SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

For  the quarterly period ended June 30, 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 August 6, 2007:

Common Shares of  beneficial  interest,  $.10 par value per share -  170,513,010
shares








                                 PUBLIC STORAGE

                                      INDEX



PART I.    FINANCIAL INFORMATION                                         Pages

Item 1.    Financial Statements (Unaudited)

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

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

           Condensed Consolidated Statement of Shareholders' Equity
              for the Six Months Ended June 30, 2007                         3

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

           Notes to Condensed Consolidated Financial Statements           6-39

Item 2.    Management's Discussion and Analysis of
              Financial Condition and Results of Operations              40-78

Item 3.    Quantitative and Qualitative Disclosures about Market Risk    78-79

Item 4.    Controls and Procedures                                       79-80

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

Item 1.    Legal Proceedings                                                81

Item 1A.   Risk Factors                                                     81

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      81

Item 4.    Submission of Matters to a Vote of Security Holders              81

Item 6.    Exhibits                                                         82








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




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

                                                                                                  
Cash and cash equivalents....................................................      $      46,743        $     535,684
Real estate facilities, at cost:
   Land......................................................................          2,969,994            2,959,875
   Buildings.................................................................          8,369,584            8,301,990
                                                                                   -----------------    ----------------
                                                                                      11,339,578           11,261,865
   Accumulated depreciation..................................................         (1,940,189)          (1,754,362)
                                                                                   -----------------    ----------------
                                                                                       9,399,389            9,507,503
   Construction in process...................................................             98,645               90,038
                                                                                   -----------------    ----------------
                                                                                       9,498,034            9,597,541

Investment in real estate entities...........................................            321,208              301,905
Goodwill.....................................................................            174,634              174,634
Intangible assets, net.......................................................            260,015              414,602
Restricted cash..............................................................             20,206               19,900
Other assets.................................................................            156,268              154,207
                                                                                   -----------------    ----------------
              Total assets...................................................      $  10,477,108        $  11,198,473
                                                                                   =================    ================
                       LIABILITIES AND SHAREHOLDERS' EQUITY

Borrowings on bank credit facilities.........................................      $      70,000        $     345,000
Notes payable................................................................            981,018            1,466,284
Debt to joint venture partner................................................             37,350               37,258
Preferred stock called for redemption........................................                  -              302,150
Accrued and other liabilities................................................            326,985              333,706
                                                                                   -----------------    ----------------
         Total liabilities...................................................          1,415,353            2,484,398
Minority interest:
   Preferred partnership interests...........................................            325,000              325,000
   Other partnership interests...............................................            178,124              181,030
Commitments and contingencies (Note 15)
Shareholders' equity:
   Cumulative Preferred Shares of beneficial interest, $0.01 par value,
     100,000,000 shares authorized, 1,732,600 shares issued (in series) and
     outstanding, (1,712,600 at December 31, 2006) at liquidation preference.          3,355,000            2,855,000
   Common Shares of beneficial interest, $0.10 par value, 650,000,000 shares
     authorized, 169,360,999 shares issued and outstanding (169,144,467 at
     December 31, 2006)......................................................             16,937               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...........................................................          5,655,666            5,661,507
   Cumulative net income.....................................................          3,640,174            3,503,292
   Cumulative distributions paid.............................................         (4,144,819)          (3,847,998)
   Accumulated other comprehensive income....................................             35,673               19,329
                                                                                   -----------------    ----------------
         Total shareholders' equity..........................................          8,558,631            8,208,045
                                                                                   -----------------    ----------------
              Total liabilities and shareholders' equity.....................      $  10,477,108        $  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                  Six Months Ended
                                                                        June 30,                            June 30,
                                                               -------------------------------   ----------------------------------
                                                                   2007             2006              2007              2006
                                                               ---------------  --------------   --------------    ----------------
Revenues:
                                                                                                        
   Self-storage rental income..............................     $    411,216     $    262,232     $    809,997      $    513,579
   Ancillary operating revenue.............................           36,977           25,582           70,438            47,678
   Interest and other income...............................              955           10,047            3,080            15,122
                                                               ---------------  --------------   --------------    ----------------
                                                                     449,148          297,861          883,515           576,379
                                                               ---------------  --------------   --------------    ----------------
Expenses:
  Cost of operations (excluding depreciation and amortization):
      Self-storage facilities..............................          149,366           89,395          298,286           177,098
      Ancillary operations.................................           21,743           17,150           42,744            32,424
  Depreciation and amortization............................          167,601           48,580          344,082            98,608
  General and administrative...............................           21,465            6,975           37,981            13,754
  Interest expense.........................................           16,707            1,872           33,515             3,429
                                                               ---------------  --------------   --------------    ----------------
                                                                     376,882          163,972          756,608           325,313
                                                               ---------------  --------------   --------------    ----------------
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,
   income from derivatives and
   minority interest in income.............................           72,266          133,889          126,907           251,066
Equity in earnings of real estate entities.................            2,782            3,124            6,759             6,590
Casualty gain .............................................                -                -            2,665                 -
Gain on disposition of real estate investments.............            2,238              466            2,238               466
Foreign currency exchange gain.............................            5,553                -           10,593                 -
Income from derivatives, net...............................            1,771                -            1,009                 -
Minority interest in income................................           (7,524)          (8,728)         (13,307)          (15,887)
                                                               ---------------  --------------   --------------    ----------------
Income from continuing operations..........................           77,086          128,751          136,864           242,235
Cumulative effect of a change in accounting principle......                -                -                -               578
Discontinued operations....................................               18              111               18               265
                                                               ---------------  --------------   --------------    ----------------
Net income.................................................     $     77,104     $    128,862     $    136,882      $    243,078
                                                               ===============  ==============   ==============    ================
Net income allocation:
----------------------
   Allocable to preferred shareholders.....................     $     57,315    $      52,376     $    116,091     $      98,991
   Allocable to Equity Shares, Series A....................            5,356            5,356           10,712            10,712
   Allocable to common shareholders........................           14,433           71,130           10,079           133,375
                                                               ---------------  --------------   --------------    ----------------
                                                                $     77,104     $    128,862     $    136,882      $    243,078
                                                               ===============  ==============   ==============    ================
Net income per common share - basic
   Continuing operations...................................     $       0.09     $       0.55     $       0.06      $       1.04
   Discontinued operations.................................             -                -                -                 -
                                                               ---------------  --------------   --------------    ----------------
                                                                $       0.09     $       0.55     $       0.06      $       1.04
                                                               ===============  ==============   ==============    ================
Net income per common share - diluted
   Continuing operations...................................    $        0.08    $        0.55    $        0.06     $        1.03
   Discontinued operations.................................             -                -                -                 -
                                                               ---------------  --------------   --------------    ----------------
                                                                $       0.08     $       0.55     $       0.06      $       1.03
                                                               ===============  ==============   ==============    ================
Net income per depositary share representing Equity
   Shares, Series A (basic and diluted) ...................     $       0.61     $       0.61     $       1.23      $       1.23
                                                               ===============  ==============   ==============    ================
Basic weighted average common shares outstanding...........          169,346          128,180          169,288           128,151
                                                               ===============  ==============   ==============    ================
Diluted weighted average common shares outstanding.........          170,213          129,062          170,275           129,037
                                                               ===============  ==============   ==============    ================
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)                -

Issuance of common shares in connection with:
   Exercise of employee stock options (177,938 shares)....                 -                18            7,107                 -
   Vesting of restricted shares (38,594 shares) ..........                 -                 4               (4)                -

Stock-based compensation expense (Note 13) ...............                 -                 -            2,289                 -

Net income................................................                 -                 -                -           136,882

Cash distributions:
   Cumulative preferred shares (Note 11)..................                 -                 -                -                 -
   Equity Shares, Series A ($1.225 per depositary share)..                 -                 -                -                 -
   Common Shares ($1.00 per share)........................                 -                 -                -                 -

Accumulated other comprehensive income:
   Foreign currency translation adjustments...............                 -                 -                -                 -
                                                              -----------------  ---------------  ---------------- ---------------
Balance at June 30, 2007..................................      $  3,355,000      $     16,937     $  5,655,666      $  3,640,174
                                                              =================  ===============  ================ ===============




                                                                                    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

Issuance of common shares in connection with:
   Exercise of employee stock options (177,938 shares)....                   -                 -             7,125
   Vesting of restricted shares (38,594 shares) ..........                   -                 -                 -

Stock-based compensation expense (Note 13) ...............                   -                 -             2,289

Net income................................................                   -                 -           136,882

Cash distributions:
   Cumulative preferred shares (Note 11)..................            (116,091)                -          (116,091)
   Equity Shares, Series A ($1.225 per depositary share)..             (10,712)                -           (10,712)
   Common Shares ($1.00 per share)........................            (170,018)                -          (170,018)

Accumulated other comprehensive income:
   Foreign currency translation adjustments...............                   -            16,344            16,344
                                                                 ---------------   ---------------   ---------------
Balance at June 30, 2007..................................        $ (4,144,819)     $     35,673      $  8,558,631
                                                                 ===============   ===============   ===============


                            See accompanying notes.
                                        3



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



                                                                                    For the Six Months Ended
                                                                                            June 30,
                                                                                 ----------------------------------
                                                                                         2007            2006
                                                                                 ----------------- ----------------
Cash flows from operating activities:
                                                                                               
   Net income...............................................................         $  136,882      $  243,078
   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)..............................................             (2,329)           (474)
    Gain on sales of real estate and real estate investments (Notes 4 and 14)            (2,238)           (466)
    Depreciation and amortization...........................................            344,082          98,608
    Equity in earnings of real estate entities..............................             (6,759)         (6,590)
    Foreign currency exchange gain..........................................            (10,593)              -
    Income from derivatives, net............................................             (1,009)              -
    Distributions received from the real estate entities (Note 5)...........             10,535          10,415
    Minority interest in income.............................................             13,307          15,887
    Other operating activities..............................................             (2,756)          6,783
                                                                                 ----------------- ----------------
       Total adjustments....................................................            342,240         124,163
                                                                                 ----------------- ----------------
       Net cash provided by operating activities............................            479,122         367,241
                                                                                 ----------------- ----------------
Cash flows from investing activities:
    Capital improvements to real estate facilities .........................            (28,807)        (23,449)
    Construction in process.................................................            (47,329)        (37,936)
    Acquisition of real estate facilities...................................            (28,844)        (98,954)
    (Deconsolidation) consolidation of partnerships (Note 2)................                (65)          3,024
    Proceeds from sales of real estate......................................              2,242           5,436
    Sale of real estate investments to affiliates...........................              4,909               -
    Additions to restricted cash............................................               (306)         (3,358)
    Proceeds from sales of held-to-maturity debt securities (Note 2)........              5,766           7,743
                                                                                 ----------------- ----------------
       Net cash used in investing activities................................            (92,434)       (147,494)
                                                                                 ----------------- ----------------
Cash flows from financing activities:
    Principal payments on notes payable.....................................           (502,134)        (13,013)
    Net repayments on bank credit facilities................................           (275,000)              -
    Proceeds from borrowings on European notes payable......................             32,039               -
    Net proceeds from the issuance of common shares.........................              7,125           3,339
    Net proceeds from the issuance of cumulative preferred shares...........            484,767         603,093
    Redemption of cumulative preferred shares...............................           (302,150)       (172,500)
    Issuance of preferred partnership interests.............................                  -         100,000
    Distributions paid to shareholders......................................           (296,821)       (238,298)
    Distributions paid to holders of preferred partnership interests
       (Note 10)............................................................            (10,806)         (8,249)
    Distributions paid to other minority interests..........................            (10,357)         (7,348)
                                                                                 ----------------- ----------------
       Net cash (used in) provided by financing activities..................           (873,337)        267,024
                                                                                 ----------------- ----------------
Net (decrease) increase in cash and cash equivalents........................           (486,649)        486,771
Net effect of foreign exchange translation on cash..........................             (2,292)              -
                                                                                 ----------------- ----------------
Cash and cash equivalents at the beginning of the year......................            535,684         481,995
                                                                                 ----------------- ----------------
Cash and cash equivalents at the end of the period..........................         $   46,743      $  968,766
                                                                                 ================= ================


                            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:
                                                                                               
    Real estate acquired in exchange for assumption of mortgage note...........      $        -      $   (4,590)
    Mortgage note assumed in connection with acquisition of real estate........               -           4,590
    Consolidation of entities pursuant to Emerging Issues Task Force Topic 04-5:
       Minority interest - other partnership interests.........................               -           3,963
       Real estate facilities..................................................               -         (22,459)
       Investments in real estate entities.....................................               -          20,687
       Other assets............................................................               -            (167)
       Accrued and other liabilities...........................................               -             841

   Foreign currency translation adjustment:
       Real estate facilities, net of accumulated depreciation..............            (23,790)              -
       Construction in process..............................................               (785)              -
       Intangible assets, net...............................................             (3,470)              -
       Other assets.........................................................             (1,072)              -
       Notes payable........................................................              6,579               -
       Accrued and other liabilities........................................              1,985               -
       Minority interest - other partnership interests......................              1,917               -
       Accumulated other comprehensive income...............................             16,344               -

   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)              -





                            See accompanying notes.
                                        5


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 June 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  have  self-storage  facilities  located  in  several  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 June 30, 2007, we had direct and indirect equity  interests in 2,006
     self-storage  facilities  located in 38 states  operating under the "Public
     Storage" name,  and 168  self-storage  facilities  located in seven Western
     European  nations 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 six
     months ended June 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 June 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

                                       6


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

     previous presentations, revenues and cost of operations with respect to our
     Commercial facilities and Containerized Storage facilities 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
     that we are not the  primary  beneficiary  of,  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 June  30,  2007,  the  Company  and the  Consolidated
     Entities own a total of 2,150 real estate  facilities,  consisting of 1,973
     self-storage  facilities in the United  States,  168  facilities in Europe,
     three industrial  facilities used by the containerized  storage  operations
     and six commercial properties.

         At June 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  19.4 million net rentable square feet
     of commercial space at June 30, 2007.

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

         On May 24, 2007, a judgment was rendered  which  resulted in our losing
     effective control over several entities that 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
     June  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
                                 June 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.

         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. Also, we are
     exposed  to  foreign   currency   exchange  risk  related  to  intercompany
     transactions, including debt, with or between our European subsidiaries.

                                       8


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

         Other assets at June 30, 2007  include  investments  totaling  $998,000
     ($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 June 30, 2007 also include derivative financial
     instruments totaling $5,415,000 ($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 June 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 June 30, 2007.

                                       9



                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 June 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  $64  million and $65
     million at June 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 $69,021,000 at June 30, 2007 ($64,291,000 at
     December  31,  2006),   while   property  and   value-added   tax  accruals
     approximated  $91,303,000  at June 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 June 30, 2007 totaled $31,564,000 ($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   $94,203,000   and
     $108,331,000 at June 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 allocation of

                                       10


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

     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  $3,470,000  during the six months ended June 30, 2007 due to the impact
     of changes in exchange  rates.  During the six months  ended June 30, 2007,
     our intangible assets increased  $910,000 for storage tenants in place with
     respect to self-storage facility  acquisitions.  Also during the six months
     ended  June  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  $333,095,000  as of  June  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 $71,367,000 and  $157,151,000 was recorded for
     our finite-lived  intangible assets for the three and six months ended June
     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)                     $ 89,220,000
                2008                                      73,286,000
                2009                                      24,001,000
                2010                                      14,713,000
                2011                                      11,463,000
                2012 and beyond                           28,508,000



     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  $9.6  million in expenses  related to our
     proposed offering of shares which is included in general and administrative
     expense for the three and six months ended June 30, 2007.

