling $1.6 million ($9.3
million  for the same  period in 2006),  (ii)  additional  expenses  incurred in
connection  with the merger with Shurgard  totaling  approximately  $5.3 million
($20.5 million for the same period in 2006),  (iii) $9.6 million  related to our
proposed  offering  of  shares  in our  European  business,  (iv)  $2.0  million
associated  with our  reorganization  as a Maryland REIT and (v) ongoing general
and  administrative  expense  related to our European  operations for the entire
nine month period ended  September 30, 2007  (includes  amounts only from August
23, 2006 with  respect to the same period in 2006).  In  addition,  for the nine
months ended September 30, 2006, we incurred contract  termination costs of $2.2
million.

                                       71


         We  expect   that  for  the  fourth   quarter  of  2007,   general  and
administrative expense will approximate $10 million to $13 million.

         INTEREST EXPENSE:  Interest expense was $15,257,000 and $48,772,000 for
the three and nine months ended September 30, 2007, respectively, as compared to
$9,323,000 and $12,752,000, respectively, for the same periods in 2006. Interest
capitalized  during the three and nine months  ended  September  30,  2007,  was
$1,297,000 and $3,011,000, respectively, compared to $530,000 and $1,599,000 for
the same periods in 2006.  The increase in interest  expense is primarily due to
$44,382,000 in interest incurred on the debt and other obligations we assumed in
the Shurgard merger for the nine months ended September 30, 2007 ($7,970,000 for
the same  period in 2006),  as well as  $1,797,000  of  interest  on  borrowings
against our line of credit.  These amounts are partially offset by a decrease of
$679,000 in interest expense due to lower balances on our outstanding notes. See
also Notes 6, 7 and 8 to our condensed  consolidated  financial statements for a
schedule of our debt balances,  principal  repayment  requirements,  and average
interest rates.

         GAIN ON DISPOSITION OF REAL ESTATE INVESTMENTS:  During the nine months
ended  September 30, 2007, we have received  proceeds for partial  condemnations
and other disposals to certain of our  self-storage  facilities for an aggregate
of $2,008,000  and recorded a gain of  $1,137,000 on our condensed  consolidated
statements of income for the three and nine months ended September 30, 2007 as a
result of these transactions.

         On May 14, 2007, one of European  subsidiaries,  sold limited liability
partner  interests  ("LLP  Interests")  it held in  Shurgard  Self-Storage  SCA,
("Shurgard  Europe"),  also an indirect subsidiary of Public Storage, to various
officers of the Company other than our chief  executive  officer.  The aggregate
proceeds of the sale were  $4,909,000.  The sale price for the LLP Interests was
the net asset  value per LLP  Interest  using,  among other  items,  information
provided by an independent  third party appraisal firm of the net asset value of
Shurgard  Europe as of March 31, 2007. The Company has a right to repurchase the
LLP Interests (1) upon a  purchaser's  termination  of employment or (2) for any
reason,  on or after May 14, 2008. The repurchase  price is set at the lesser of
(1) the then net asset value per share or (2) the original purchase price with a
10%  compounded  annual  return.  In  connection  with  the  sale of  these  LLP
Interests,  we recorded a gain of $1,193,000 for the three and nine months ended
September 30, 2007,  representing the excess of the sales proceeds less the book
value of the LLP Interests sold. The gain is reflected in gain on disposition of
real estate investments on our accompanying condensed consolidated statements of
income.  The  investment  of these  various  officers  is  included  in minority
interest  -  other   partnership   interests  on  our   accompanying   condensed
consolidated balance sheet at September 30, 2007 and their pro rata share of the
earnings of Shurgard Europe are reflected in minority interest in income - other
partnership interests on our accompanying condensed  consolidated  statements of
income for the three and nine months ended September 30, 2007.

         During the three months ended September 30, 2006, we received  $466,000
of additional proceeds from a partial  condemnation that occurred in 2005. These
additional  proceeds  are  reflected  as a gain on  disposition  of real  estate
investments on our condensed consolidated statements of income for the three and
nine  months  ended  September  30,  2006.  Also  during the nine  months  ended
September  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.

         FOREIGN EXCHANGE GAIN: At September 30, 2007, our European subsidiaries
owed approximately  (euro)389 million ($556 million as of September 30, 2007) to
our  domestic  subsidiaries.  The  loans are  eliminated  in  consolidation  for
financial  reporting  purposes.  We expect our European  subsidiaries  to obtain
external financing in the next 12 to 24 months, which will fund the repayment of
the loan.  The loans which are  denominated  in Euros have not been hedged.  The
amount of US dollars  that will be  received on  repayment  will depend upon the
exchange rates at the time.  Based upon the change in estimated US dollars to be
received caused by fluctuation in currency rates during each respective  period,
foreign  currency   translation  gains  of  $30.4  million  and  $41.0  million,
respectively,  were  recorded in the three and nine months ended  September  30,
2007. The US Dollar exchange rate relative to the Euro was approximately  1.319,
1.347,  and 1.426 at December 31, 2006,  June 30, 2007,  and September 30, 2007,
respectively.

                                       72


         Future  foreign  exchange  gains will be dependent  primarily  upon the
movement of the Euro  relative to the US Dollar,  the level of our  intercompany
debt and our  expectations  with  respect  to  repaying  intercompany  debt.  At
September 30, 2007 our European  subsidiaries had intercompany  balances payable
to our United States operations totaling approximately $556 million.

         HURRICANE  CASUALTY  GAIN: Our policy is to record  casualty  losses or
gains in the period the casualty  occurs equal to the  differential  between (a)
the book value of assets destroyed and (b) insurance  proceeds,  if any, that we
expect  to  receive  in  accordance  with  our  insurance  contracts.  Potential
insurance proceeds that are subject to uncertainties,  such as interpretation of
deductible  provisions of the governing agreements or the estimation of costs of
restoration,  are treated as a contingent  proceeds in accordance with Statement
of Financial  Accounting  Standards No. 5 ("SFAS 5"), and not recorded until the
uncertainties  are  satisfied.  During the first  quarter of 2007, we recorded a
casualty  gain  totaling  $2,665,000,   representing  the  realization  of  such
contingent proceeds relating to hurricanes which occurred in 2005.

         INCOME FROM DERIVATIVES,  NET: This represents a net gain as recognized
for the  changes  in the  fair  market  values  of  those  derivative  financial
instruments  that do not qualify for hedge  accounting  treatment under SFAS No.
133 combined with net payments from derivative instruments. The gain of $117,000
for the three  months  ended  September  30, 2007 is  primarily  due to gains of
$68,000 in  changes in value of our  interest  rate swaps and  currency  forward
contracts  on the euro that do not qualify for hedge  accounting  combined  with
receipts of $49,000 relative to certain interest rate swaps and foreign currency
exchange  derivatives  acquired in the Shurgard merger as described under Note 3
to our condensed consolidated  financial statements.  The gain of $1,126,000 for
the nine months ended September 30, 2007 is primarily due to gains of $1,205,000
in changes in value of our interest rate swaps and currency forward contracts on
the euro that do not  qualify for hedge  accounting  combined  with  payments of
$79,000 relative to certain  interest rate swaps and foreign  currency  exchange
derivatives acquired in the Shurgard merger.

         MINORITY INTEREST IN INCOME: Minority interest in income represents the
income  allocable to equity  interests in Consolidated  Entities,  which are not
owned by the Company. The following table summarizes minority interest in income
for the three and nine months ended September 30, 2007 and 2006:

                                       73






                                                    Three Months Ended                          Nine Months Ended
                                                      September 30,                              September 30,
                                               -------------------------               --------------------------
                                                   2007           2006       Change         2007           2006        Change
                                               ------------- -----------  -----------  ------------- ------------- ------------
                                                                               (Amounts in thousands)
                                                                                                 
Preferred partnership interests (a)..........  $     5,403    $    5,403    $     -     $    16,209   $   13,652   $    2,557
Convertible Partnership Units (b)............          121          120           1            132           356         (224)
Shurgard U.S. minority interests (c).........          180          191         (11)           624           191          433
Shurgard European minority interests (d).....       (1,456)      (1,279)       (177)        (7,275)       (1,279)      (5,996)
European investors (e).......................         (109)           -        (109)          (109)            -         (109)
Other minority interests (f).................        4,165        4,155          10         12,030        11,557          473
                                               ------------- -----------  -----------  ------------- ------------- ------------
    Total minority interests in income.......  $     8,304    $   8,590     $  (286)    $    21,611   $   24,477   $   (2,866)
                                               ============= ===========  ===========  ============= ============= ============



(a)  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  have
     increased.

(b)  These amounts reflect the minority interests represented by the Convertible
     Partnership  Units  (see Note 10 to our  condensed  consolidated  financial
     statements).

(c)  These amounts reflect income allocated to minority interests in entities we
     acquired in the merger with Shurgard,  and include $159,000 and $555,000 in
     depreciation  in the  three  and nine  months  ended  September  30,  2007,
     respectively, as compared to $55,000 for each of the same periods in 2006.

(d)  These  amounts  reflect  income  allocated  to our minority  partner's  80%
     interest  in  the  European  joint  ventures,  First  Shurgard  and  Second
     Shurgard.  These amounts are negative  because the related  joint  ventures
     operations  are at a loss  position.  Included in these  minority  interest
     amounts is (i)  depreciation  expense for the three and nine  months  ended
     September 30, 2007, of $2,674,000 and $8,281,000, respectively, compared to
     $742,000 for each of the same periods in 2006,  (ii)  interest  expense for
     the three and nine months ended  September  30,  2007,  of  $4,036,000  and
     $11,082,000,  respectively,  compared  to  $1,829,000  for each of the same
     periods  in 2006  and  (iii)  derivatives  and  foreign  exchange  gains of
     $603,000 and $2,509,000,  respectively, compared to $66,000 for each of the
     same periods in 2006.

(e)  These amounts  reflect  income  allocated to the interest  owned by various
     officers  of the  Company,  as  described  on Note  10 to our  consolidated
     financial statement. These amounts include depreciation expense aggregating
     $190,000 for the three and nine months ended September 30, 2007.

(f)  These amounts  reflect  income  allocated to minority  interests  that were
     outstanding  consistently  throughout  the  three  and  nine  months  ended
     September  30, 2007 and 2006.  Included  in minority  interest in income is
     $128,000 and $454,000 in depreciation expense for the three and nine months
     ended  September  30,  2007,  respectively,  as compared  to  $108,000  and
     $500,000 for the same periods in 2006.

         Other minority interests reflect income allocated to minority interests
that have maintained a consistent level of interest throughout 2006 and the nine
months ended  September 30, 2007,  comprised of investments in the  Consolidated
Entities  described  in  Note  10  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.

LIQUIDITY AND CAPITAL RESOURCES

         We believe that our internally generated net cash provided by operating
activities  will  continue to be  sufficient  to enable us to meet our operating
expenses,  capital improvements,  debt service requirements and distributions to
shareholders for the foreseeable future.

         Operating as a 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 used to make  distributions  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 scheduled and optional  principal payments on debt and
for reinvestment.

                                       74




                                                                     Nine Months Ended September 30,
                                                                    ----------------------------------
                                                                        2007               2006
                                                                    ----------------    --------------
                                                                         (Amounts in thousands)

                                                                                   
Net cash provided by operating activities (a)...................     $    751,591        $   582,152

Distributions to minority interest (Preferred Units)............          (16,209)           (13,652)
Distributions to minority interest (common equity)..............          (15,828)           (11,037)
                                                                    ----------------    --------------
Cash from operations allocable to our shareholders..............          719,554            557,463
                                                                    ----------------    --------------

Capital improvements to maintain our facilities.................          (49,453)           (44,366)
 Remaining operating cash flow available for distributions to our
    shareholders................................................         670,101             513,097

Distributions paid:
  Preferred share dividends.....................................         (176,424)          (159,256)
  Equity Shares, Series A dividends.............................          (16,068)           (16,068)
  Distributions to common shareholders..........................         (255,022)          (213,281)
                                                                    ----------------    --------------
Cash available for principal payments on debt and reinvestment..     $    222,587        $   124,492
                                                                    ================    ==============


(a)  Represents net cash provided from operating activities as presented on our
     September 30, 2007 Condensed Consolidated Statements of Cash Flows.