                                       11


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 June 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  1.347 in US dollars  per Euro at June 30,
     2007 (1.333 at December 31, 2006). Equity is translated at historical rates
     and the  resulting  cumulative  translation  adjustments  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 $35,673,000 at June 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 year),  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 six
     months ended June 30, 2007, we recorded foreign currency  exchange gains of
     $5,553,000 and  $10,593,000,  respectively,  on our condensed  consolidated
     statement of income,  principally  related to such  intercompany  balances.
     Substantially all of such  intercompany  balances are expected to settle in
     the  foreseeable  future.  At June 30,  2007 and  December  31,  2006,  our
     European  subsidiaries  had  intercompany  balances  payable  to our United
     States operations totaling $503,295,000 and $521,072,000, 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 June 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
                                 June 30, 2007
                                  (Unaudited)

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

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



                                    For the Three Months     For the Six Months
                                        Ended June 30,         Ended June 30,
                                   ---------------------   ---------------------
                                      2007       2006          2007       2006
                                   ----------  ---------   ---------  ----------
                                                          
     Net income...............       $ 77,104  $ 128,862   $ 136,882  $ 243,078
     Accumulated other
        comprehensive income:
        Foreign currency
        translation adjustment          5,933         -       16,344          -
                                   ----------  ---------   ---------  ----------
     Total comprehensive income      $ 83,037  $ 128,862   $ 153,226  $ 243,078
                                   ==========  =========   =========  ==========


         The foreign  currency  translation  adjustments  reflected in the above
     table represent the net currency  translation  adjustment  gains and losses
     related to our European subsidiaries,  which have not been reflected in net
     income,  measured  as  from  December  31,  2006  through  June  30,  2007.

     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 each of the  three and six  months
     ended June 30, 2007, income from discontinued operations totaled $18,000.

     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  $57,315,000 and
     $116,091,000   for  the  three  and  six  months   ended  June  30,   2007,
     respectively,  and $52,376,000 and $98,991,000 for the three and six months
     ended June 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  shareholders
     equal to the excess of a) the cash required to redeem the securities and b)
     the "Book  Value"  (the net  proceeds  from the  original  issuance  of the
     securities) of the securities. No such additional allocations were recorded
     in the three or six months ended June 30, 2007 or 2006.

         The  remaining  income  allocated to our common  shareholders  has been
     further  allocated  among our our  regular  common  shares  and our  Equity
     Shares,  Series A. The  allocation  among  each  class  was based  upon the

                                       13


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

     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, was allocated net income of
     $5,356,000 and  $10,712,000 for each of the three and six months ended June
     30, 2007 and 2006, respectively.  Income of $14,433,000 and $10,079,000 for
     the three and six months ended June 30, 2007,  respectively,  and income of
     $71,130,000  and  $133,375,000  for the three and six months ended June 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.

             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

                                       14


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

     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  Storage  Centers,  Inc.
     ("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:




                                                               Six Months Ended
                                                                 June 30, 2007
                                                               -----------------
                                                                  (Amounts in
                                                                   thousands)

Real estate facilities, at cost:
                                                            
   Balance at December 31, 2006........................        $   11,261,865
   Newly developed facilities opened for operations....                39,507
   Acquisition of real estate facilities...............                27,934
   Deconsolidation of Entities (Note 2) ...............               (42,473)
   Disposition of real estate facilities...............                (2,454)
   Capital improvements................................                28,807
   Impact of foreign exchange rate changes.............                26,392
                                                               -----------------
   Balance at June 30, 2007............................            11,339,578
                                                               -----------------
Accumulated depreciation:
   Balance at December 31, 2006........................            (1,754,362)
   Deconsolidation of Entities (Note 2) ...............                 1,064
   Additions during the year...........................              (185,545)
   Dispositions during the year........................                 1,256
   Impact of foreign exchange rate changes.............                (2,602)
                                                               -----------------
   Balance at June 30, 2007............................            (1,940,189)
                                                               -----------------

Construction in process:
   Balance at December 31, 2006........................                90,038
   Current development.................................                47,329
   Newly developed facilities opened for operations....               (39,507)
   Impact of foreign exchange rate changes.............                   785
                                                               -----------------
   Balance at June 30, 2007............................                98,645
                                                               -----------------

Total real estate facilities at June 30, 2007..........        $    9,498,034
                                                               =================


         During  the  six  months  ended  June  30,  2007,  we  completed   four
     development   and  five  expansion   projects  which  in  aggregate   added
     approximately  266,000 net rentable square feet of self-storage  space at a
     total cost of  $39,507,000.  In  addition,  we  acquired  two  self-storage
     facilities  (132,000  net rentable  square feet) from third  parties for an
     aggregate cost of $28,844,000,  in cash;  $27,934,000 was allocated to real
     estate facilities and $910,000 was allocated to intangibles, based upon the
     relative fair values of the land, buildings and intangibles.

                                       15


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

         Construction   in  process  at  June  30,  2007  includes  41  projects
     (1,786,000  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  $48,835,000 at June 30,
     2007 and total estimated costs to complete of $99,558,000.  In addition, we
     have 15 projects to develop new self-storage  facilities in Europe (765,000
     aggregate net rentable  square feet),  with costs incurred at June 30, 2007
     of $49,810,000 and total estimated costs to complete of $89,015,000.

         We  capitalize   interest   incurred  on  debt  during  the  course  of
     construction of our self-storage  facilities.  Interest capitalized for the
     three and six  months  ended June 30,  2007 was  $973,000  and  $1,714,000,
     respectively,  as compared to $353,000 and  $1,069,000 for the same periods
     in 2006.

         During the six months ended June 30, 2007,  we have  received  proceeds
     for  partial   condemnations   and  other   disposals  to  certain  of  our
     self-storage  facilities for an aggregate of $2,242,000 and recorded a gain
     of $1,044,000  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  $1,194,000  for the three and six months ended
     June 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 $1.5  billion  with  respect  to our  European
     operations at June 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 June 30, 2007,  our  investments  in real
     estate  entities  consist  of  ownership  interests  in the  Unconsolidated
     Entities.

         For the  three  and six  months  ended  June 30,  2007,  we  recognized
     earnings from our  investments  in real estate  entities of $2,782,000  and
     $6,759,000,  respectively, as compared to $3,124,000 and $6,590,000 for the
     same periods in 2006.

         We received  cash  distributions  from our  investments  in real estate
     entities  for the six months ended June 30, 2007 and 2006,  of  $10,535,000
     and $10,415,000, respectively.

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




                                          Equity in Earnings  Equity in Earnings
                                           of Real Estate        of Real Estate
                     Investments in        Entities for the    Entities for the
                     Real Estate            Three Months          Six Months
                     Entities at            Ended June 30,      Ended June 30,
                  ----------------------  -----------------   ------------------
                  June 30,  December 31,
                    2007        2006        2007     2006       2007      2006
                  ---------  ----------   -------  --------   -------  ---------

                                                     
PSB.............. $ 280,125  $ 283,700    $ 2,224  $ 2,640    $ 5,714  $ 5,616
Other Investments    41,083     18,205        558      484      1,045      974
                  ---------  ----------   -------  --------   -------  ---------
  Total.......... $ 321,208  $ 301,905    $ 2,782  $ 3,124    $ 6,759  $ 6,590
                  =========  ==========   =======  ========   ======== =========


                                       16


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

     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 June 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 June 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
     June 30, 2007 ($63.37 per share of PSB common stock),  the shares and units
     had a market value of  approximately  $806.3  million as compared to a book
     value of $280.1 million.

         At June 30,  2007,  PSB owned  approximately  19.4 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 six months ended June 30,
 --------------------------------
                                                                
   Total operating revenue...........................  $ 132,764      $ 118,208
   Costs of operations and other operating expenses..    (45,275)       (39,663)
   Other income and expense, net.....................        871          2,543
   Depreciation and amortization.....................    (46,556)       (41,536)
   Discontinued operations...........................          -          1,643
   Minority interest.................................     (6,675)        (8,227)
                                                      -----------     ----------
     Net income......................................  $  35,129      $  32,968
                                                      ===========     ==========





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

                                                              
   Total assets (primarily real estate).............. $ 1,553,568   $ 1,462,864
   Total debt........................................      61,392        67,048
   Other liabilities.................................      43,974        42,394
   Preferred equity and preferred minority interests.     811,000       705,250
   Common equity and common minority interests.......     637,202       648,172


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

         Other investments  consist primarily of an average of approximately 29%
     common  equity  ownership  in 12  entities  that  own  an  aggregate  of 33
     self-storage  facilities that we held on a consistent basis for each of the
     three and six months ended June 30, 2007 and 2006, respectively.

         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:

                                       17


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

                                                         2007            2006
                                                      -----------    -----------
                                                        (Amounts in thousands)
        For the six months ended June 30,
        --------------------------------
        Total revenue........................        $  11,535        $  10,607
        Cost of operations and other expenses           (5,384)          (5,066)
        Depreciation and amortization........           (1,596)          (1,365)
                                                     ------------    -----------
                Net income.......................    $   4,555        $   4,176
                                                     ============    ===========

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

        Total assets (primarily storage
        facilities)......................            $   72,841       $  73,031
        Total liabilities....................            21,096          21,112
        Total Partners' equity...............            51,745          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 June 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 June 30, 2007).  Outstanding  borrowings on our
     revolving line of credit totaled $70 million at June 30, 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 June 30, 2007.

         At June 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  letter  of  credit,  totaling  $20,653,000  ($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 June 30, 2007 and December
     31, 2006 consist of the following (dollar amounts in thousands):

                                       18


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




                                                       June 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 $12,700 of unamortized premium
     at June 30, 2007) .............................     212,700       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 $411,191
     at June 30, 2007 and stated note rates between
     4.95% and 7.76%, due between July 2007 and
     August 2015 (carrying amount includes $3,706 of
     unamortized premium at June 30, 2007) .........     145,832       166,737
  Variable rate mortgage notes payable due
     December 2007..................................           -         8,428
  5.29% average effective rate fixed rate mortgage
     notes payable,  secured by 33 real estate
     facilities with a net book value of $189,315
     at June 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 $4,005 of unamortized  premium at
     June 30, 2007..................................      89,179        91,489

  European Secured Notes Payable:

  (euro)325 million notes payable due  originally
     in 2011,  but prepaid in January 2007..........            -      428,760
  First and Second Shurgard credit agreement,
     due in 2008 and 2009, secured by 63 real
     estate facilities with a net book value
     of $488,588 at June 30, 2007 (interest rate
     of EURIBOR + 2.25%, 6.033% average for the six
     months  ended  June  30,  2007,  6.372%  rate
     at June 30, 2007 which approximate market rates)     326,597      288,918
  Liability under Capital Leases.....................       6,710        6,600
                                                      -----------  -------------
         Total notes payable.........................  $  981,018  $ 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.  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.

         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 June 30, 2007.

                                       19


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

         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 June 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
     ($365.1  million as of June 30,  2007;  $357.5  million as of December  31,
     2006).  As of June 30,  2007,  the  available  amount  under  those  credit
     facilities was, in aggregate, (euro)28 million ($37.7 million) and (euro)52
     million ($68.6 million),  respectively.  Our draws under the First Shurgard
     and Second  Shurgard  credit  facilities  are  determined  on a development
     project  basis,  or on an  acquisition  project basis when  applicable  for
     Second  Shurgard,  and 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 June 30, 2007,  we were in compliance
     with these financial covenants.

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



                    Domestic       Domestic    European   Liabilities
                    Unsecured      Mortgage    Note       under Capital
                    Notes Payable  Notes       Payable    Leases         Total
                    -------------  ---------   ---------  ------------ ---------

                                                        
2007 (remainder of). $   1,631     $   4,253   $   1,617    $    39    $   7,540
2008................     3,404        20,505     174,078        106      198,093
2009................     3,605         8,707     150,902        116      163,330
2010................     3,817        10,584           -         81       14,482
2011................   200,243        27,355           -        739      228,337
Thereafter..........   200,000       163,607           -      5,629      369,236
                    -------------  ---------   ---------  ------------ ---------
                     $ 412,700     $ 235,011   $ 326,597    $ 6,710    $ 981,018
                    =============  =========   =========  ============ =========
Weighted average
effective rate            5.8%          5.4%        6.1%       9.9%         5.8%
                    =============  =========   =========  ============ =========


         We incurred interest expense with respect to our notes payable, capital
     leases,  debt to  joint  venture  partner  and line of  credit  aggregating
     $35,229,000 and $4,498,000 for the six months ended June 30, 2007 and 2006,
     respectively. These amounts were comprised of $37,558,000 and $4,972,000 in
     cash for the six months  ended June 30, 2007 and 2006,  respectively,  less
     $2,329,000 and $474,000 in amortization of premium, respectively.

         The  net  book  value  of  the  properties  under  capital  leases  was
     $30,070,000 as of June 30, 2007,  which is net of accumulated  depreciation
     of $1,064,000.

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

                                       20


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

     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 $37,350,000 and $37,258,000 due the joint
     venture  partner as of June 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 $1,583,000 and  $1,516,000 was recorded as interest  expense
     on our condensed consolidated statements of income with respect to our Debt
     to Joint  Venture  Partner  during the six months  ended June 30,  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 $1,492,000 and $1,429,000 paid to our joint venture
     partner  (an  8.0%  return  payable   currently  in  accordance   with  the
     partnership  agreement) during the six months ended June 30, 2007 and 2006,
     respectively, and increases in the Debt to Joint Venture Partner of $91,000
     and $87,000 for the six months ended June 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 six months
     ended June 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:

                                        June 30, 2007        December 31, 2006
                                       --------------       -------------------
                                             (Amounts in thousands)
     Assets:
        Interest rate contracts.......  $      5,415         $      11,810
                                        =============        ==================
     Liabilities:
        Interest rate contracts.......  $          -         $      (4,162)
        Foreign currency exchange
        contracts.....................        (1,601)               (7,837)
                                        -------------        ------------------
                                        $     (1,601)        $     (11,999)
                                        =============        ==================

         For the six months ended June 30, 2007, net income from  derivatives of
     $1,009,000  was  comprised of a change in value of the related  instruments
     representing  gain  of  $1,137,000,  offset  by  $128,000  in net  payments
     incurred during the period under the underlying instruments.

         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.

                                       21


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

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

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




                                                          June 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
     $10,806,000 and $8,249,000 for the six months ended June 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 June 30,  2007 and
     December 31, 2006 as well as the income allocated to minority interests for
     the three and six months  ended June 30, 2007 and 2006 with  respect to the
     other partnership interests (amounts in thousands):

                                                     Minority Interest at
                                                ----------------------------
                                                 June 30,       December 31,
           Description                             2007            2006
        ----------------------------------       ------------   ------------
        European joint ventures...........      $ 136,132       $ 140,034
        European investors................          3,715               -
        Convertible Partnership Units.....          5,517           5,710
        Other consolidated partnerships...         32,760          35,286
                                                ------------   -------------
        Total other partnership interests.      $ 178,124       $ 181,030
                                                ============   =============

                                       22


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

                                      Minority Interests      Minority Interests
                                       in Income (Loss)        in Income (Loss)
                                        for the Three            for the Six
                                        Months Ended             Months Ended
                                      ------------------      ------------------
                                       June 30,  June 30,     June 30,  June 30,
                Description              2007     2006         2007       2006
                                       --------  -------      --------  --------
     European joint ventures..........  $(2,065) $    -        $(5,819)  $    -
     European investors...............        -       -              -        -
     Convertible Partnership Units....       19     120             11      236
     Other consolidated partnerships..    4,167   3,950          8,309    7,402
                                       --------  -------      --------  --------
     Total other partnership interests  $ 2,121  $4,070       $  2,501  $ 7,638
                                       ========  =======      ========  ========

         Distributions  paid to minority  interests  for the three  months ended
     June 30, 2007 and 2006 were  $4,856,000 and $3,636,000,  respectively,  and
     for the six  months  ended  June 30,  2007 and 2006  were  $10,357,000  and
     $7,348,000,  respectively.  Minority  interests  increased  $1,917,000 as a
     result of the  impact of  foreign  currency  translation  in the six months
     ended June 30, 2007.