         Cash  available  for  principal   payments  on  debt  and  reinvestment
increased  from $124.5  million in the nine months ended  September  30, 2006 to
$222.6 million in the nine months ended  September 30, 2007  principally  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 including the facilities
acquired in the merger with  Shurgard,  as well as additional  tax  depreciation
with respect to the assets  acquired in the merger with Shurgard which serves to
reduce our required distributions.


         Our financial  profile is characterized by a low level of debt-to-total
capitalization  and a  conservative  dividend  payout  ratio with respect to our
common shares. We expect to fund our growth strategies and debt obligations with
(i) cash on hand at September 30, 2007, (ii) internally  generated retained cash
flows and (iii) proceeds from issuing equity securities. In general, our current
strategy is to continue to finance  our growth with  permanent  capital;  in the
form of either common or preferred equity.

         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  shares have no sinking fund  requirement  or maturity date and do 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
shares at any time,  which enable us to refinance higher coupon preferred shares
with new preferred stock at lower rates if appropriate, (iv) preferred shares do
not  contain  covenants,  thus  allowing us to  maintain  significant  financial
flexibility, and (v) dividends on the preferred shares can be applied to satisfy
our REIT distribution requirements.

         Our credit ratings on each  outstanding  series of preferred shares are
"Baa1" by Moody's and "BBB+" by Standard & Poor's.

         On March  27,  2007,  we  entered  into a  five-year  revolving  credit
agreement  (the  "Credit  Agreement")  with an  aggregate  limit with respect to
borrowings,  letters  of credit  and  foreign  currency  borrowings  in Euros or
British pounds of $300 million. Amounts drawn under the Credit Agreement bear an

                                       75


annual  interest rate ranging from the London  Interbank  Offered Rate ("LIBOR")
plus 0.35% to LIBOR plus 1.00% depending on our credit ratings (LIBOR plus 0.35%
at September 30, 2007). In addition, we are required to pay a quarterly facility
fee  ranging  from  0.10% per annum to 0.25% per annum  depending  on our credit
ratings  (0.10%  per  annum  at  September  30,  2007).  We had  no  outstanding
borrowings on our revolving  line of credit at September 30, 2007 or November 8,
2007.

         The Credit Agreement includes various  covenants,  the more significant
of which  require us to (i)  maintain a leverage  ratio (as defined  therein) of
less than 0.55 to 1.00, (ii) maintain certain fixed charge and interest coverage
ratios  (as  defined  therein)  of not  less  than  1.5 to 1.0 and  1.75 to 1.0,
respectively,  and (iii)  maintain  a minimum  total  shareholders'  equity  (as
defined  therein).  We were in  compliance  with  all  covenants  of the  Credit
Agreement at September 30, 2007.

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

         On January 9, 2007, we issued our 6.625%  Series M Preferred  Stock for
gross  proceeds of $500  million.  On January 18,  2007,  we redeemed our 7.625%
Series T Cumulative Preferred Shares totaling $152.2 million and on February 19,
2007,  we redeemed our 7.625%  Series U  Cumulative  Preferred  Shares  totaling
$150.0 million. These redemptions were funded with cash on hand and funds raised
through the issuance of our Series M preferred stock. On July 2, 2007, we issued
our 7.000% Series N Preferred  Shares for gross proceeds of $172.5  million.  We
currently have approximately  $172.5 million of additional  preferred securities
that became  redeemable  at our option as of  September  30,  2007.  We have not
called this series for redemption due to the state of current credit markets and
our belief that we could not issue a similar preferred security at a lower rate.

         From  time-to-time,  we may raise additional  capital primarily through
the issuance of lower rate  preferred  securities,  in advance of the redemption
dates to ensure that we have  available  funds to redeem these  securities.  The
timing and our ability to issue additional  preferred  securities to finance the
redemption  of  these   preferred   securities   depends  on  many  factors  and
accordingly,  there is no assurance  that we will be able to raise the necessary
capital and at appropriate rates to redeem these securities.

         EUROPEAN  FINANCING:  As  we  previously  disclosed,  we  attempted  to
liquidate a portion of our  investment in our European  subsidiaries  through an
initial public  offering,  and although  market  conditions are not favorable at
this time for such a transaction,  we continue to evaluate our  alternatives and
still  believe  that a public  entity  is the best  structure  for our  European
operations'  long-term growth. At September 30, 2007, our European  subsidiaries
owed approximately  (euro)389 million ($556 million as of September 30, 2007) to
our  domestic  subsidiaries.  We  expect  our  European  subsidiaries  to obtain
external financing in the next 12 to 24 months, which will fund the repayment of
the loan,  resulting in the receipt of  additional  cash.  The loans,  which are
denominated in Euros have not been hedged,  to limit our exposure to fluctuation
in  exchange  rates  between the Euro and the US Dollar;  and; as a result,  the
amount of U.S.  Dollars  that will be  received  on  repayment  will depend upon
exchange rates at the time.

         REQUIREMENT  TO PAY  DISTRIBUTIONS:  We have  operated,  and  intend to
continue to operate, in such a manner as to qualify as a REIT under the Internal
Revenue Code of 1986, but no assurance can be given that we will at all times so
qualify.  To the extent that the Company continues to qualify as a REIT, we will
not be taxed,  with certain  limited  exceptions,  on the taxable income that is
distributed  to our  shareholders,  provided  that at least  90% of our  taxable
income is so  distributed to our  shareholders  prior to filing of the Company's
tax return. We have satisfied the REIT distribution requirement since 1980.

         We estimate the distribution  requirement with respect to our preferred
shares  outstanding at September 30, 2007 to be  approximately  $241 million per
year. The annual distribution requirement with respect to our Series N Preferred
Shares issued on July 2, 2007 is approximately  $12.1 million.  We estimate that
the annual  distribution  requirement with respect to the preferred  partnership
units  outstanding at September 30, 2007, to be approximately  $21.6 million per
year.

                                       76


         During the nine months  ended  September  30, 2007,  we paid  dividends
totaling  $255,022,000  ($1.50  per common  share) to the  holders of our common
shares.  Based upon  shares  outstanding  at  November  8, 2007 and a  quarterly
distribution of $0.50 per share,  which was declared by our Board on November 8,
2007 and payable on December 31, 2007, to  shareholders of record as of December
14, 2007,  we estimate a dividend  payment with respect to our common  shares of
approximately $85 million for the fourth quarter of 2007.

         During each of the nine months ended  September  30, 2007 and 2006,  we
paid cash  dividends  totaling  $16,068,000 to the holders of our Equity Shares,
Series A. With respect to the  depositary  shares  representing  Equity  Shares,
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 share or (ii) $2.45. The depositary  shares are  non-cumulative,  and
have  no  preference  over  our  common  shares  either  as to  dividends  or in
liquidation.  With  respect  to the  Equity  Shares,  Series  A  outstanding  at
September 30, 2007, we estimate the total  regular  distribution  for the fourth
quarter of 2007 to be approximately $5.4 million.

         CAPITAL  IMPROVEMENT  REQUIREMENTS:   During  2007,  we  have  budgeted
approximately  $75,000,000 for capital improvements for our facilities.  Capital
improvements include major repairs or replacements to the facilities, which keep
the  facilities in good  operating  condition and maintain  their visual appeal.
Capital  improvements  do not  include  costs  relating  to the  development  or
expansion of  facilities.  During the nine months ended  September  30, 2007, we
incurred capital improvements of approximately $49,453,000. Capital improvements
include  major  repairs or  replacements  to the  facilities  that  maintain the
facilities' existing operating condition and visual appeal. Capital improvements
do not include costs relating to the development or expansion of facilities.

         DEBT  SERVICE  REQUIREMENTS:  At  September  30,  2007,  we have  total
outstanding  debt of  approximately  $1  billion.  We do not believe we have any
significant refinancing risks with respect to our debt.

         On January  2, 2007,  we  retired  approximately  $429  million of debt
assumed from Shurgard that was secured by substantially  all of our wholly-owned
facilities in Europe.

         Our  portfolio  of  real  estate   facilities   remains   substantially
unencumbered.  At September 30, 2007, we have domestic mortgage debt outstanding
of $233 million,  which encumbers 86  self-storage  facilities with an aggregate
net book  value of  approximately  $599  million.  In Europe,  mortgage  debt at
September  30, 2007 totaled $353 million and encumbers 64  facilities,  owned by
consolidated joint ventures (we have a 20% interest in each joint venture), with
an aggregate net book value of approximately $482 million at September 30, 2007.

         We anticipate that our retained operating cash flow will continue to be
sufficient to enable us to make scheduled principal payments.  See Notes 7 and 8
to our condensed  consolidated  financial  statements for approximate  principal
maturities of such borrowings. It is our current intention to fully amortize our
outstanding  debt as opposed to refinance debt maturities with additional  debt.
Alternatively,  we may prepay debt and finance such  prepayments  with  retained
operating cash flow or proceeds from the issuance of preferred securities.

         ACQUISITION  AND  DEVELOPMENT  OF  FACILITIES:  During  2007,  we  will
continue  to seek to  acquire  additional  self-storage  facilities  from  third
parties;  however,  it is  difficult  to  estimate  the  amount  of third  party
acquisitions we will undertake.

         At September 30, 2007, we have a development  "pipeline" of 39 projects
in  the  U.S.  and  16  projects  in  Europe,   consisting  of  newly  developed
self-storage  facilities,  conversion of space at facilities that was previously
used  for  containerized   storage  and  expansions  to  existing   self-storage
facilities.  At September 30, 2007, we have acquired the land for all of the U.S
projects and nine of the projects in Europe.

         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  $191.1 million and will be incurred over the next 24 months.  The
following table sets forth certain  information  with respect to our development
pipeline.

                                       77





DEVELOPMENT PIPELINE SUMMARY
AS OF SEPTEMBER 30, 2007                                              Total
                                             Number      Net       estimated      Costs incurred
                                               of      rentable     development         through         Costs to
                                            projects   sq. ft.       costs            09/30/07         complete
                                           ---------  ---------- -------------    ---------------  --------------
                                                           (Amounts in thousands, except number of projects)

                                                                                    
    U.S. under construction                    16          751   $      65,195    $      37,820    $      27,375
    U.S. in development, land acquired         23          960          85,262            5,759           79,503
    European projects in construction           9          495          96,131           57,967           38,164
    European projects under development         7          298          48,131            2,111           46,020
                                           ---------  ---------- -------------    ---------------  --------------
   Total Development Pipeline                  55        2,504   $     294,719    $     103,657    $     191,062
                                           =========  ========== =============    ===============  ==============



         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 will
be incurred over the next 24 months.  Substantially  all of the future costs for
the  seven  European  projects  that are in  construction  will be funded by the
Shurgard  European Joint  Ventures,  in which we have a 20% interest,  and which
have a substantial  degree of funding by debt.  The future costs with respect to
all other development projects will be funded by us.