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

         Through  the  merger  with  Shurgard,  we  acquired  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 June 30, 2007, First Shurgard and
     Second  Shurgard  had  aggregate  total  assets of $523.5  million  ($497.2
     million at December 31, 2006),  total liabilities of $356.1 million ($322.1
     million at December 31,  2006),  and credit  facilities  collateralized  by
     assets with a net book value of $488.6 million  ($461.6 million at December
     31,  2006).  At June 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 to up to $20 million
     and an additional  $10.1 million as of June 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.  As part of
     our efforts to resolve our dispute with our joint venture partner,  we have
     entered into an agreement to exchange  their interest in the joint ventures
     for shares in Shurgard Europe.

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

         On May  14,  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

                                       23


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

     Interests,  we recorded a gain of  $1,194,000  for the three and six months
     ended June 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 June 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
     six months ended June 30, 2007.

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

         At June  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.

         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.

         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 June  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

                                       24


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

     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 June 30,
     2007.

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

              Cumulative Preferred Shares

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

                                   At June 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          -            -
 ---------   ---------- -------  ----------- -----------  ---------- -----------
   Total Cumulative
     Preferred Shares             1,732,600  $ 3,355,000  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,

                                       25


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

     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 June 30, 2007, there were
     no dividends in arrears and the Debt Ratio was 9.6%.

         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.

         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 six months
     ended June 30, 2007.

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

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

         The Company is authorized to issue 100,000,000  shares of 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 gives 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 June 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 ranks on parity with common shares
     and  junior to the  Cumulative  Preferred  Shares  with  respect to general
     preference  rights and has a liquidation  amount which cannot exceed $24.50
     per share. Distributions with respect to each depositary share shall be the
     lesser of: (i) five times the per share  dividend  on our common  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

                                       26


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

     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 six months ended June 30,  2007,  we issued  216,532  common
     shares in connection with employee stock-based compensation.

         At June 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
     six months ended June 30, 2007:

                                Distributions Per
                                Share or Depositary    Total Distributions
                                      Share
                                -------------------    -------------------
        Preferred Shares:
        -----------------
        Series T...............       $0.090           $   548,000
        Series U...............       $0.259             1,557,000
        Series V...............       $0.937             6,468,000
        Series W...............       $0.812             4,306,000
        Series X...............       $0.806             3,870,000
        Series Y...............       $0.856             1,370,000
        Series Z...............       $0.781             3,516,000
        Series A...............       $0.766             3,522,000
        Series B...............       $0.891             3,874,000
        Series C...............       $0.825             3,796,000
        Series D...............       $0.773             4,172,000
        Series E...............       $0.844             4,768,000
        Series F...............       $0.806             8,062,000
        Series G...............       $0.875             3,500,000
        Series H...............       $0.869             3,649,000
        Series I...............       $0.906            18,760,000
        Series K...............       $0.906            16,674,000
        Series L...............       $0.844             7,762,000
        Series M...............       $0.796            15,917,000
                                                    ----------------
                                                       116,091,000
        Common Shares:
        Equity Shares, Series A       $1.225            10,712,000
        Common ................       $1.000           170,018,000
                                                    ----------------
              Total dividends..                     $  296,821,000
                                                    ================

                                       27


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

         The dividend  rate on our common  shares was $0.50 per common share and
     $1.00 per common  share for the three and six months  ended June 30,  2007.
     The dividend  rate on the Equity Share A was $0.6125 per  depositary  share
     and $1.225 per depositary share for the three and six months ended June 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.

         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  (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.  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 June 30, 2007,
     include real estate with a book value of  approximately  $1.5 billion ($1.4

                                       28


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

     billion  at  December  31,  2006),   intangibles   with  a  book  value  of
     approximately  $118 million ($161 million at December 31, 2006),  and other
     assets  with a book value of  approximately  $64  million  ($65  million at
     December  31,  2006).  At  June  30,  2007,  liabilities  of  our  European
     operations include;  intercompany payables of $503 million ($521 million at
     December  31,  2006),  debt of $333 million  ($724  million at December 31,
     2006) and accrued and other  liabilities  of $94 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):

For the three months ended June 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....................     $    364,859     $   46,357    $          -      $         -      $   411,216
   Ancillary operating revenue...................                -          4,324          32,653                -           36,977
   Interest and other income.....................                -              -               -              955              955
                                                    ---------------  --------------  --------------   ---------------- -------------
                                                           364,859         50,681          32,653              955          449,148
                                                    ---------------  --------------  --------------   ---------------- -------------
Expenses:
  Cost of operations (excluding depreciation and
   amortization below):
      Self-storage facilities....................          126,260         23,106               -                -          149,366
      Ancillary operations.......................                -          1,356          20,387                -           21,743
  Depreciation and amortization..................          127,459         39,202             940                -          167,601
  General and administrative.....................                -         12,022               -            9,443           21,465
  Interest expense...............................                -          5,232               -           11,475           16,707
                                                    ---------------  --------------  --------------   ---------------- -------------
                                                           253,719         80,918          21,327           20,918          376,882
                                                    ---------------  --------------  --------------   ---------------- -------------
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....................          111,140        (30,237)         11,326          (19,963)          72,266


Equity in earnings of real estate entities.......              558              -               -            2,224            2,782
Gain on disposition of real estate investments...                -              -               -            2,238            2,238
Foreign currency exchange gain...................                -          5,553               -                -            5,553
Income from derivatives, net.....................                -          1,771               -                -            1,771
Minority interest in (income) loss...............           (4,094)         1,973               -           (5,403)          (7,524)
                                                    ---------------  --------------  --------------   ---------------- -------------
Income (loss) from continuing operations.........          107,604        (20,940)         11,326          (20,904)          77,086
Discontinued operations..........................                -           (130)              -              148               18
                                                    ---------------  --------------  --------------   ---------------- -------------
Net income (loss)................................     $    107,604     $  (21,070)   $     11,326      $   (20,756)     $    77,104
                                                    ===============  ==============  ==============   ================ =============



                                       29



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

For the three months ended June 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....................     $    262,232     $       -      $         -      $       -        $  262,232
   Ancillary operating revenue...................                -             -           25,582              -            25,582
   Interest and other income.....................                -             -                -         10,047            10,047
                                                    ----------------  -------------  --------------- ------------------ ------------
                                                           262,232             -           25,582         10,047           297,861
                                                    ----------------  -------------  --------------- ------------------ ------------
Expenses:
  Cost of operations (excluding depreciation and
   amortization below):
      Self-storage facilities....................           89,395             -                -              -            89,395
      Ancillary operations.......................                -             -           17,150              -            17,150
  Depreciation and amortization..................           47,808             -              772              -            48,580
  General and administrative.....................                -             -                -          6,975             6,975
  Interest expense...............................                -             -                -          1,872             1,872
                                                    ----------------  -------------  --------------- ------------------ ------------
                                                           137,203             -           17,922          8,847           163,972
                                                    ----------------  -------------  --------------- ------------------ ------------
Income from continuing operations before equity in
   earnings of real estate entities, gain on disposition
   of real estate investments and
   minority interest in income...................          125,029             -            7,660          1,200           133,889

Equity in earnings of real estate entities.......              484             -                -          2,640             3,124
Gain on disposition of real estate investments...                -             -                -            466               466
Minority interest in income......................           (4,070)            -                -         (4,658)           (8,728)
                                                    ----------------  -------------  --------------- ------------------ ------------
Income (loss) from continuing operations.........          121,443             -            7,660           (352)          128,751
Discontinued operations..........................                -                              -            111               111
                                                    ----------------  -------------  --------------- ------------------ ------------
Net income (loss)................................     $    121,443      $      -      $     7,660      $    (241)       $  128,862
                                                    ================  =============  =============== =================  ============



                                       30



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


For the six months ended June 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....................     $    719,778     $   90,219      $        -      $         -     $    809,997
   Ancillary operating revenue...................                -          8,103          62,335                -           70,438
   Interest and other income.....................                -              -               -            3,080            3,080
                                                     ---------------  ------------   ------------- ------------------ --------------
                                                           719,778         98,322          62,335            3,080          883,515
                                                     ---------------  ------------   ------------- ------------------ --------------

Expenses:
  Cost of operations (excluding depreciation and
   amortization below):
      Self-storage facilities....................          252,126         46,160               -                -          298,286
      Ancillary operations.......................                -          2,698          40,046                -           42,744
  Depreciation and amortization..................          264,010         78,202           1,870                -          344,082
  General and administrative.....................                -         14,729               -           23,252           37,981
  Interest expense...............................                -         10,330               -           23,185           33,515
                                                     ---------------  ------------   ------------- ------------------ --------------
                                                           516,136        152,119          41,916           46,437          756,608
                                                     ---------------  ------------   ------------- ------------------ --------------

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............................          203,642        (53,797)         20,419          (43,357)         126,907

Equity in earnings of real estate entities.......            1,045              -               -            5,714            6,759
Casualty gain....................................            2,665              -               -                -            2,665
Gain on disposition of real estate investments...                -              -               -            2,238            2,238
Foreign currency exchange gain...................                -         10,593               -                -           10,593
Income from derivatives, net.....................                -          1,009               -                -            1,009
Minority interest in (income) loss...............           (8,286)         5,785               -          (10,806)         (13,307)
                                                     ---------------  ------------   ------------- ------------------ --------------

Income (loss) from continuing operations.........          199,066        (36,410)         20,419          (46,211)         136,864
Discontinued operations..........................                -           (130)              -              148               18
                                                     ---------------  ------------   ------------- ------------------ --------------
Net income (loss)................................     $    199,066     $  (36,540)     $   20,419      $   (46,063)    $    136,882
                                                     ===============  ============   ============= ================== ==============



                                       31



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

For the six months ended June 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....................     $    513,579     $     -      $          -      $       -      $    513,579
   Ancillary operating revenue...................                -           -            47,678              -            47,678
   Interest and other income.....................                -           -                 -         15,122            15,122
                                                     --------------  -----------   --------------  ----------------- ---------------
                                                           513,579           -            47,678         15,122           576,379
                                                     --------------  -----------   --------------  ----------------- ---------------
Expenses:
  Cost of operations (excluding depreciation and
   amortization below):
      Self-storage facilities....................          177,098           -                 -              -           177,098
      Ancillary operations.......................                -           -            32,424              -            32,424
  Depreciation and amortization..................           96,991           -             1,617              -            98,608
  General and administrative.....................                -           -                 -         13,754            13,754
  Interest expense...............................                -           -                 -          3,429             3,429
                                                     --------------  -----------   --------------  ----------------- ---------------
                                                           274,089           -            34,041         17,183           325,313
                                                     --------------  -----------   --------------  ----------------- ---------------
Income (loss) from continuing operations before
   equity in earnings of real estate entities,
   gain on disposition of real estate
   investments and minority interest in income...          239,490           -            13,637         (2,061)          251,066

Equity in earnings of real estate entities.......              974           -                 -          5,616             6,590
Gain on disposition of real estate investments...                -           -                 -            466               466
Minority interest in income......................           (7,638)          -                 -         (8,249)          (15,887)
                                                     --------------  -----------   --------------  ----------------- ---------------
Income (loss) from continuing operations.........          232,826           -            13,637         (4,228)          242,235
Cumulative effect of a change in accounting
   principle.....................................                -           -                 -            578               578
Discontinued operations..........................                -                             -            265               265
                                                     --------------  -----------   --------------  ----------------- ---------------
Net income (loss)................................     $    232,826      $    -      $     13,637      $  (3,385)     $    243,078
                                                     ==============  ===========   ==============  ================= ===============


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.

         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.

                                       32


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

         For the three and six months  ended June 30, 2007 we recorded  $303,000
     and $606,000, respectively, in stock option compensation expense related to
     options  granted  after  January 1,  2002,  as  compared  to  $331,000  and
     $598,000, for the same periods in 2006.

         A total of 220,000  stock  options were  granted  during the six months
     ended June 30,  2007,  177,938  shares were  exercised,  and no shares were
     forfeited.  A total of 1,644,996 stock options were outstanding at June 30,
     2007 (1,602,934 at December 31, 2006).  The weighted average exercise price
     for the options outstanding at June 30, 2007 is $59.13 per share.

         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 six months
     ended June 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 six months ended June 30,  2007,  169,925  restricted  share
     units were  granted,  57,694  restricted  share units were  forfeited,  and
     58,274 restricted share units vested. This vesting resulted in the issuance
     of  38,594  shares  of the  Company's  common  shares.  In  addition,  cash
     compensation  was paid to employees in lieu of 19,680  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 June 30, 2007,  approximately  670,427  restricted  share units were
     outstanding  (616,470 at December  31,  2006).  A total of  $2,057,000  and
     $4,262,000 in  restricted  share expense was recorded for the three and six
     months ended June 30, 2007,  respectively,  as compared to  $1,160,000  and
     $2,429,000, for the same periods in 2006.

                                       33


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 June 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
     June 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 six months ended June 30, 2007 and 2006,  respectively,
     we received $418,000 and $505,000,  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.  The Hughes Family also owns limited partnership interests in
     certain  of these  entities.  The  Company  and the Hughes  Family  receive
     distributions  from these  partnerships in accordance with the terms of the
     partnership agreements.

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

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

         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  $19,000,  and  $37,000 for the three and six
     months ended June 30, 2007,  respectively,  compared to $18,000 and $31,000
     for the three and six months ended June 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  $182,000,  and $365,000 for the three and six months ended
     June 30, 2007,  respectively,  as compared to $146,000 and $295,000 for the
     three and six months ended June 30, 2006, respectively,  in management fees
     with  respect to PSB's  property  management  services.  At June 30,  2007,
     included  in other  assets  are  normal  recurring  amounts  owed to PSB of
     $385,000  ($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.

         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 $12,000  and $24,000 for the three and six months
     ended June 30, 2007 (none for the same period 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 $152,000 for
     the three and six months ended June 30, 2007, respectively,  as compared to
     $80,000  and  $160,000  for the three and six months  ended June 30,  2006,
     respectively.

                                       34


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

         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  $682,000 and $1,296,000 for the
     three and six months  ended June 30,  2007,  respectively,  as  compared to
     $676,000 and  $1,267,000  for the three and six months ended June 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 $1,194,000 for the three
     and six 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 June
     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 six months ended June 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 its
     storage units, has brought claims under California statutory and common law
     relating to consumer protection,  fraud, unfair competition,  and negligent
     misrepresentation,  and  is  seeking  monetary  damages,  restitution,  and
     declaratory and injunctive relief.

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

                                       35


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

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

         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 Storage Centers,  Inc.  ("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 certification 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
     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.

                                       36


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

         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, 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.

         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.

         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 June 30,
     2007,  we  had  approximately   458,000  reinsured   policies   outstanding
     representing aggregate coverage of approximately $1.2 billion.

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

         We currently have 56 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  $279 million of which  $98,645,000  has been
     spent at June 30, 2007.  These  projects are subject to  contingencies.  We
     expect to incur these expenditures over the next 12 - 24 months.

         As  of  August  8,  2007,  we  are  under  contract  to  purchase  five
     self-storage  facilities  (total  approximate  net rentable  square feet of
     395,000) at an aggregate cost of approximately  $44 million.  We anticipate
     that  these  acquisitions  will be  funded  entirely  by us.  Each of these
     contracts  is  subject  to  significant  contingencies,  and  there  is  no
     assurance that these facilities will be acquired.

                                       37


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

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

         We lease trucks,  land,  equipment and office space.  At June 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).......................    $   13,287
  2008......................................        18,898
  2009......................................        15,857
  2010......................................        11,966
  2011......................................        10,430
  Thereafter................................       193,608
                                                ----------
                                                $  264,046
                                                ==========

         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   $7,319,000and
     $14,771,000 for the three and six months ended June 30, 2007, respectively,
     as compared to $2,389,000 and $4,570,000 for the three and six months ended
     June 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.

         As of August 22,  2006,  the date of the Shurgard  merger,  the Company
     consolidates  the income tax provision of the former Shurgard  domestic and
     European activities, the latter of which are subject to income taxes in the
     jurisdictions of the countries where they operate.

         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 and second quarters of 2007.

                                       38


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

         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.

17.  Subsequent Events
     -----------------

         On July 2,  2007,  we issued  6,900,000  depositary  shares,  with each
     depositary  share  representing  1/1,000 of a 7.000%  Cumulative  Preferred
     Share of Beneficial  Interest,  Series N, for aggregate  gross  proceeds of
     $172.5 million.


                                       39



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.

                                       40


         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 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
June 30, 2007, we had  approximately  458,000  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.

                                       41


         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 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 JUNE 30, 2007:

         Net income for the three  months  ended June 30,  2007 was  $77,104,000
compared to net income of $128,862,000 for the same period in 2006, representing
a  decrease  of  $51,758,000.  This  decrease  is  primarily  due  to  increased
amortization  expense  totaling $70.9 million due to the amortization of certain
intangible  assets acquired in our merger with Shurgard  Storage  Centers,  Inc.
("Shurgard"),  which  closed on August 22,  2006,  combined  with an increase of
$35.7 million in  depreciation  expense  related to  facilities  acquired in the
merger.  In addition,  during the three months ended June 30, 2007,  our general
and administrative  expense increased  significantly as we incurred $9.6 million
in expenses related to our proposed  offering of shares in our European business
and $2.0 million of expenses  related to our  reorganization  as a Maryland real
estate investment trust (a "Maryland REIT").

         The negative  impacts to our net income from the above  mentioned items
were  partially  offset by  improved  operations  from our Same  Store  group of
facilities, continued growth in operations from our newly developed and recently
expanded  facilities,  as well as  continued  growth  in our  recently  acquired
self-storage  facilities  including the  facilities  acquired in the merger with
Shurgard.

         Our Same  Store net  operating  income,  before  depreciation  expense,
increased by approximately $2,224,000 to $151,927,000, or 1.5%, as a result of a
1.7%  improvement  in revenues  partially  offset by a 2.1%  increase in cost of
operations.  Aggregate net operating income for our newly developed and recently
expanded and acquired facilities (other than the Shurgard facilities)  increased
by approximately  $2,968,000 to $26,102,000 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.  For those facilities that were acquired in the Shurgard merger, net
operating  income was  approximately  $83,821,000 for the quarter ended June 30,
2007. Our expanded  media  advertising,  along with our  aggressive  pricing and
promotional  discount  programs,   increased  our  entire  domestic  portfolio's
(including the Shurgard  portfolio for all periods  presented) average occupancy
to 89.7% for the second  quarter  2007  compared to 88.6% last year and 87.5% in
the first quarter 2007. The overall  occupancy at the end of June 2007 was 90.6%
compared to 89.3% last year.

         For the three months ended June 30, 2007, we had a net income allocable
to our common  shareholders  (after  allocating  net income to our preferred and
equity shareholders) of $14,433,000 or $0.08 per common share on a diluted basis
compared to income of  $71,130,000  or $0.55 per common share on a diluted basis
for the same period in 2006, representing a decrease of $56,697,000 or $0.47 per
diluted common share, or 84.6%.  The decreases in net income allocable to common
shareholders on an aggregate and per-share basis are due primarily to the impact
of the factors described above, combined with an increase in income allocated to
preferred shareholders, as described below.

         For the  three  months  ended  June 30,  2007 and  2006,  we  allocated
$57,315,000  and $52,376,000 of our net income,  respectively,  to our preferred
shareholders based on distributions paid. The year-over-year  increase is due to
the  issuance  of  additional  preferred  securities,  partially  offset  by the
redemption of preferred securities that had higher dividend rates than the newly
issued preferred securities.

         Weighted  average diluted shares increased to 170,213,000 for the three
months ended June 30, 2007 from  129,062,000 for the three months ended June 30,
2006.  The increase in weighted  average  diluted shares is due primarily to the

                                       42


issuance of  approximately  38.9 million shares in the merger with Shurgard,  as
well as the  exercise  of  employee  stock  options  assumed in the merger  with
Shurgard.

FOR THE SIX MONTHS ENDED JUNE 30, 2007:

         Net  income for the six months  ended  June 30,  2007 was  $136,882,000
compared to $243,078,000 for the same period in 2006, representing a decrease of
$106,196,000.  This decrease is primarily due to increased  amortization expense
totaling  $156.7 million due to the  amortization of certain  intangible  assets
acquired in our merger with Shurgard  combined with an increase of $71.4 million
in  depreciation  expense  related to  facilities  acquired  in the  merger.  In
addition,   during  the  six  months  ended  June  30,  2007,  our  general  and
administrative  expense  increased  significantly as we incurred $9.6 million in
expenses  related to our proposed  offering of shares in our European  business,
$2.0 million of expenses related to our  reorganization  as a Maryland REIT, and
$5.3 million in integration expenses related to the merger.

         These items were partially offset by improved  operations from our Same
Store  group of  facilities,  continued  growth  in  operations  from our  newly
developed and recently  expanded  facilities  along with continued growth in our
recently acquired  self-storage  facilities  (including the facilities  acquired
from Shurgard).

         Same Store net operating income, before depreciation expense, increased
by $6,578,000 to  $299,776,000,  or 2.2%, as a result of a 2.3%  improvement  in
revenues  partially  offset by a 2.4% increase in cost of operations.  Aggregate
net  operating   income  for  our  newly   developed,   acquired  and  expansion
self-storage   facilities  (excluding  the  Shurgard  facilities)  increased  by
approximately $7,722,000 to $51,005,000.  We earned an aggregate of $160,930,000
in net operating income with respect to the facilities acquired from Shurgard.

         Net income allocable to our common  shareholders  (after allocating net
income to our preferred and equity  shareholders)  was  $10,079,000 or $0.06 per
common share on a diluted  basis for the six months ended June 30, 2007 compared
to $133,375,000 or $1.03 per common share on a diluted basis for the same period
in 2006,  representing  a decrease  of $0.97 per  common  share,  or 94.2%.  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,
combined  with an increase in income  allocated  to preferred  shareholders,  as
described below.

         For the  six  months  ended  June  30,  2007  and  2006,  we  allocated
$116,091,000 and $98,991,000 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.

         Weighted  average  diluted shares  increased to 170,275,000 for the six
months  ended June 30, 2007 from  129,037,000  for the six months ended June 30,
2006.  The increase in weighted  average  diluted shares is due primarily to the
issuance of  approximately  38.9 million shares in the merger with Shurgard,  as
well as the  exercise  of  employee  stock  options  assumed in the merger  with
Shurgard.

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 six
month  periods  ended June 30, 2007.  Rental income with respect to our domestic
self-storage  operations  has grown from $262  million and $514  million for the
three and six months ended June 30, 2006, respectively, to $365 million and $720
million  for the  three  and six  months  ended  June  30,  2007,  respectively,
representing  increases  of $103  million,  or  approximately  39% for the three
months ended June 30, 2007 and $206 million,  or  approximately  40% for the six
months ended June 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.

         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.

                                       43


Domestic self - storage operations summary:



                                                     Three Months Ended                      Six Months Ended
                                                          June 30,                              June 30,
                                                   ------------------------ ---------- ------------------------ -----------
                                                                            Percentage                          Percentage
                                                      2007         2006       Change      2007         2006       Change
                                                   ------------ ----------- ---------- ----------- ------------ -----------
                                                                           (Dollar amounts in thousands)
 Rental income:
                                                                                                   
    Same Store Facilities.......................   $   230,161  $   226,352      1.7%  $  455,838  $   445,649       2.3%
    Acquired Facilities.........................       107,087       11,510    830.4%     209,710       20,843     906.1%
    Development Facilities......................        27,611       24,370     13.3%      54,230       47,087      15.2%
                                                   ------------ ----------- ---------- ----------- ------------ -----------
      Total rental income.......................       364,859      262,232     39.1%     719,778      513,579      40.1%
                                                   ------------ ----------- ---------- ----------- ------------ -----------
 Cost of operations before depreciation and
     amortization (a):
    Same Store Facilities.......................        78,234       76,649      2.1%     156,062      152,451      2.4%
    Acquired Facilities.........................        37,793        4,043    834.8%      76,008        7,516     911.3%
    Development Facilities......................        10,233        8,703     17.6%      20,056       17,131      17.1%
                                                   ------------ ----------- ---------- ----------- ------------ -----------
       Total cost of operations.................       126,260       89,395     41.2%     252,126      177,098      42.4%
                                                   ------------ ----------- ---------- ----------- ------------ -----------
 Net operating income before depreciation and
     amortization(a):
    Same Store Facilities.......................       151,927      149,703      1.5%     299,776      293,198       2.2%
    Acquired Facilities.........................        69,294        7,467    828.0%     133,702       13,327     903.2%
    Development Facilities......................        17,378       15,667     10.9%      34,174       29,956      14.1%
                                                   ------------ ----------- ---------- ----------- ------------ -----------
    Total net operating income before
         depreciation and amortization (a)......       238,599      172,837     38.0%     467,652      336,481      39.0%
                                                   ------------ ----------- ---------- ----------- ------------ -----------
 Depreciation and amortization expense:
    Same Store Facilities.......................       (40,391)     (39,298)     2.8%     (80,797)     (80,349)      0.6%
    Acquired Facilities.........................       (77,451)      (2,658)  2813.9%    (167,183)      (5,244)   3088.1%
    Development Facilities......................        (9,617)      (5,852)    64.3%     (16,030)     (11,398)     40.6%
                                                   ------------ ----------- ---------- ----------- ------------ -----------
    Total depreciation and amortization expense.      (127,459)     (47,808)   166.6%    (264,010)     (96,991)    172.2%
                                                   ------------ ----------- ---------- ----------- ------------ -----------
 Net operating income (loss):
    Same Store Facilities.......................       111,536      110,405      1.0%     218,979      212,849       2.9%
    Acquired Facilities.........................        (8,157)       4,809   (269.6)%    (33,481)       8,083    (514.2)%
    Development Facilities......................         7,761        9,815    (20.9)%     18,144       18,558      (2.2)%
                                                   ------------ ----------- ---------- ----------- ------------ -----------
    Total net operating income..................   $   111,140  $   125,029    (11.1)% $  203,642  $   239,490     (15.0)%
                                                   ============ =========== ========== =========== ============ ===========

 Weighted average square foot occupancy during
    the period..................................         89.7%        90.3%     (0.7)%      88.0%        89.4%      (1.6)%
 Number of self-storage facilities (at end of
    period).....................................                                            1,973        1,492       32.2%
 Net rentable square
 feet (in thousands, at end
    of period):.................................                                          123,683       91,579       35.1%



(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  June  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.

         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.

                                       44


         In the above table,  the significant  increases in revenues and cost of
operations,  in the three and six months  ended June 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 22, 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.  The operating results of all of the 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 an 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 the first six months of 2007. We
have substantially increased our media advertising expenditures to $10.6 million
and $17.2  million for the three and six months  ended June 30, 2007 as compared
to $3.5 million and $8.6 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 reduced  rates,  and has also  resulted in a reduction in  Same-Store
occupancies  and  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 from our existing portfolio to the Shurgard properties during
the past nine  months,  putting  some  pressure on  occupancies  and rental rate
growth for the 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.

         It is  often  difficult  to see the  benefits  of the  strategy  we are
employing to increase occupancies in our short-term  operating results,  because
promotional  discounts and marketing  expense  adversely  affect earnings in the

                                       45


month the customer  moves in, while the revenue from these tenants are reflected
in our operating results throughout their tenancy.  However,  we expect that, as
occupancies for the Shurgard  facilities continue to approach the Public Storage
historical  levels,  and as we continue to achieve a tenant base with historical
move-out  rates,  the more  aggressive  pricing and  discounting at the Shurgard
properties can subside,  providing  rental rate growth and putting less pressure
on the Public Storage same-store  portfolio.  We believe that achieving our goal
of high  occupancies  with a stabilized  tenant base will 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 self-storage.  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 third  quarter to  continue to drive  improvement  in our
overall  occupancy  levels. We expanded our media programs in the second quarter
of 2007 and were on television in  approximately 25 markets versus 14 markets in
the second quarter of 2006, along with national cable and selected radio. Future
media  advertising  expenditures  after  the  third  quarter  of  2007  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 due
to the recent  integration,  increased property manager head count and increased
marketing costs, as noted above.

         Domestic - Same Store Facilities

         We  increased  the  number of  facilities  included  in the Same  Store
Facilities  from 1,266  facilities  at December 31, 2006 to 1,316  facilities at
June 30, 2007.  The increase in the Same Store pool of  facilities is due to the
inclusion  of  79  facilities   previously  classified  as  either  Acquired  or
Development  facilities and the removal of 29 facilities that are now classified
as Development facilities.  The facilities included in the Same Store Facilities
are all  stabilized and have been owned since January 1, 2005 and will therefore
provide  meaningful  comparative data for 2005, 2006 and 2007. The 29 facilities
that have been classified as Expansion facilities are facilities that are either
currently  undergoing  repackaging  activities  or are expected to commence such
activities  during 2007,  and  accordingly,  will no longer  provide  meaningful
comparative data for 2005, 2006 and 2007.

         As a result of the  increase  in the number of Same  Store  Facilities,
comparisons should not be made between information presented in our 2006 reports
for the 1,266 Same Store  Facilities and the current 1,316 Same Store Facilities
to identify  trends in  occupancies,  realized  rents per square foot,  or other
operating trends.

         The 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."  The  following  table sets forth  additional  operating  data with
respect to the Same Store Facilities:

                                       46





SAME STORE FACILITIES                                      Three Months Ended                       Six Months Ended
                                                                June 30,                                June 30,
                                                        ------------------------- -----------  ------------------------- -----------
                                                                                   Percentage                             Percentage
                                                            2007         2006        Change        2007         2006        Change
                                                        ------------  ----------- -----------  ------------ ------------ -----------
                                                               (Dollar amounts in thousands, except weighted average amounts)

                                                                                                           
Rental income......................................     $   220,056   $  216,347      1.7%     $   435,783  $   426,152      2.3%
Late charges and administrative fees collected.....          10,105       10,005      1.0%          20,055       19,497      2.9%
                                                        ------------  ----------- -----------  ------------ ------------ -----------
   Total rental income.............................         230,161      226,352      1.7%         455,838      445,649      2.3%
                                                        ------------  ----------- -----------  ------------ ------------ -----------
Cost of operations before depreciation and amortization:
     Direct property payroll.......................          16,098       16,624     (3.2)%         32,239       32,143      0.3%
     Property taxes................................          21,630       20,730      4.3%          44,501       42,718      4.2%
     Repairs and maintenance.......................           7,016        7,437     (5.7)%         14,057       14,541     (3.3)%
     Advertising and promotion.....................           9,161        7,058     29.8%          15,889       14,021     13.3%
     Utilities.....................................           5,112        4,734      8.0%          10,540        9,929      6.2%
     Property insurance............................           2,377        3,343    (28.9)%          4,831        5,305     (8.9)%
     Telephone reservation center..................           2,182        2,204     (1.0)%          4,251        4,247      0.1%
     Other cost of management......................          14,658       14,519      1.0%          29,754       29,547      0.7%
                                                        ------------  ----------- -----------  ------------ ------------ -----------
   Total cost of operations........................          78,234       76,649      2.1%         156,062      152,451      2.4%
                                                        ------------  ----------- -----------  ------------ ------------ -----------
Net operating income before depreciation and
amortization (e)...................................         151,927      149,703      1.5%         299,776      293,198      2.2%
Depreciation and amortization......................         (40,391)     (39,298)     2.8%         (80,797)     (80,349)     0.6%
                                                        ------------  ----------- -----------  ------------ ------------ -----------
 Net operating income..............................     $   111,536   $  110,405      1.0%     $   218,979  $   212,849      2.9%
                                                        ============  =========== ===========  ============ ============ ===========
Gross margin (before depreciation and amortization)           66.0%        66.1%     (0.2)%          65.8%        65.8%      0.0%

Weighted average for the fiscal year:
   Square foot occupancy (a).......................           91.5%        92.1%     (0.7)%          90.6%        91.1%     (0.5)%
   Realized annual rent per occupied square foot (b)    $     12.37   $    12.08      2.4%     $     12.37  $     12.03      2.8%
   REVPAF (c)......................................     $     11.32   $    11.13      1.7%     $     11.21  $     10.96      2.3%

 Weighted average at June 30:
   Square foot occupancy...........................                                                  92.2%        92.6%     (0.4)%
   In place annual rent per occupied square foot (d)                                           $     13.69  $     13.33      2.7%
Total net rentable square feet (in thousands)......                                                 77,782       77,782        -



(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
       June 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.