         CONTRACTUAL  OBLIGATIONS:  Our significant  contractual  obligations at
September  30,  2007 and  their  impact  on our cash  flows  and  liquidity  are
summarized below for the years ending December 31 (amounts in thousands):



                                   Total        2007          2008        2009         2010         2011       Thereafter
                                 -----------  ----------  ------------  ----------- -----------  -----------  -------------
                                                                                          
Long-term debt (1) ............  $1,163,719   $  12,114    $  243,951    $ 214,326   $ 48,137     $  250,909    $  394,282

Capital leases (2).............      43,245         193           767          782        726          1,408        39,369

Operating leases (3)...........     270,647       7,318        19,257       15,817     12,083         10,774       205,398

Construction commitments (4)...      65,539      53,260        12,279            -          -              -             -
                                 -----------  ----------  ------------  ----------- -----------  -----------  -------------
Total..........................  $1,543,150   $  72,885    $  276,254    $ 230,925   $ 60,946     $  263,091    $  639,049
                                 ===========  ==========  ============  =========== ===========  ===========  =============


(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.  Debt to Joint
     Venture  Partner is not reflected since we have not exercised our option to
     acquire our partner's interest.

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

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

(4)  Includes   obligations  for  facilities  currently  under  construction  at
     September 30, 2007 as described above under "Acquisition and Development of
     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 8 to our September
30, 2007  condensed  consolidated  financial  statements,  our partner's  equity

                                       78


contributions with respect to certain  transactions are classified as debt under
the  caption  "Debt to Joint  Venture  Partner"  in our  condensed  consolidated
balance  sheets.  At September 30, 2007,  our Debt to Joint Venture  Partner was
$37,395,000. For a six-month period beginning 54 months after formation, we have
the right to acquire our partner's  interest  based upon the market value of the
properties.  If we do not exercise our option, our partner can elect to purchase
our  interest  in the  properties  during a  six-month  period  commencing  upon
expiration of our six-month option period.  If our partner fails to exercise its
option,  the Acquisition  Joint Venture will be liquidated and the proceeds will
be distributed to the partners according to the joint venture agreement. We have
not included our Debt to Joint Venture  Partner as a  contractual  obligation in
the  table  above,  since we only  have the  right,  rather  than a  contractual
obligation, to acquire our partner's interest.

         OFF-BALANCE  SHEET  ARRANGEMENTS:  At  September  30,  2007  we  had no
material   off-balance  sheet  arrangements  as  defined  under  Regulation  S-K
303(a)(4) and the instructions thereto.

         STOCK REPURCHASE PROGRAM:  Our Board has authorized the repurchase from
time to time of up to  25,000,000  shares of our common stock on the open market
or in privately  negotiated  transactions.  During 2004, we repurchased  445,700
shares for  approximately  $20.3  million.  During 2005, we  repurchased  84,000
shares for approximately $5.0 million.  During 2006 or 2007 (through November 8,
2007),  we did not repurchase  any shares.  From the inception of the repurchase
program  through  September 30, 2007, we have  repurchased a total of 22,201,720
common shares at an aggregate cost of approximately $567.2 million.

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 either of common
shares or preferred  shares.  At September 30, 2007, our debt as a percentage of
total shareholders' equity (based on book values) was 11.9%.

         Our preferred  shares are not  redeemable at the option of the holders.
Our Series V shares are currently  redeemable.  Except under certain  conditions
relating to the Company's  qualification as a REIT, the preferred shares are not
redeemable by the Company prior to the  following  dates:  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 - September 30, 2009,  Series C -
September  13, 2009,  Series D - February  28, 2010,  Series E - April 27, 2010,
Series F - August 23, 2010, Series G - December 12, 2010, Series H - January 19,
2011,  Series I - May 3, 2011, Series K - August 8, 2011, Series L - October 20,
2011,  Series M - January 9, 2012 and  Series N - July 2, 2012.  On or after the
respective  dates,  each of the series of preferred shares 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  and
borrowing on bank credit  facilities,  which  totaled  $1,004,507,000  and none,
respectively, at September 30, 2007.

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

         We have foreign  currency  exposures  related to our  investment in the
construction, acquisition, and operation of storage centers in countries outside
the U.S. to the extent such  activities are financed with financial  instruments
or equity denominated in non-functional  currencies. The aggregate book value of
such real estate and intangibles was approximately $1.7 billion at September 30,
2007.  Since all foreign debt is  denominated  in the  corresponding  functional
currency,  our currency  exposure is limited to our equity  investment  in those
countries.  Countries  in  which  Shurgard  had  exposure  to  foreign  currency
fluctuations include Belgium, France, the Netherlands,  Sweden, Denmark, Germany
and the United Kingdom.

         The table below summarizes annual debt maturities and  weighted-average
interest  rates  on our  outstanding  debt  at the end of each  year  (based  on
relevant  LIBOR of 5.12% and a EURIBOR of 4.41% at  September  30,  2007 and the
applicable  forward  curve for  following  years) and fair  values  required  to
evaluate our expected  cash-flows  under debt  agreements and our sensitivity to
interest rate changes at September 30, 2007 (dollar amounts in thousands).

                                       79





                            2007       2008        2009          2010        2011     Thereafter      Total     Fair Value
                         ----------  ---------  ----------   -----------   --------   -----------  -----------  ------------
                                                                                        
Fixed rate debt........  $   2,154   $ 23,961   $   12,365   $   14,457    $228,197   $ 363,598    $  644,732   $ 644,732
Average interest rate..      6.52%      6.37%        6.01%        6.10%       5.83%       5.79%
----------------------------------------------------------------------------------------------------------------------------

Variable rate debt (1).  $      -    $     -    $       -    $       -     $     -    $      -     $        -   $       -
Average interest rate..
----------------------------------------------------------------------------------------------------------------------------
Variable rate EURIBOR
  debt (2).............  $    856    $184,256   $ 167,569    $       -     $     -    $      -     $  352,681   $ 352,681
Average interest rate..      6.11%      6.11%       6.11%
----------------------------------------------------------------------------------------------------------------------------
Interest rate swaps
Swap on EURIBOR........  $      -    $    933   $  2,175     $       -     $     -    $      -     $    3,108   $   3,108




(1)  Amounts include borrowings under our line of credit, which expires in 2012.

(2)  First   Shurgard  and  Second   Shurgard  have  senior  credit   agreements
     denominated  in euros to borrow,  in  aggregate,  up to  (euro)271  million
     ($386.5  million as of September 30, 2007).  As of September 30, 2007,  the
     available amount under those credit facilities was in aggregate  (euro)22.5
     million ($32.1 million).

         At September  30, 2007,  we were party to  pay-fixed,  receive-variable
interest rate swaps. The notional amounts,  the  weighted-average  pay rates and
the terms of these agreements are summarized as follows:



                                    2007        2008        2009        2010        2011     Thereafter
                                  ----------  ----------  ---------   ---------  ---------  -----------
                                                                          
Notional amounts (in millions)... $    248.0  $   122.0   $     -     $     -    $    -     $      -
Weighted average interest rate...      3.75%      3.72%         -           -         -            -




         Based on our outstanding  variable-rate  EURIBOR debt and interest rate
swaps at September 30, 2007, a  hypothetical  increase in the interest  rates of
100 basis points would cause the value of our derivative  financial  instruments
to increase by $2.5 million. Conversely, a hypothetical decrease in the interest
rates of 100 basis  points  would  cause the value of our  derivative  financial
instruments to decrease by $2.6 million.

         On January 2, 2007,  we prepaid the  (euro)325  million  collateralized
notes ($429 million at December 31, 2006) at our European  operations  that were
otherwise  payable in 2011. We also terminated the related European currency and
interest rate hedges.  Accordingly,  the remaining debt in Europe relates to the
joint venture properties,  in which we have a 20% equity interest, and which are
consolidated for financial reporting purposes.

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.

                                       80


         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.

                                       81



PART II.   OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

         The  information set forth under the heading "Legal Matters" in Note 15
to the  Condensed  Consolidated  Financial  Statements  in  this  Form  10-Q  is
incorporated by reference in this Item 1.

 ITEM 1A.  RISK FACTORS

         As of September 30, 2007, no material  changes had occurred in our risk
factors as discussed in Item 1A of the Public  Storage,  Inc.  Annual  Report on
Form 10-K for the year ended December 31, 2006.

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

         On June 12, 1998, our Board authorized the repurchase from time to time
of up to 10,000,000 common shares on the open market or in privately  negotiated
transactions.   On  subsequent   dates  our  Board   increased  the   repurchase
authorization,  the last being  April 13,  2001,  when our Board  increased  the
repurchase  authorization  to 25,000,000  shares.  The Company has repurchased a
total of 22,201,720 common shares under this authorization.  The Company did not
repurchase any common shares during the nine months ended September 30, 2007.

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.

                                       82




                                   SIGNATURES

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

                                     DATED:     November 9, 2007

                                     PUBLIC STORAGE

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

                                       83



                                 PUBLIC STORAGE

                              INDEX TO EXHIBITS (1)

                           (Items 15(a)(3) and 15(c))

3.1    Articles of Amendment and  Restatement  of Declaration of Trust of Public
       Storage,  a  Maryland  real  estate  Anvestment  trust.  Filed  with  the
       Registrant's   Current  Report  on  Form  8-K  dated  June  6,  2007  and
       incorporated by reference herein.

3.2    Bylaws of Public Storage,  a Maryland real estate investment trust. Filed
       with the  Registrant's  Current Beport on Form 8-K dated June 6, 2007 and
       incorporated by reference herein.


3.3    Articles  Supplementary for Public Storage Equity Shares, Series A. Filed
       with the  Registrant's  Current Aeport on Form 8-K dated June 6, 2007 and
       incorporated by reference herein.

3.4    Articles  Supplementary  for Public Storage  Equity  Shares,  Series AAA.
       Filed with the Registrant's Current Aeport on Form 8-K dated June 6, 2007
       and incorporated by reference herein.

3.5    Articles  Supplementary  for Public Storage 7.500%  Cumulative  Preferred
       Shares,  Series V. Filed with the Aegistrant's Current Report on Form 8-K
       dated June 6, 2007 and incorporated by reference herein. R

3.6    Articles  Supplementary  for Public Storage 6.500%  Cumulative  Preferred
       Shares,  Series W. Filed with the Aegistrant's Current Report on Form 8-K
       dated June 6, 2007 and incorporated by reference herein. R

3.7    Articles  Supplementary  for Public Storage 6.450%  Cumulative  Preferred
       Shares , Series X. Filed with the Aegistrant's Current Report on Form 8-K
       dated June 6, 2007 and incorporated by reference herein.

3.8    Articles  Supplementary  for Public Storage 6.850%  Cumulative  Preferred
       Shares,  Series Y. Filed with the Aegistrant's Current Report on Form 8-K
       dated June 6, 2007 and incorporated by reference herein.

3.9    Articles  Supplementary  for Public Storage 6.250%  Cumulative  Preferred
       Shares,  Series Z. Filed with the Aegistrant's Current Report on Form 8-K
       dated June 6, 2007 and incorporated by reference herein.

3.10   Articles  Supplementary  for Public Storage 6.125%  Cumulative  Preferred
       Shares,  Series A. Filed with the Aegistrant's Current Report on Form 8-K
       dated June 6, 2007 and incorporated by reference herein.

3.11   Articles  Supplementary  for Public Storage 7.125%  Cumulative  Preferred
       Shares,  Series B. Filed with the Aegistrant's Current Report on Form 8-K
       dated June 6, 2007 and incorporated by reference herein. R

3.12   Articles  Supplementary  for Public Storage 6.600%  Cumulative  Preferred
       Shares,  Series C. Filed with the Aegistrant's Current Report on Form 8-K
       dated June 6, 2007 and incorporated by reference herein.

3.13   Articles  Supplementary  for Public Storage 6.180%  Cumulative  Preferred
       Shares,  Series D. Filed with the Aegistrant's Current Report on Form 8-K
       dated June 6, 2007 and incorporated by reference herein.