                                       47


         Rental income  increased  approximately  1.7% and 2.3% in the three and
six months  ended June 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 2.4% and 2.8% higher in the three and
six months ended June 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 and
June 30, 2007 were 2.9% 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 is 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,  at least in the
short term,  this  strategy  will  continue to put pressure on  occupancies  and
rental rate growth on our existing Same Store  facilities  as demand  appears to
have shifted somewhat to the acquired Shurgard facilities as we adjust the level
of discounts and monthly rents at the acquired Shurgard facilities to accelerate
occupancy  growth.  Notwithstanding,  it is  important  for us to  maintain  our
occupancy  levels in our Same Store  portfolio;  accordingly,  we have  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,
and will  continue to be,  challenging  in the near term 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. As
a result of these factors and our  aggressive  pricing and  discounting to drive
customer volumes,  compared to modest  discounting in the third quarter of 2006,
and despite expanded marketing expenditures described below, we expect continued
modest revenue growth in the Public Storage Same Store pool of properties in the
third quarter of 2007.

         Cost of operations (excluding  depreciation and amortization) increased
by 2.1% and 2.4% in the three and six months  ended June 30, 2007 as compared to
the same periods in 2006.

         Payroll  expense has decreased  3.2% in the three months ended June 30,
2007 and increased 0.3% in the six months ended June 30, 2007, respectively,  as
compared to the same  periods in 2006.  The  decrease  experienced  in the three
months  ended June 30, 2007 is  primarily  due to a reduction  in payroll  hours
incurred, offset partially by higher wage rates.

         Property  tax  expense  increased  4.3% and 4.2% in the  three  and six
months  ended June 30,  2007,  respectively,  as compared to the same periods in
2006, due to higher assessments.

         Repairs and  maintenance  expenditures  decreased  5.7% and 3.3% in the
three and six months ended June 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.

         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 29.8% and 13.3% in the three
and six months ended June 30, 2007 as compared to the same periods in 2006.

                                       48


         Media  advertising  for  the  Same  Store  properties   increased  from
$2,802,000  in the three months ended June 30, 2006 to  $5,332,000  in the three
months ended June 30, 2007, notwithstanding the substantially higher increase in
aggregate media  advertising  expenditures  increased as discussed above, due to
the impact of allocation of these  expenditures over a larger pool of properties
in the three months ended 2007. We expect to continue with  aggressive  pricing,
promotional  discounts  and  marketing in the third quarter to continue to drive
improvement in our overall  occupancy  levels. We expanded our media programs in
the second  quarter of 2007 and were on television in  approximately  25 markets
versus 14 markets in the second  quarter of 2006,  along with national cable and
selected radio. Future media advertising expenditures after the third quarter of
2007 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 were $885,000 and $1,339,000 in the
three  and six  months  ended  June 30,  2006,  respectively,  to  $724,000  and
$1,547,000  in the three and six months  ended June 30, 2007,  respectively.  We
expect that internet advertising will continue to grow as that marketing channel
becomes a more important source of new tenants.

         Same-store   yellow  page   advertising   expenditures   have  remained
relatively  stable in the three and six months  ended June 30,  2007  versus the
same periods in 2006. Certain  efficiencies  related to the merger with Shurgard
should be reflected in the third and fourth quarters of 2007,  specifically  the
allocation of costs over a larger pool of properties.

         Utility  expenses  increased  8.0% and 6.2% in the three and six months
ended June 30, 2007,  respectively,  due  principally  to higher energy costs as
compared to the same periods in 2006.  These levels of increases are expected to
persist during 2007.

         Insurance  expense decreased 28.9% and 8.9% in the three and six months
ended June 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 were  $2,204,000 and $4,247,000 in
the three and six months ended June 30, 2006,  respectively,  and $2,182,000 and
$4,251,000 in the three and six months ended June 30, 2007, respectively. During
the last half of 2006,  we began to  realize  certain  benefits  from  increased
staffing through better conversion ratios and lower temporary staffing costs. 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.

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

                                       49





                                               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
     2006             $   219,297          $ 226,352        $   233,420         $   227,007         $  906,076

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

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

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

REVPAF:
     2007             $    11.09           $  11.32
     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
     2006             $    11.97          $   12.08         $    12.55          $     12.42         $    12.26

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



                                       50


Analysis of Regional Trends

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



                                            Three Months Ended                    Six Months Ended
                                                 June 30,                              June 30,
                                         --------------------------          -------------------------
                                             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             $    37,455  $    36,570      2.4%  $   74,274   $    72,208      2.9%
   facilities)......................
   Northern California  (133                  27,971       27,129      3.1%      55,298        53,422      3.5%
   facilities)......................
   Texas  (156 facilities)..........          20,638       20,102      2.7%      40,755        39,458      3.3%
   Florida  (141 facilities)........          26,139       26,858     (2.7)%     52,294        52,837     (1.0)%
   Illinois  (92 facilities)........          16,637       15,902      4.6%      32,809        31,387      4.5%
   Georgia  (60 facilities).........           8,026        8,102     (0.9)%     16,017        15,817      1.3%
   All other states  (601 facilities)         93,295       91,689      1.8%     184,391       180,520      2.1%
                                         ------------ ------------- -------- ----------- -------------   ---------
Total rental income.................         230,161      226,352      1.7%     455,838       445,649      2.3%

Cost of operations before depreciation
 and amortization:
   Southern California..............           8,399        8,613     (2.5)%     16,849        17,287     (2.5)%
   Northern California..............           7,223        7,303     (1.1)%     14,437        14,372      0.5%
   Texas............................           9,309        9,292      0.2%      18,114        18,008      0.6%
   Florida..........................           9,236        8,613      7.2%      17,976        16,887      6.4%
   Illinois.........................           7,440        7,124      4.4%      15,029        14,668      2.5%
   Georgia..........................           2,802        2,720      3.0%       5,546         5,445      1.9%
   All other states.................          33,825       32,984      2.5%      68,111        65,784      3.5%
                                         ------------ ------------- -------- ----------- -------------   ---------
Total cost of operations............          78,234       76,649      2.1%     156,062       152,451      2.4%

Net operating income before depreciation
 and amortization:
   Southern California..............          29,056       27,957      3.9%      57,425        54,921      4.6%
   Northern California..............          20,748       19,826      4.7%      40,861        39,050      4.6%
   Texas............................          11,329       10,810      4.8%      22,641        21,450      5.6%
   Florida..........................          16,903       18,245     (7.4)%     34,318        35,950     (4.5)%
   Illinois.........................           9,197        8,778      4.8%      17,780        16,719      6.3%
   Georgia..........................           5,224        5,382     (2.9)%     10,471        10,372      1.0%
   All other states.................          59,470       58,705      1.3%     116,280       114,736      1.3%
                                         ------------ ------------- -------- ----------- -------------   ---------
Total net operating income before
   depreciation and amortization....     $   151,927  $   149,703      1.5%  $  299,776   $   293,198      2.2%

Weighted average occupancy:
   Southern California..............          90.7%        91.9%      (1.3)%      90.6%         91.6%     (1.1)%
   Northern California..............          90.5%        91.5%      (1.1)%      90.3%         90.6%     (0.3)%
   Texas............................          91.6%        91.8%      (0.2)%      90.7%         90.9%     (0.2)%
   Florida..........................          90.5%        93.7%      (3.4)%      90.7%         93.4%     (2.9)%
   Illinois.........................          90.5%        90.8%      (0.3)%      89.5%         89.2%      0.3%
   Georgia..........................          91.2%        93.7%      (2.7)%      90.6%         93.1%     (2.7)%
   All other states.................          91.4%        91.9%      (0.5)%      90.4%         90.6%     (0.2)%
                                         ------------ ------------- -------- ----------- -------------   ---------
Total weighted average occupancy....          91.5%        92.1%      (0.7)%      90.6%         91.1%     (0.5)%

REVPAF:
   Southern California..............     $     17.19  $    16.80      2.3%   $    17.05   $    16.59       2.8%
   Northern California..............           14.71       14.29      2.9%        14.55        14.08       3.3%
   Texas............................            7.96        7.74      2.8%         7.86         7.61       3.3%
   Florida..........................           11.91       12.26     (2.9)%       11.90        12.05      (1.2)%
   Illinois.........................           11.30       10.78      4.8%        11.14        10.65       4.6%
   Georgia..........................            8.36        8.45     (1.1)%        8.33         8.25       1.0%
   All other states.................           10.30       10.10      2.0%        10.17         9.95       2.2%
                                         ------------ ------------- -------- ----------- -------------   ---------
Total REVPAF........................     $     11.32  $    11.13      1.7%   $    11.21   $    10.96       2.3%



                                       51






   Same Store Facilities Operating          Three Months Ended                       Six Months Ended
   Trends by Region (Continued)                  June 30,                                June 30,
                                            2007         2006         Change        2007         2006        Change
                                         ------------ -----------   ---------   ------------  -----------   --------
                                                   (Amounts in thousands, except for weighted average data)
Realized annual rent per occupied square foot:
                                                                                           
   Southern California..............     $    18.96   $    18.28        3.7%     $    18.81   $    18.11     3.9%
   Northern California..............          16.26        15.62        4.1%          16.12        15.54     3.7%
   Texas............................           8.69         8.44        3.0%           8.66         8.37     3.5%
   Florida..........................          13.16        13.08        0.6%          13.13        12.91     1.7%
   Illinois.........................          12.48        11.87        5.1%          12.45        11.94     4.3%
   Georgia..........................           9.16         9.01        1.7%           9.19         8.86     3.7%
   All other states.................          11.27        10.99        2.5%          11.26        10.98     2.6%
                                         ------------ -----------   ---------   ------------  -----------   --------
Total realized rent per square foot.     $    12.37   $    12.08        2.4%     $    12.37   $    12.03     2.8%
                                         ============ ===========   =========   ============  ===========   ========
In place annual rent per occupied square foot at June 30:
Southern California.................                                             $    20.72   $    19.96     3.8%
Northern California.................                                                  17.95        17.26     4.0%
Texas...............................                                                   9.57         9.35     2.4%
Florida.............................                                                  14.42        14.12     2.1%
Illinois............................                                                  13.80        13.22     4.4%
Georgia.............................                                                  10.21         9.99     2.2%
All other states....................                                                  12.48        12.19     2.4%
                                                                                ------------  -----------   --------
Total in place rent per occupied
square foot:........................                                             $    13.69   $    13.33     2.7%
                                                                                ============  ===========   ========


         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 six 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.

         Domestic - Acquired Self-Storage Facilities

         During  2005,  2006  and  2007,  in  addition  to the 487  self-storage
facilities  we  acquired  in the  Shurgard  merger,  we  acquired  a total of 46
self-storage   facilities   containing   3,400,000  net  rentable  square  feet.
Commencing January 1, 2006, we began consolidating the accounts of 16 facilities
previously accounted for on the equity method. Commencing May 24, 2007, we began
deconsolidating 11 properties that we had acquired in connection with the merger
with Shurgard.  The following  table  summarizes  operating data with respect to
these facilities.

                                       52





DOMESTIC - ACQUIRED SELF-STORAGE                        Three Months Ended                    Six Months Ended
FACILITIES                                                   June 30                              June 30,
                                                     ----------------------               -------------------------
                                                         2007        2006        Change         2007        2006         Change
                                                     ----------- ----------   ----------- ------------- -----------  ------------
                                                                (Dollar amounts in thousands, except square foot amounts)
Rental income:
                                                                                                    
   Facilities acquired in 2007...................     $    299   $       -     $    299     $     311   $      -      $    311
   Facilities acquired in 2006:
      Consolidated Shurgard Properties (a):
        Shurgard Domestic Same Store Facilities..        67,561          -        67,561      132,706          -        132,706
        Other facilities.........................        25,224          -        25,224       48,670          -         48,670
      Deconsolidated Shurgard facilities (b).....           831          -           831        2,198          -          2,198
      Newly consolidated (c).....................         3,834      3,890          (56)        7,570      7,188            382
      Other acquisitions (d).....................         2,401      1,442          959         4,686      1,839          2,847
   Facilities acquired in 2005 (e)...............         6,937      6,178          759        13,569     11,816          1,753
                                                     ----------- ----------   ----------- ------------- -----------  ------------
   Total rental income...........................       107,087     11,510       95,577       209,710     20,843        188,867
                                                     ----------- ----------   ----------- ------------- -----------  ------------
Cost of operations before depreciation and
    amortization:
   Facilities acquired in 2007...................           126          -          126           129          -            129
   Facilities acquired in 2006:
      Consolidated Shurgard Properties:
        Shurgard Domestic Same Store Facilities..        22,807          -       22,807        45,997          -         45,997
        Other facilities.........................         9,895          -        9,895        19,790          -         19,790
      Deconsolidated Shurgard facilities.........           344          -          344           916          -            916
      Newly consolidated.........................           865        941          (76)        1,742      1,720             22
      Other acquisitions.........................         1,179        717          462         2,288        942          1,346
   Facilities acquired in 2005...................         2,577      2,385          192         5,146      4,854            292
                                                     ----------- ----------   ----------- ------------- -----------  ------------
   Total cost of operations......................        37,793      4,043       33,750        76,008      7,516         68,492
                                                     ----------- ----------   ----------- ------------- -----------  ------------
Net operating income before depreciation and
    amortization:
   Facilities acquired in 2007...................           173          -          173           182          -            182
   Facilities acquired in 2006:
      Consolidated Shurgard Properties:
        Shurgard Domestic Same Store Facilities..        44,754          -       44,754        86,709          -         86,709
        Other facilities.........................        15,329          -       15,329        28,880          -         28,880
      Deconsolidated Shurgard facilities.........           487          -          487         1,282          -          1,282
      Newly consolidated.........................         2,969      2,949           20         5,828      5,468            360
      Other acquisitions.........................         1,222        725          497         2,398        897          1,501
   Facilities acquired in 2005...................         4,360      3,793          567         8,423      6,962          1,461
                                                     ----------- ----------   ----------- ------------- -----------  ------------
   Total net operating income before depreciation
   and amortization (f)..........................        69,294      7,467       61,827       133,702     13,327        120,375
Depreciation and amortization....................       (77,451)    (2,658)     (74,793)     (167,183)    (5,244)      (161,939)
                                                     ----------- ----------   ----------- ------------- -----------  ------------
   Net operating income (loss)...................     $  (8,157) $   4,809     $(12,966)    $ (33,481)  $  8,083      $ (41,564)
                                                     =========== ==========   =========== ============= ===========  ============
Weighted average square foot occupancy during the
period:
   Facilities acquired in 2007...................         67.7%         -            -          67.0%         -             -
   Facilities acquired in 2006:
      Consolidated Shurgard Properties:
        Shurgard Domestic Same Store Facilities..         89.4%         -            -          88.1%         -             -
        Other facilities.........................         85.9%         -            -          82.7%         -             -
      Deconsolidated Shurgard facilities.........         89.9%         -            -          89.0%         -             -
      Newly consolidated.........................         88.0%       89.8%        (2.0)%       87.0%       88.9%         (2.1)%
      Other acquisitions.........................         81.1%       66.0%        22.9%        79.1%       63.4%         24.8%
   Facilities acquired in 2005...................         88.1%       85.5%         3.0%        86.9%       83.6%          3.9%
                                                     ----------- ----------   ----------- ------------- -----------  ------------
                                                          88.1%       82.6%         6.7%        85.7%       83.8%          2.3%
                                                     =========== ==========   =========== ============= ===========  ============