3.14   Articles  Supplementary  for Public Storage 6.750%  Cumulative  Preferred
       Shares,  Series E. Filed with the Aegistrant's Current Report on Form 8-K
       dated June 6, 2007 and incorporated by reference herein. R

3.15   Articles  Supplementary  for Public Storage 6.450%  Cumulative  Preferred
       Shares,  Series F. Filed with the Aegistrant's Current Report on Form 8-K
       dated June 6, 2007 and incorporated by reference herein.


3.16   Articles  Supplementary  for Public Storage 7.000%  Cumulative  Preferred
       Shares,  Series G. Filed with the Aegistrant's Current Report on Form 8-K
       dated June 6, 2007 and incorporated by reference herein.

                                       84


3.17   Articles  Supplementary  for Public Storage 6.950%  Cumulative  Preferred
       Shares,  Series H. Filed with the Aegistrant's Current Report on Form 8-K
       dated June 6, 2007 and incorporated by reference herein.


3.18   Articles  Supplementary  for Public Storage 7.250%  Cumulative  Preferred
       Shares,  Series I. Filed with the Aegistrant's Current Report on Form 8-K
       dated June 6, 2007 and incorporated by reference herein.

3.19   Articles  Supplementary  for Public Storage 7.250%  Cumulative  Preferred
       Shares,  Series K. Filed with the Aegistrant's Current Report on Form 8-K
       dated June 6, 2007 and incorporated by reference herein.

3.20   Articles  Supplementary  for Public Storage 6.750%  Cumulative  Preferred
       Shares,  Series L. Filed with the Aegistrant's Current Report on Form 8-K
       dated June 6, 2007 and incorporated by reference herein.


3.21   Articles  Supplementary  for Public Storage 6.625%  Cumulative  Preferred
       Shares,  Series M. Filed with the Aegistrant's Current Report on Form 8-K
       dated June 6, 2007 and incorporated by reference herein.

3.22   Articles  Supplementary  for Public Storage 7.000%  Cumulative  Preferred
       Shares,  Series N. Filed with the Aegistrant's Current Report on Form 8-K
       dated June 28, 2007 and incorporated by reference herein.


4.1    Master  Deposit  Agreement,  dated  as of May 31,  2007.  Filed  with the
       Registrant's   Current  Report  on  Form  8-K  dated  June  6,  2007  and
       incorporated by reference herein.


10.1   Amended  Management  Agreement  between  Registrant  and  Public  Storage
       Commercial  Properties  Group,  Inc. dated as of February 21, 1995. Filed
       with Public  Storage  Inc.'s  ("PSI")  Annual Report on Form 10-K for the
       year ended  December 31, 1994 (SEC File No.  001-0839)  and  incorporated
       herein by reference.

10.2   Second Amended and Restated Management  Agreement by and among Registrant
       and the entities listed therein dated as of November 16, 1995. Filed with
       PS  Partners,  Ltd.'s  Annual  Report  on Form  10-K for the  year  ended
       December 31, 1996 (SEC File No.  001-11186)  and  incorporated  herein by
       reference.

10.3   Limited Partnership  Agreement of PSAF Development  Partners,  L.P. Filed
       with PSI's Quarterly  Report on Form 10-Q for the quarterly  period ended
       March  31,  1997  (SEC  File No.  001-0839)  and  incorporated  herein by
       reference.

10.4   Agreement of Limited Partnership of PS Business Parks, L.P. Filed with PS
       Business Parks,  Inc.'s  Quarterly  Report on Form 10-Q for the quarterly
       period  ended June 30,  1998 (SEC File No.  001-10709)  and  incorporated
       herein by reference.

10.5   Amended and Restated  Agreement of Limited  Partnership  of Storage Trust
       Properties,  L.P. (March 12, 1999).  Filed with PSI's Quarterly Report on
       Form 10-Q for the  quarterly  period  ended  June 30,  1999 (SEC File No.
       001-0839) and incorporated herein by reference.

10.6   Limited Partnership  Agreement of PSAC Development  Partners,  L.P. Filed
       with PSI's Current  Report on Form 8-K dated  November 15, 1999 (SEC File
       No. 001-0839) and incorporated herein by reference.

10.7   Agreement of Limited Liability Company of PSAC Storage Investors,  L.L.C.
       Filed with PSI's Current  Report on Form 8-K dated November 15, 1999 (SEC
       File No. 001-0839) and incorporated herein by reference.

10.8   Amended  and   Restated   Agreement   of  Limited   Partnership   of  PSA
       Institutional  Partners, L.P. Filed with PSI's Annual Report on Form 10-K
       for the  year  ended  December  31,  1999  (SEC  File No.  001-0839)  and
       incorporated herein by reference.

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10.9   Amendment to Amended and Restated Agreement of Limited Partnership of PSA
       Institutional  Partners,  L.P. Filed with PSI's Quarterly  Report on Form
       10-Q for the quarterly period ended June 30, 2000 (SEC File No. 001-0839)
       and incorporated herein by reference.

10.10  Second Amendment to Amended and Restated Agreement of Limited Partnership
       of PSA Institutional  Partners, L.P. Filed with PSI's Quarterly Report on
       Form 10-Q for the  quarterly  period  ended  March 31, 2004 (SEC File No.
       001-0839) and incorporated herein by reference.

10.11  Third Amendment to Amended and Restated Agreement of Limited  Partnership
       of PSA Institutional  Partners, L.P. Filed with PSI's Quarterly Report on
       Form 10-Q for the quarterly period ended September 30, 2004 (SEC File No.
       001-0839) and incorporated herein by reference.

10.12  Limited Partnership  Agreement of PSAF Acquisition  Partners,  L.P. Filed
       with PSI's  Annual  Report on Form 10-K for the year ended  December  31,
       2003 (SEC File No. 001-0839) and incorporated herein by reference.

10.13  Credit  Agreement  by and among  Registrant,  Wells Fargo Bank,  National
       Association and Wachovia Bank, National Association as co-lead arrangers,
       and the other financial institutions party thereto, dated March 27, 2007.
       Filed  with PSI's  Current  Report on Form 8-K on April 2, 2007 (SEC File
       No. 001-0839) and incorporated herein by reference.