                                       53





DOMESTIC - ACQUIRED SELF-STORAGE                        Three Months Ended                   Six Months Ended
FACILITIES (continued)                                        June 30                            June 30,
                                                     ------------------------           ----------------------------
                                                         2007        2006      Change         2007        2006         Change
                                                     ----------- ------------ --------- -------------- ------------- ------------
Weighted average realized annual rent per occupied
square foot for the period:
                                                                                                          
   Facilities acquired in 2007 ..................     $   18.07  $        -        -     $     17.49   $      -             -
   Facilities acquired in 2006:
      Consolidated Shurgard Properties:
        Shurgard Domestic Same Store Facilities .          13.26          -        -           13.21          -             -
        Other facilities.........................          11.56          -        -           11.56          -             -
      Deconsolidated Shurgard facilities.........           9.58          -        -            9.52          -             -
      Newly consolidated.........................          16.38      16.37       0.1%         16.35       16.31          0.2%
      Other acquisitions.........................          12.99      13.44      (3.3)%        12.99       13.92         (6.7)%
   Facilities acquired in 2005...................          12.48      11.58       7.8%         12.37       11.30          9.5%
                                                     ----------- ------------ --------- -------------- ------------- ------------
                                                      $    12.84 $    12.97      (1.0)%  $     12.82   $   12.79          0.2%
                                                     =========== ============ ========= ============== ============= ============
In place annual rent per occupied square foot at
June 30:
   Facilities acquired in 2007...................                                        $     22.34   $       -            -
   Facilities acquired in 2006:
      Consolidated Shurgard Properties:
        Shurgard Domestic Same Store Facilities..                                              14.51           -            -
        Other facilities.........................                                              12.82           -            -
      Deconsolidated Shurgard facilities.........                                                  -           -            -
      Newly consolidated.........................                                              18.93        18.48          2.4%
      Other acquisitions.........................                                              14.80        15.82         (6.4)%
   Facilities acquired in 2005...................                                              13.94        12.87          8.3%
                                                                                        -------------- ------------- ------------
                                                                                         $     14.20   $    14.75         (3.7)%
                                                                                        ============== ============= ============
At June 30:
    Number of Facilities ........................                                                538           60           478
    Net rentable square feet.....................                                             35,920        4,146        31,774
    Cumulative acquisition cost..................                                        $ 5,255,878   $  380,552    $4,875,326



(a)    Reflects  the  operations  of the 476  Shurgard  facilities  which remain
       consolidated  in  our  financial  statements  at  June  30,  2007.  These
       facilities  comprise the 344 "Shurgard Same Store"  facilities  described
       below,  and 132  facilities  which have not been  stabilized and owned by
       Shurgard since January 1, 2005.

(b)    Represents the operations of 11 facilities which we no longer consolidate
       in our financial  statements  effective May 24, 2007.  The operations for
       these  facilities  from January 1, 2007 through May 24, 2007 are included
       in this table.

(c)    Represents   the   operations   of  16   facilities   that  we  commenced
       consolidating in our financial statements effective January 1, 2006.

(d)    Represents the operations of 12 facilities we acquired from third parties
       in 2006 described  below.

(e)    Represents the operations of 32 facilities we acquired from third parties
       in 2005 described below.

(f)    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 June 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.

(g)    Realized  annual rent is not a  meaningful  measure as this  facility was
       acquired at the end of the first quarter of 2007.

                                       54


         The acquisitions were acquired at various dates throughout each period.
Accordingly,  rental  income,  cost of operations,  depreciation,  net operating
income,  weighted  average square foot occupancies and realized rents per square
foot  represent the operating  results for the partial  period that we owned the
facilities  during the year acquired.  In addition,  in place rents per occupied
square foot at June 30, 2007 and 2006,  reflect the amounts for those facilities
we owned at each of those respective dates.

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

         Durring  2006,  in  addition  to the  487  self-storage  facilities  we
acquired in the merger  with  Shurgard,  we acquired a total of 12  self-storage
facilities, each in a single-property  transaction.  These 12 facilities contain
in aggregate  approximately  877,000 net rentable  square feet and were acquired
for an  aggregate  cost  of  $103,544,000.  The 12  facilities  are  located  in
California, Florida, Illinois, New York, Virginia, New Jersey, Delaware, Georgia
and Colorado.

         In 2007, we acquired two facilities,  in single property  transactions,
for an aggregate cost of $28,844,000.  These  facilities  contain,  in aggregate
approximately,  132,000 net rentable  square feet and are located in  California
and Hawaii.

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

         We expect  that our  acquisitions  will  continue  to provide  earnings
growth  during  2007 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 June 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 June 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 January 1, 2007 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.

         Many  of the  Consolidated  Shurgard  Properties,  however,  have  been
operating at a stabilized  occupancy  level for several years under the Shurgard
system and then under the Public Storage system following the merger. To provide
additional comparative operating data, the table below sets forth the operations
of the 344 facilities of the  Consolidated  Shurgard  Properties  that have been
operating at a stabilized  basis (the  "Shurgard  Domestic Same  Stores")  since
January 1, 2005. The data presented does not reflect the actual results included
in our  operations  for the three and six months ended June 30, 2006,  as we did
not own these  facilities  and did not begin to  reflect  them in our  operating
results  until  August 22,  2006,  the date of the merger with  Shurgard.  These
amounts do not purport to project  results of operations  for any future date or
period.

                                       55


Selected Operating Data for the 344 facilities
----------------------------------------------
operated on a stabilized basis since January 1, 2005
-----------------------------------------------------
("Shurgard Domestic Same Store Facilities"): (a)
------------------------------------------------



                                                                Three Months Ended                   Six Months Ended
                                                                    June 30,                             June 30,
                                                                                   Percentage                             Percentage
                                                            2007         2006        Change        2007         2006        Change
                                                        ------------- ------------ ----------- ------------ ------------- ----------
                                                               (Dollar amounts in thousands, except weighted average amounts)
Revenues:
                                                                                                             
    Rental income.................................       $   65,402    $   63,155       3.6%    $   128,484   $  124,181       3.5%
    Late charges and administrative fees collected            2,159         2,183      (1.1)%         4,222        4,248      (0.6)%
                                                        ------------- ------------ ----------- ------------ ------------- ----------
    Total revenues (b)............................           67,561        65,338       3.4%        132,706      128,429       3.3%
                                                        ------------- ------------ ----------- ------------ ------------- ----------
Cost of operations (excluding depreciation):
    Property taxes ...............................            6,703         6,178       8.5%         13,443       12,367       8.7%
    Direct property payroll.......................            4,361         7,735     (43.6)%         9,051       15,449     (41.4)%
    Advertising and promotion.....................            2,317         1,211      91.3%          4,160        2,775      49.9%
    Utilities.....................................            1,696         1,587       6.9%          3,702        3,465       6.8%
    Repairs and maintenance.......................            2,011         1,402      43.4%          4,032        2,979      35.3%
    Telephone reservation center..................              574             -       -             1,118            -         -
    Property insurance............................              708           348     103.4%          1,425          687     107.4%
    Other costs of management.....................            4,437         5,442     (18.5)%         9,066       11,174     (18.9)%
                                                        ------------- ------------ ----------- ------------ ------------- ----------
  Total cost of operations (b)....................           22,807        23,903      (4.6)%        45,997       48,896      (5.9)%
                                                        ------------- ------------ ----------- ------------ ------------- ----------
   Net operating income (excluding depreciation) (c)    $    44,754    $   41,435       8.0%    $    86,709   $   79,533       9.0%
                                                        ============= ============ =========== ============ ============= ==========
Gross margin (before depreciation)................            66.2%         63.4%       4.4%          65.3%        61.9%       5.5%
Weighted average for the period:
  Square foot occupancy (d).......................            89.4%         84.6%       5.7%          88.1%        84.0%       4.9%
  Realized annual rent per occupied square foot (e)     $     13.26    $    13.53      (2.0)%   $     13.21   $    13.39      (1.3)%
  REVPAF (f) (g)..................................      $     11.85    $    11.44       3.6%    $     11.64   $    11.25       3.5%

Weighted average at June 30:
  Square foot occupancy...........................                                                    90.4%        85.5%       5.7%

Total net rentable square feet (in thousands).....                                                   22,076       22,076         -



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

(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  (before  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.

                                       56


(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.

         As noted above,  our 1,316  Same-Store  facilities  had  occupancies of
approximately  92.2% at June 30,  2007,  as compared  to 90.4% for the  acquired
Shurgard  Domestic  Same Store  Facilities.  It is 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 aggregate  media costs  increased in the
first two quarters of 2007 versus the aggregate  level of spending  incurred for
the same period in 2006.

         We have improved the occupancy of the Shurgard  Same-Store  facilities,
with  average  occupancy  up 5.7% at June 30, 2007 as compared to June 30, 2006;
however,  this  improvement  has  come at the cost of  lower  realized  rent per
occupied  square foot,  which has dropped 2.0% in the quarter  compared to prior
year.  There can be no assurance  that we will meet our  objectives  or that any
increase in occupancies will not be offset by further realized rent per occupied
square foot reductions either due to promotional discounts or lower monthly rent
in the acquired Shurgard facilities or the Same Store facilities.

         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  should have
additional benefits and cost savings.

         Property  tax  expense  increased  8.5% and 8.7% in the  three  and six
months  ended June 30,  2007,  respectively,  as compared to the same periods in
2006, due to higher assessments  following the merger,  including  properties in
California.

         Beginning January 2007, former Shurgard  employees became  participants
in the Public Storage compensations 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  43.6% and
41.4% in the three and six months ended June 30, 2007, respectively, as compared
to the same periods in 2006.

         Overall  advertising  and  promotion  increased  91.3% and 49.7% in the
three and six months ended June 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.

         Utility  expense  increased  6.9% and 6.8% in the three and six  months
ended June 30, 2007, respectively,  as compared to the same periods in 2006, due
primarily to higher utility rates.

Domestic - Development Self-Storage Facilities

         We have a total of 119 facilities which have  unstabilized  occupancies
due to development activities.

         Thirty-two of these facilities that have been developed from the ground
up between 2003 and 2007.  At June 30, 2007,  these newly  developed  facilities
have an aggregate of 2,444,000 net rentable square feet of  self-storage  space,
and were developed at an aggregate cost of  $278,832,000.  These  facilities are
presented in the table below based upon the year of opening.

         We also have 87 facilities  that were  originally  opened prior to 2003
that  have been  expanded  or are in the  process  of being  expanded  (these 87
facilities  are  referred  to as the  "Expansion  Facilities"  below).  We  have
incurred  an  aggregate  of  $140,441,000  since  January  1,  2004,  to expand,
repurpose,  or  otherwise  enhance the revenue  generating  capacity of these 87
Expansion Facilities.

                                       57


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


DOMESTIC - DEVELOPMENT SELF-STORAGE FACILITIES



                                                      Three Months Ended                          Six Months Ended
                                                            June 30,                                    June 30,
                                                   -------------------------                   --------------------------
                                                       2007          2006          Change          2007          2006        Change
                                                   ------------ ------------   -----------     ------------ ------------- ----------
                                                      (Amounts in thousands, except per square foot amounts and facility count)
Rental income:
                                                                                                        
  Facility opened in 2007......................    $        71   $        -    $      71       $       79   $         -   $     79
  Facilities opened in 2006....................          1,080           56        1,024            1,937            56      1,881
  Facilities opened in 2005....................          1,005          584          421            1,916           953        963
  Facilities opened in 2004 and 2003...........          5,655        5,244          411           11,135        10,192        943
  Expansion facilities.........................         19,800       18,486        1,314           39,163        35,886      3,277
                                                   ------------ ------------   -----------     ------------ ------------- ----------
     Total rental income.......................         27,611       24,370        3,241           54,230        47,087      7,143
                                                   ------------ ------------   -----------     ------------ ------------- ----------
Cost of operations before depreciation:
  Facility opened in 2007......................             47            -           47               88             -         88
  Facilities opened in 2006....................            680          114          566            1,216           114      1,102
  Facilities opened in 2005....................            568          406          162            1,128           820        308
  Facilities opened in 2004 and 2003...........          1,585        1,601          (16)           3,206         3,182         24
  Expansion facilities.........................          7,353        6,582          771           14,418        13,015      1,403
                                                   ------------ ------------   -----------     ------------ ------------- ----------
     Total cost of operations before depreciation       10,233        8,703        1,530           20,056        17,131      2,925
                                                   ------------ ------------   -----------     ------------ ------------- ----------
Net operating income before depreciation:
  Facility opened in 2007......................             24            -           24               (9)            -         (9)
  Facilities opened in 2006....................            400          (58)         458              721           (58)       779
  Facilities opened in 2005....................            437          178          259              788           133        655
  Facilities opened in 2004 and 2003...........          4,070        3,643          427            7,929         7,010        919
  Expansion facilities.........................         12,447       11,904          543           24,745        22,871      1,874
                                                   ------------ ------------   -----------     ------------ ------------- ----------
   Net operating income before depreciation (a)         17,378       15,667        1,711           34,174        29,956      4,218
 Depreciation..................................         (9,617)      (5,852)      (3,765)         (16,030)      (11,398)    (4,632)
                                                   ------------ ------------   -----------     ------------ ------------- ----------
   Net operating income........................    $     7,761   $    9,815    $  (2,054)      $   18,144   $    18,558   $   (414)
                                                   ============ ============   ===========     ============ ============= ==========
Weighted average square foot occupancy during
the period:
  Self-storage facility opened in 2007.........          78.6%            -            -            60.0%            -           -
  Self-storage facilities opened in 2006.......          52.5%        18.2%        188.5%           46.9%         16.0%      193.1%
  Self-storage facilities opened in 2005.......          64.5%        44.0%         46.6%           61.5%         37.4%       64.4%
  Self-storage facilities opened in 2004 and 2003        91.8%        91.5%          0.3%           91.3%         90.4%        1.0%
  Expansion facilities.........................          82.8%        80.0%          3.5%           81.2%         78.7%        3.2%
                                                   ------------ ------------   -----------     ------------ ------------- ----------
                                                         78.9%        74.5%          5.9%           76.7%         74.3%        3.2%
                                                   ============ ============   ===========     ============ ============= ==========


                                       58





DOMESTIC - DEVELOPMENT SELF-STORAGE FACILITIES
(Continued)
                                                      Three Months Ended                         Six Months Ended
                                                           June 30,                                 June 30,
                                                   -------------------------  ---------   -------------------------   -------------
                                                       2007          2006       Change         2007          2006        Change
                                                   ------------  -----------  ---------   ------------- ------------  -------------
Weighted average realized rent per occupied
square foot during the period (b):
                                                                                                             
  Self-storage facility opened in 2007 (e).....    $      7.76   $       -         -       $     6.43   $        -             -
  Self-storage facilities opened in 2006.......          17.63        3.14      461.5%          17.79          3.14        466.6%
  Self-storage facilities opened in 2005.......          12.89       10.74       20.0%          12.91         10.31         25.2%
  Self-storage facilities opened in 2004 and 2003        16.63       15.40        8.0%          16.46         15.15          8.6%
  Expansion facilities.........................          12.45       12.14        2.6%          12.56         12.18          3.1%
                                                   ------------  -----------  ---------   ------------- ------------  -------------
                                                   $     15.98   $   14.53       10.0%     $    15.92   $     14.44         10.2%
                                                   ============  ===========  =========   ============= ============  =============
In place annual rent per occupied square foot at
June 30 (c):
  Self-storage facility opened in 2007.........                                            $    13.00   $         -            -
  Self-storage facilities opened in 2006.......                                                 21.50         20.66          4.1%
  Self-storage facilities opened in 2005.......                                                 15.27         14.20          7.5%
  Self-storage facilities opened in 2004 and 2003                                               18.30         17.01          7.6%
  Expansion facilities.........................                                                 14.01         13.80          1.5%
                                                                                          ------------- ------------  -------------
                                                                                           $    18.12   $     16.75          8.2%
                                                                                          ============= ============  =============
Number of facilities at June 30:
  Facility opened in 2007......................                                                     1             -            1
  Facilities opened in 2006....................                                                     5             3            2
  Facilities opened in 2005....................                                                     6             6            -
  Facilities opened in 2004 and 2003...........                                                    20            20            -
  Expansion facilities.........................                                                    87            87            -
                                                                                          ------------- ------------  -------------
                                                                                                  119           116            3
                                                                                          ------------- ------------  -------------
Square Footage at June 30:
  Facility opened in 2007......................                                                    42             -           42
  Facilities opened in 2006....................                                                   440           281          159
  Facilities opened in 2005....................                                                   463           463            -
  Facilities opened in 2004 and 2003...........                                                 1,499         1,499            -
  Expansion facilities.........................                                                 7,537         7,408          129
                                                                                          ------------- ------------  -------------
                                                                                                9,981         9,651          330
                                                                                          ------------- ------------  -------------
Cumulative development cost at June 30:
  Facility opened in 2007......................                                            $    4,112   $         -    $   4,112
  Facilities opened in 2006....................                                                 68,962        49,255      19,707
  Facilities opened in 2005....................                                                 37,857        37,857           -
  Facilities opened in 2004 and 2003...........                                                167,901       167,901           -
  Expansion facilities (d).....................                                                140,441       100,699      39,742
                                                                                          ------------- ------------  -------------
                                                                                           $   419,273  $    355,712   $  63,561
                                                                                          ============= ============  =============



(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, for our developed  self-storage  facilities represents a portion
       of  our  total   self-storage   segment's  net  operating  income  before
       depreciation,  and is  denoted  in  the  table  "self-storage  operations
       summary" above. A reconciliation of our total self-storage  segment's net

                                       59


       operating  income  before  depreciation  to  consolidated  net  income is
       included in Note 12 to our June 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.