10.14  Senior  Credit  Agreement  dated May 26,  2003,  as amended by  Amendment
       Agreements  dated July 11, 2003 and December 2, 2003,  by and among First
       Shurgard Sprl, First Shurgard  Finance Sarl,  First Shurgard  Deutschland
       GmbH,  Societe Generale and others.  Incorporated by reference to Exhibit
       10.1 filed with the Current  Report on Form 8-K dated  February  21, 2005
       filed by  Shurgard  Storage  Centers,  Inc.  ("Shurgard")  (SEC  File No.
       001-11455).

10.15  Amendment  and Waiver  Agreement  dated  February  21, 2005 to the Senior
       Credit  Agreement  dated May 26, 2003, as amended as of December 2, 2003,
       by and among First Shurgard  Sprl,  First  Shurgard  Finance Sarl,  First
       Shurgard  Deutschland GmbH, Societe Generale and others.  Incorporated by
       reference to Exhibit 10.2 filed with the Current Report on Form 8-K dated
       February 21, 2005 filed by Shurgard (SEC File No. 001-11455).

10.16  Credit Facility  Agreement  dated July 12, 2004,  between Second Shurgard
       SPRL,  Second  Shurgard  Finance  SARL,  the Royal  Bank of  Scotland  as
       Mandated Lead Arranger, the Royal Bank of Scotland PLC as Facility Agent.
       Incorporated  by reference to Exhibit 10.43 filed with the Report on Form
       10-Q for the quarter  ended June 30, 2004 filed by Shurgard (SEC File No.
       001-11455).

10.17* Employment  Agreement between  Registrant and B. Wayne Hughes dated as of
       November  16, 1995.  Filed with PSI's Annual  Report on Form 10-K for the
       year ended  December 31, 1995 (SEC File No.  001-0839)  and  incorporated
       herein by reference.

10.18* Shurgard  Storage  Centers,  Inc. 1995 Long Term  Incentive  Compensation
       Plan.  Incorporated  by  reference  to  Appendix  B of  Definitive  Proxy
       Statement dated June 8, 1995 filed by Shurgard (SEC File No. 001-11455).

10.19* Shurgard   Storage   Centers,   Inc.  2000  Long-Term   Incentive   Plan.
       Incorporated by reference to Exhibit 10.27 Annual Report on Form 10-K for
       the year  ended  December  31,  2000  filed  by  Shurgard  (SEC  File No.
       001-11455).

10.20* Shurgard  Storage  Centers,  Inc. 2004 Long Term  Incentive  Compensation
       Plan.  Incorporated  by  reference  to  Appendix  A of  Definitive  Proxy
       Statement dated June 7, 2004 filed by Shurgard (SEC File No. 001-11455).

10.21* Public  Storage,  Inc. 1996 Stock Option and Incentive  Plan.  Filed with
       PSI's  Annual  Report on Form 10-K for the year ended  December  31, 2000
       (SEC File No. 001-0839) and incorporated herein by reference.

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10.22* Public  Storage,  Inc. 2000  Non-Executive/Non-Director  Stock Option and
       Incentive Plan. Filed with PSI's Registration  Statement on Form S-8 (SEC
       File No. 333-52400) and incorporated herein by reference.

10.23* Public  Storage,  Inc. 2001  Non-Executive/Non-Director  Stock Option and
       Incentive Plan. Filed with PSI's Registration  Statement on Form S-8 (SEC
       File No. 333-59218) and incorporated herein by reference.

10.24* Public Storage,  Inc. 2001 Stock Option and Incentive Plan ("2001 Plan").
       Filed  with  PSI's  Registration  Statement  on Form  S-8  (SEC  File No.
       333-59218) and incorporated herein by reference.

10.25* Form of 2001 Plan Non-qualified Stock Option Agreement.  Filed with PSI's
       Quarterly  Report on Form 10-Q for the quarterly  period ended  September
       30, 2004 (SEC File No. 001-0839) and incorporated herein by reference.

10.26* Form of 2001 Plan  Restricted  Share  Unit  Agreement.  Filed  with PSI's
       Quarterly  Report on Form 10-Q for the quarterly  period ended  September
       30, 2004 (SEC File No. 001-0839) and incorporated herein by reference.

10.27* Form of 2001 Plan Non-Qualified  Outside Director Stock Option Agreement.
       Filed with PSI's Quarterly  Report on Form 10-Q for the quarterly  period
       ended September 30, 2004 (SEC File No. 001-0839) and incorporated  herein
       by reference.

10.28* Public Storage,  Inc.  Performance  Based  Compensation  Plan for Covered
       Employees. Filed with PSI's Current Report on Form 8-K dated May 11, 2005
       (SEC File No. 001-0839) and incorporated herein by reference.

10.29* Public Storage 2007 Equity and Performance-Based  Incentive  Compensation
       Plan. Filed as Exhibit 4.1 to Registrant's Registration Statement on Form
       S-8 (SEC File No. 333-144907) and incorporated herein by reference.

10.30* Form  of  2007  Plan  Restricted   Stock  Unit   Agreement.   Filed  with
       Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
       2007 and incorporated herein by reference.

10.31* Form of  2007  Plan  Stock  Option  Agreement.  Filed  with  Registrant's
       Quarterly  Report on Form 10-Q for the  quarter  ended June 30,  2007 and
       incorporated herein by reference.

10.32  Form of Stock  Purchase  Agreement.  Filed  with  Registrant's  Quarterly
       Report on Form 10-Q for the quarter ended June 30, 2007 and  incorporated
       herein by reference.

10.33* Form of Indemnity Agreement.  Filed with Registrant's  Amendment No. 1 to
       Registration  Statement  on  Form  S-4  (SEC  File  No.  333-141448)  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 and
       Preferred Stock Dividends. Filed herewith.

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

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

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

* Compensatory benefit plan or arrangement or management contract.

(1) SEC File No. 001-33519 unless otherwise indicated.

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