(b)    Realized  annual  rent per  occupied  square foot is computed by dividing
       rental  income,  prior to late charges and  administrative  fees,  by the
       weighted average occupied square footage for the period.  Realized annual
       rent per  occupied  square  foot  takes  into  consideration  promotional
       discounts,  credit card fees and other costs that  reduce  rental  income
       from the contractual amounts due, and therefore amounts for the three and
       six months ended June 30, 2007 and 2006 may not be comparable to the same
       periods in prior years for self-storage  facilities  opened in 2007, 2006
       and 2005. We typically provide significant  promotional  discounts to new
       tenants when a facility first opens for operations. As facilities reach a
       stabilized  occupancy  level,  the  amounts  of  discounts  given will be
       reduced significantly.

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

(d)    Since  January  1,  2004,  we have spent an  aggregate  of  approximately
       $140,441,000  to expand  the  square  footage or  otherwise  enhance  the
       revenue potential of these  facilities,  adding an aggregate of 2,511,000
       net rentable self-storage space.

(e)    Realized  annual rent is not a  meaningful  measure as this  facility was
       opened at the end of the first quarter of 2007.

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

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

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

         The annualized yield on costs for the 32 newly developed facilities for
the three months  ended June 30,  2007,  based on net  operating  income  before
depreciation,  was  approximately  7.1%,  which is lower than our ultimate yield
expectations.  We expect  these  yields to  increase as these  facilities  reach
stabilization of both occupancy levels and realized rents.  Properties that were
developed  before 2006 have  contributed  greatly to our  earnings  growth.  The
growth in properties  developed in 2005 was principally due to occupancy growth,
and growth for  properties  developed in 2004 and 2003 were due  principally  to
rate increases.  We expect that these facilities will continue to provide growth
to our earnings.

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

         The decision to commence  development  of any  particular  self-storage
location  is based upon  several  factors  with  respect  to that local  market,
including  our  estimate  of current  and future  general  economic  conditions,

                                       60


demographic  conditions,  population  growth,  the  likelihood  of and  cost  of
obtaining  permits,  construction  costs,  as well as the level of demand at our
existing self-storage  facilities in proximity to the prospective facility.  Our
level of new development starts has declined significantly in the last few years
due to increases in construction  costs,  increases in competition  with retail,
condominium,  and apartment  operators for quality  construction  sites in urban
locations,  and more  difficult  zoning and permitting  requirements,  which has
reduced the number of attractive sites available for development and reduced our
development  of  facilities.  It is unclear when, or if, these  conditions  will
improve.

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 the first six months of 2007, three additional facilities opened in
Europe with an aggregate of 147,000 net rentable  square feet. At June 30, 2007,
our European  operations  comprise 168 facilities with an aggregate of 8,790,000
net rentable  square feet, of which,  96 of these  facilities are referred to as
the Europe Same Store  Facilities  (defined below).  Of the 168 facilities,  103
facilities  are wholly  owned,  with the  remaining 65  facilities  owned by the
European Development Joint Venture, in which we have a 20% equity interest.

         The  following   chart  sets  forth  the  operations  of  the  Shurgard
Facilities  from  January 1 through  June 30, 2007,  the period  operated  under
Public Storage and consolidated in our financial statements:




                                                  Three Months Ended    Six Months Ended
                                                       June 30,             June 30,
                                                         2007                 2007
                                                  ------------------  ------------------
                                                          (Amounts in thousands)
   Rental income:
                                                                
     European Same Store Facilities (a).........     $     31,045     $     60,595
     Other wholly-owned facilities (b)..........            2,240            4,518
     Joint Venture 2007 Openings (c)............               89               94
     Other joint-venture facilities (d).........           12,983           25,012
                                                  ------------------  ------------------
   Total rental income..........................           46,357           90,219

   Cost of operations (excluding depreciation):
     European Same Store Facilities (a).........           13,121           25,723
     Other wholly-owned facilities (b)..........              906            1,824
     Joint Venture 2007 Openings (c)............              348              616
     Other joint-venture facilities (d).........            8,731           17,997
                                                  ------------------  ------------------
   Total cost of operations.....................           23,106           46,160

   Net operating income before depreciation (e):
     European Same Store Facilities (a).........           17,924           34,872
     Other wholly-owned facilities (b)..........            1,334            2,694
     Joint Venture 2007 Openings (c)............             (259)            (522)
     Other joint-venture facilities (d).........            4,252            7,015
                                                  ------------------  ------------------
   Total net operating income before
   depreciation.................................           23,251           44,059
   Depreciation and amortization................          (39,202)         (78,202)
                                                  ------------------  ------------------
      Net operating loss........................     $    (15,951)    $    (34,143)
                                                  ==================  ==================

   Weighted average square foot occupancy:
     European Same Store Facilities (a).........            89.9%            89.2%
     Other wholly-owned facilities (b)..........            88.0%            88.2%
     Joint Venture 2007 Openings (c)............            15.1%            12.9%
     Other joint-venture facilities (d).........            76.4%            74.1%
                                                  ------------------  ------------------
   Total weighted average square foot occupancy.            83.9%            82.6%
                                                  ------------------  ------------------


                                       61






                                                  Three Months Ended    Six Months Ended
                                                        June 30,             June 30,
                                                          2007                 2007
                                                  ------------------  ------------------
                                                              (Amounts in thousands)

   Weighted average realized annualized rent
   per occupied square foot for the period
                                                                      
     European Same Store Facilities (a).........          $25.87            $25.45
     Other wholly-owned facilities (b)..........           35.39             35.63
     Joint Venture 2007 Openings (c)............           16.04              9.91
     Other joint-venture facilities (d).........           22.04             21.88
                                                  ------------------  ------------------
   Weighted average realized annual rent per
   occupied square foot for the period:.........          $24.95            $24.65

   REVPAF
     European Same Store Facilities (a).........          $23.26            $22.70
     Other wholly-owned facilities (b)..........           31.14             31.42
     Joint Venture 2007 Openings (c)............            2.42              1.28
     Other joint-venture facilities (d).........           16.84             16.21
                                                  ------------------  ------------------
   Total REVPAF:................................          $20.93            $20.36
                                                  ==================  ==================
    In place annual rent per occupied square
    foot at June 30:
     European Same Store Facilities (a).........                            $27.29
     Other wholly-owned facilities (b)..........                             37.53
     Joint Venture 2007 Openings (c)............                             23.18
     Other joint-venture facilities (d).........                             24.23
                                                                      ------------------
   In place annual rent per occupied square
   foot at June 30:.............................                            $26.54
                                                                      ==================
   Occupancy at June 30:
     European Same Store Facilities (a).........                             91.1%
     Other wholly-owned facilities (b)..........                             89.1%
     Joint Venture 2007 Openings (c)............                             19.7%
     Other joint-venture facilities (d).........                             80.1%
                                                                      ------------------
   Total weighted average square foot occupancy.                             86.0%
                                                                      ------------------
    Net rentable square feet at period end
     European Same Store Facilities (a).........                             5,286
     Other wholly-owned facilities (b)..........                               285
     Joint Venture 2007 Openings (c)............                               147
     Other joint-venture facilities (d).........                             3,072
                                                                      ------------------
   Total net rentable square feet...............                             8,790
                                                                      ------------------


(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 three facilities,  which were acquired or developed the first six
     months  of  2007  for an  aggregate  of  approximately  $21,972,000.  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.

                                       62


         The operating  data presented in the table below reflect the historical
data from  January 1 to June 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  June 30, 2007,  the period  operated  under Public
Storage. In addition,  such amounts are reflected utilizing the average exchange
rates for the three  months  ended June 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 six months ended June 30,
2006,  and does not  represent  the actual  amounts  reflected in our  financial
statements  for the quarter or six months ended June 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.

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                         Six Months Ended
                                                              June 30,                                  June 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.................................   $     30,732  $     27,961       9.9%  $     60,003  $     54,569       10.0%
    Late charges and administrative fees collected            313           255      22.7%           592           534       10.9%
                                                     ------------- ------------- ---------- ------------- ------------- ------------
    Total revenues (c)............................         31,045        28,216      10.0%        60,595        55,103       10.0%

Cost of operations (excluding depreciation):
    Property taxes ...............................          1,464         1,301      12.5%         2,662         2,619        1.6%
    Direct property payroll.......................          3,629         4,074    (10.9)%         7,209         8,129     (11.3)%
    Advertising and promotion.....................          1,309         1,595    (17.9)%         2,532         3,455     (26.7)%
    Utilities.....................................            722           815    (11.4)%         1,572         1,708      (8.0)%
    Repairs and maintenance.......................            738           867    (14.9)%         1,561         1,718      (9.1)%
    Property insurance............................            343           372     (7.8)%           701           741      (5.4)%
    Other costs of management.....................          4,916         4,941     (0.5)%         9,486         9,341        1.6%
                                                     ------------- ------------- ---------- ------------- ------------- ------------
  Total cost of operations (c)....................         13,121        13,965     (6.0)%        25,723        27,711      (7.2)%
                                                     ------------- ------------- ---------- ------------- ------------- ------------
   Net operating income (excluding depreciation) (d) $     17,924  $     14,251      25.8%  $     34,872   $    27,392       27.3%
                                                     ============= ============= ========== ============= ============= ============
Gross margin (before depreciation)................          57.7%         50.5%      14.3%         57.5%         49.7%       15.7%
Weighted average for the period:
  Square foot occupancy (e).......................          89.9%         83.5%       7.7%         89.2%         82.8%        7.7%
  Realized annual rent per occupied square foot (f)        $25.87        $25.34       2.1%        $25.45        $24.94        2.0%
  REVPAF (g) (h)..................................         $23.26        $21.16       9.9%  $      22.70        $20.65        9.9%

Weighted average at June 30:
  Square foot occupancy...........................                                                 91.1%         85.9%        6.1%
  In place annual rent per occupied square foot (i)                                         $      27.29        $26.10        4.6%
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 June 30, 2007 are included in our
     consolidated operating results.

                                       63


(b)  Amounts for the three and six months, respectively, ended June 30, 2006 are
     translated  based  upon the  average  exchange  rates for the three and six
     months,  respectively,  ended June 30, 2007.  Amounts for the three and six
     months,  respectively,  ended June 30, 2007 are  translated  based upon the
     average  exchange  rates in effect for each period as denoted more fully in
     Note 2 to our  financial  statements,  "Summary of  Significant  Accounting
     Policies."  The majority of our  operations  are  denominated  in Euros and
     British  Pounds.  The Euro was  translated  at an average  exchange rate of
     approximately 1.348 and 1.329, respectively, in US Dollars per Euro for the
     three and six months ended June 30, 2007,  respectively.  The British Pound
     was  translated  at an average  exchange  rate of  approximately  1.985 and
     1.969, respectively,  in US dollars per British Pound for the three and six
     months ended June 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  (before   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  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:

                                       64





                                                      Three Months Ended                     Six Months Ended
                                                           June 30,                               June 30,
                                                   -------------------------             --------------------------
                                                                             Percentage                              Percentage
                                                      2007         2006        Change         2007         2006        Change
                                                   ------------- ----------- ----------- ------------  ------------ ------------
                                                           (Dollar amounts in thousands, except per square foot amounts)
Rental income:
                                                                                                       
   Belgium.....................................     $    3,857   $    3,550       8.6%   $    7,517    $    7,026        7.0%
   Denmark.....................................          1,409        1,237      13.9%        2,764         2,418       14.3%
   France......................................          7,876        7,200       9.4%       15,449        14,137        9.3%
   Netherlands.................................          6,236        5,549      12.4%       12,133        10,796       12.4%
   Sweden......................................          6,520        6,178       5.5%       12,735        11,881        7.2%
   United Kingdom..............................          5,147        4,502      14.3%        9,997         8,845       13.0%
                                                   ------------- ----------- ----------- ------------  ------------ ------------
     Total rental income.......................     $   31,045   $   28,216      10.0%   $   60,595    $   55,103       10.0%
                                                   ============= =========== =========== ============  ============ ============
Cost of operations before depreciation and
    amortization (a):
   Belgium.....................................     $    1,670   $    2,079     (19.7)%  $    3,365    $    4,069      (17.3)%
   Denmark.....................................            568          630      (9.8)%       1,077         1,303      (17.3)%
   France......................................          3,598        3,714      (3.1)%       7,112         7,128       (0.2)%
   Netherlands.................................          2,597        2,639      (1.6)%       5,064         5,435       (6.8)%
   Sweden......................................          2,629        2,840      (7.4)%       5,130         5,610       (8.6)%
   United Kingdom..............................          2,059        2,063      (0.2)%       3,975         4,166       (4.6)%
                                                   ------------- ----------- ----------- ------------  ------------ ------------
     Total cost of operations before
     depreciation and amortization.............     $   13,121   $   13,965      (6.0)%  $   25,723    $   27,711       (7.2)%
                                                   ============= =========== =========== ============  ============ ============
Weighted average occupancy levels for the period:
   Belgium.....................................          87.4%        79.0%      10.6%        86.3%         78.6%        9.8%
   Denmark.....................................          93.4%        90.8%       2.9%        93.7%         89.4%        4.8%
   France......................................          90.7%        85.3%       6.3%        90.2%         84.7%        6.5%
   Netherlands.................................          87.9%        80.7%       8.9%        87.6%         79.9%        9.6%
   Sweden......................................          92.0%        89.0%       3.4%        91.3%         87.9%        3.9%
   United Kingdom..............................          91.1%        79.6%      14.4%        89.7%         79.6%       12.7%
                                                   ------------- ----------- ----------- ------------  ------------ ------------
                                                         89.9%        83.5%       7.7%        89.2%         82.8%        7.7%
                                                   ============= =========== =========== ============  ============ ============


                                       65






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

Weighted average realized annual rent per
    occupied square foot: (continued)
                                                                                                      
   Belgium.....................................      $     17.45   $    17.84    (2.2)%   $   17.21    $    17.74       (3.0)%
   Denmark.....................................            28.50        25.79     10.5%       27.83         25.58         8.8%
   France......................................            27.76        26.95      3.0%       27.37         26.61         2.9%
   Netherlands.................................            23.99        23.28      3.0%       23.41         22.86         2.4%
   Sweden......................................            24.86        24.39      1.9%       24.48         23.74         3.1%
   United Kingdom..............................            41.74        41.75      -          41.15         41.04         0.3%
                                                     ------------- ---------- ----------- ----------- ------------   ------------
                                                     $     25.87   $    25.34     2.1%    $   25.45    $    24.94         2.0%
                                                     ============= ========== =========== =========== ============   ============


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            -
                                                                                          =========== ============   ============


         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:

                                       66








                                             Three Months Ended                       Six Months Ended
                                                  June 30,                                June 30,
                                          -------------------------              -------------------------
                                             2007         2006        Change         2007         2006       Change
                                          ------------ ------------ ----------   ------------- ----------- -------------
                                                                    (Amounts in thousands)
Revenues:
                                                                                          
    Tenant reinsurance.............       $    14,789  $    7,803   $  6,986      $    28,608  $   14,589   $ 14,019
    Merchandise sales...............           10,406       6,300      4,106           19,106      11,313      7,793
    Containerized storage...........            3,829       4,200       (371)           7,596       8,130       (534)
    Truck rentals...................            3,479       3,659       (180)           6,155       6,429       (274)
    Commercial property operations..            3,792       3,013        779            7,614       6,005      1,609
    Property management.............              682         607         75            1,359       1,212        147
                                          ------------ ------------ ----------   ------------- ----------- -------------
       Total revenues...............      $    36,977  $   25,582   $ 11,395      $    70,438  $   47,678   $ 22,760
                                          ------------ ------------ ----------   ------------- ----------- -------------
Cost of operations:
    Tenant reinsurance .............            4,717       3,123      1,594            9,280       6,215      3,065
    Merchandise sales...............            7,855       5,621      2,234           15,104      10,194      4,910
    Containerized storage...........            4,078       4,219       (141)           8,370       7,529        841
    Truck rentals...................            3,560       2,871        689            6,965       5,761      1,204
    Commercial property operations..            1,473       1,235        238            2,907       2,583        324
    Property management.............               60          81        (21)             118         142        (24)
                                          ------------ ------------ ----------   ------------- ----------- -------------
       Total cost of operations.....           21,743      17,150      4,593           42,744      32,424     10,320
                                          ------------ ------------ ----------   ------------- ----------- -------------
Depreciation:
    Tenant reinsurance.............                 -           -          -                -           -          -
    Merchandise sales...............                -           -          -                -           -          -
    Containerized storage...........             (276)       (223)       (53)            (542)       (483)       (59)
    Truck rentals...................                -           -          -                -           -          -
    Commercial property operations..             (664)       (549)      (115)          (1,328)     (1,134)      (194)
    Property management.............                -           -          -                -           -          -
                                          ------------ ------------ ----------   ------------- ----------- -------------
       Total depreciation...........             (940)       (772)      (168)          (1,870)     (1,617)      (253)
                                          ------------ ------------ ----------   ------------- ----------- -------------
Net Income:
    Tenant reinsurance.............            10,072       4,680      5,392           19,328       8,374     10,954
    Merchandise sales...............            2,551         679      1,872            4,002       1,119      2,883
    Containerized storage...........             (525)       (242)      (283)          (1,316)        118     (1,434)
    Truck rentals...................              (81)        788       (869)            (810)        668     (1,478)
    Commercial property operations..            1,655       1,229        426            3,379       2,288      1,091
    Property management.............              622         526         96            1,241       1,070        171
                                          ------------ ------------ ----------   ------------- ----------- -------------
    Total net income................      $    14,294  $    7,660   $  6,634      $    25,824  $   13,637   $ 12,187
                                          ============ ============ ==========   ============= =========== =============



         Our ancillary operations have increased  significantly in the three and
six months  ended June 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.

         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.

                                       67


         The  significant   increase  in  tenant  reinsurance  revenues  is  due
primarily to the  increase in  properties  associated  with the  acquisition  of
Shurgard.  For the three and six months ended June 30, 2007, tenant  reinsurance
revenues totaled $2,255,000 and $4,539,000,  respectively, related to the United
States Shurgard portfolio and $2,245,000 and $4,276,000,  respectively,  related
to the European  Shurgard  portfolio.  Further  contributing  to our increase in
tenant reinsurance  revenues was higher rates, and an increase in the percentage
of our existing  tenants  retaining such policies.  For the three and six months
ended  June 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  significant  increase in merchandise  revenues is due primarily to
the increase in properties associated with the acquisition of Shurgard.  For the
three  and six  months  ended  June  30,  2007,  merchandise  revenues  included
$2,448,000 and $4,478,000,  respectively,  related to the Shurgard facilities we
acquired in the United  States,  and $2,079,000  and  $3,827,000,  respectively,
related to the Shurgard facilities in Europe.

         The  primary  factors  impacting  the  level  of  operations  of  these
activities  is the level of  customer  and tenant  traffic  at our  self-storage
facilities, including the level of move-ins.

         For the three months and six months ended June 30, 2007, truck revenues
included  $473,000 and $829,000,  respectively  and cost of operations  included
$482,000  and  $926,000,  respectively,  related to the Shurgard  facilities  we
acquired in the United States.

         Containerized  storage  operations:  We have 13  containerized  storage
facilities  located in eight densely populated markets with  above-average  rent
and income.

         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).  Direct operating
costs for three and six months ended June 30, 2007, also includes  approximately
$860,000 and $2,012,000,  respectively,  in research and  development  costs, as
compared to $441,000  and  $623,000  for the three and six months ended June 30,
2006.

         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.

                                       68


         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.

         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 and six months ended June 30, 2007,  commercial
revenues   included  $743,000  and  $1,435,000  with  respect  to  the  Shurgard
facilities  we acquired in the United  States.  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.

         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 June 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 six months
ended  June  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:



                                               Three Months Ended                        Six Months Ended
                                                     June 30,                                 June 30,
                                             --------------------------              -------------------------
                                                  2007         2006        Change        2007         2006        Change
                                             ------------  ------------ ------------ ------------ ------------  ------------
                                                                         (Amounts in thousands)
Property operations:
                                                                                              
  PSB                                         $  20,373     $  18,181    $   2,192    $  40,062    $  36,111    $   3,951
  Deconsolidated Shurgard Facilities.....           283             -          283          283            -          283
  Other investments (1)..................           789           778           11        1,555        1,565          (10)
                                             ------------  ------------ ------------ ------------ ------------  ------------
                                                 21,445        18,959        2,486       41,900       37,676        4,224
                                             ------------  ------------ ------------ ------------ ------------  ------------
Depreciation:
  PSB....................................       (10,934)       (9,216)      (1,718)     (20,430)     (18,255)      (2,175)
  Deconsolidated Shurgard Facilities.....           (85)            -          (85)         (85)           -          (85)
  Other investments (1)..................          (260)         (250)         (10)        (519)        (465)         (54)
                                             ------------  ------------ ------------ ------------ ------------  ------------
                                                (11,279)       (9,466)      (1,813)     (21,034)     (18,720)      (2,314)
                                             ------------  ------------ ------------ ------------ ------------  ------------
Other: (2)
  PSB (3)................................        (7,215)       (6,325)        (890)     (13,918)     (12,240)      (1,678)
  Deconsolidated Shurgard Facilities.....          (128)            -         (128)        (128)           -         (128)
  Other investments (1)..................           (41)          (44)           3          (61)        (126)          65
                                             ------------  ------------ ------------ ------------ ------------  ------------
                                                 (7,384)       (6,369)      (1,015)     (14,107)     (12,366)      (1,741)
                                             ------------  ------------ ------------ ------------ ------------  ------------
Total equity in earnings of real estate
entities..................................    $   2,782     $   3,124    $    (342)   $   6,759    $   6,590    $     169
                                             ============  ============ ============ ============ ============  ============


(1)  Amounts reflect equity in earnings  recorded for investments that have been
     held  consistently  throughout  each of the three and six months ended June
     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 $565,000 and $1,051,000 for the three and six months
     ended June 30, 2007, respectively, as compared to $234,000 and $458,000 for
     the three and six months ended June 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.

                                       69


         Equity in earnings of real estate entities  includes our pro rata share
of the net  impact of  gains/losses  on sales of assets and  impairment  charges
relating to the  impending  sale of real  estate  assets as well as our pro rata
share of the impact of the  application  of EITF Topic  D-42 on  redemptions  of
preferred  securities  recorded by PSB.  Our net pro rata share from these items
resulted in a net decrease of equity in earnings of $19,000 for the three months
ended June 30, 2006 and a net increase of $293,000 for the six months ended June
30, 2006 (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 $19.3 million at June 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
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 six months ended June 30,
2007 and 2006.

OTHER INCOME AND EXPENSE ITEMS

         INTEREST AND OTHER  INCOME:  Interest and other income was $955,000 and
$3,080,000  for the three and six months ended June 30, 2007,  respectively,  as
compared to $10,047,000  and $15,122,000 for the three and six months ended June
30, 2006, respectively.  These decreases are due to lower average cash balances,
partially  offset by higher interest rates on invested cash balances as compared
to the same periods in 2006.

         DEPRECIATION AND  AMORTIZATION:  Depreciation and amortization  expense
was  $167,601,000  and  $344,082,000 for the three and six months ended June 30,
2007, respectively, as compared to $48,580,000 and $98,608,000 for the three and
six months ended June 30, 2006, respectively.  The increases in depreciation and
amortization  for the three months ended June 30, 2007,  as compared to the same
period in 2006 are due primarily to $70,979,000 and $156,763,000 in amortization
expense  recorded  during  the  three  and  six  months  ended  June  30,  2007,
respectively,  on the  intangible  assets,  which we  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  is  expected  to be
approximately  $52,178,000  in the third quarter of 2007 and  $37,042,000 in the
fourth quarter of 2007.

         The remainder of the increase in depreciation  and amortization for the
three and six months ended June 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
$21,465,000  and  $37,981,000  for the three and six months ended June 30, 2007,
respectively,  as compared to $6,975,000 and  $13,754,000  for the three and six

                                       70


months ended June 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.

         A portion of our increase in general and administrative  expense is due
to certain significant  nonrecurring  factors,  including a) additional expenses
incurred in connection with the merger with Shurgard totaling approximately $1.3
million  and $5.3  million  for the three and six months  ended  June 30,  2007,
respectively, as compared to $1.1 million and $2.2 million for the three and six
months  ended  June 30,  2006,  respectively  b) the costs  associated  with our
attempted  European  share offering of $9.6 million for the three and six months
ended June 30, 2007, c) costs associated with our reorganization into a Maryland
trust of approximately  $2.0 million for the three and six months ended June 30,
2007. The increase in general and  administrative  expense for the three and six
months ended June 30, 2007 and 2006,  respectively,  also includes approximately
$2.3  million  and  $2.4   million,   respectively,   in  ongoing   general  and
administrative expense associated with our European operations.

         We expect that for the  remainder of 2007,  general and  administrative
expense will approximate $20 million to $25 million.

         INTEREST EXPENSE:  Interest expense was $16,707,000 and $33,515,000 for
the three and six months  ended June 30,  2007,  respectively,  as  compared  to
$1,872,000 and  $3,429,000,respectively,  for the same periods in 2006. Interest
capitalized  during the three and six months ended June 30,  2007,  was $973,000
and $1,714,000,  respectively,  compared to $353,000 and $1,069,000 for the same
periods  in  2006.  The  increase  in  interest  expense  is  primarily  due  to
$28,379,000 in interest incurred on the debt and other obligations we assumed in
the Shurgard merger, as well as $1,775,000 of interest on borrowings against our
line of credit.  These amounts are partially offset by a decrease of $510,000 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 six months
ended June 30, 2007, we have  received  proceeds for partial  condemnations  and
other  disposals to certain of our  self-storage  facilities for an aggregate of
$2,242,000  and  recorded a gain of  $1,044,000  on our  condensed  consolidated
statements  of income  for the three and six  months  ended  June 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 $1,194,000  for the three and six months ended
June 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 June 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 six months ended June 30, 2007.

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

                                       71


six months ended June 30, 2006.  Also during the six months ended June 30, 2006,
we disposed of parcels of vacant land for an  aggregate of  $4,970,000.  The net
proceeds were equal to the book value of these parcels;  accordingly, no gain or
loss was recorded.

         FOREIGN EXCHANGE GAIN: Our foreign  exchange gain is primarily  related
to intercompany balances between our European subsidiaries and our United States
operations.  When  such  intercompany  balances  are  expected  to settle in the
foreseeable  future,  changes in  exchange  rates are  recorded in income in the
period in which the change  occurs.  For the three and six months ended June 30,
2007, we recorded foreign currency exchange gains of $5,553,000 and $10,593,000,
respectively,   on  our  condensed  consolidated  statement  of  income,  driven
primarily  by the  weakening  of the US dollar  relative to the Euro at June 30,
2007 as compared to December 31, 2006.  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 June 30, 2007 our European  subsidiaries had intercompany
balances payable to our United States  operations  totaling  approximately  $503
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
$1,771,000 for the three months ended June 30, 2007 is primarily due to gains of
$1,803,000 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 $32,000 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 $1,009,000 for
the six months ended June 30, 2007 is primarily  due to gains of  $1,137,000  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
$128,000  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 six months ended June 30, 2007 and 2006:

                                       72





                                                    Three Months Ended                     Six Months Ended
                                                         June 30,                             June 30,
                                               ------------------------               -------------------------
                                                   2007           2006       Change       2007           2006      Change
                                               ------------- -----------  ----------- ------------ ------------- -----------
                                                                                 (Amounts in thousands)
                                                                                               
Preferred partnership interests (a)..........  $     5,403    $   4,658    $   745     $   10,806   $    8,249   $   2,557
Convertible Partnership Units (b)............           19          120       (101)            11          236        (225)
Shurgard U.S. minority interests (c).........          279            -        279            444            -         444
Shurgard European minority interests (d).....       (2,065)           -     (2,065)        (5,819)           -      (5,819)
Other minority interests (e).................        3,888        3,950        (62)         7,865        7,402         463
                                               ------------- -----------  ----------- ------------ ------------- -----------
    Total minority interests in income.......  $     7,524    $   8,728    $(1,204)   $    13,307   $   15,887   $  (2,580)
                                               ============= ===========  =========== ============ ============= ===========


(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 $169,000 and $396,000 in
     depreciation in the three and six months ended June 30, 2007, respectively.

(d)  These  amounts  reflect  income  allocated  to our minority  partner's  80%
     interest  in  the  European  joint  ventures,  First  Shurgard  and  Second
     Shurgard,  as well as those in domestic joint  ventures.  These amounts are
     negative  because  the  related  joint  ventures  operations  are at a loss
     position.  Included in these  minority  interest  amounts is $2,774,000 and
     $5,607,000 for the three and six months ended June 30, 2007,  respectively,
     in  depreciation,  $3,600,000  and  $7,046,000  in  interest  expense,  and
     $1,300,000 and $1,906,000 in minority  interest in income from  derivatives
     and foreign exchange.

(e)  These amounts  reflect  income  allocated to minority  interests  that were
     outstanding consistently throughout the three and six months ended June 30,
     2007 and 2006.  Included  in minority  interest  in income is $128,000  and
     $326,000 in  depreciation  expense for the three and six months  ended June
     30, 2007,  respectively,  as compared to $196,000 and $392,000 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 six
months  ended  June 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 real estate  investment  trust ("REIT"),  our ability to
retain cash flow for reinvestment is restricted. In order for us to maintain our
REIT status,  a substantial  portion of our operating  cash flow must be 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.

                                       73





                                                                         Six Months Ended June 30,
                                                                         2007               2006
                                                                   ----------------   ----------------
                                                                        (Amounts in thousands)
                                                                                  
Net cash provided by operating activities (a)...................    $    479,122        $   367,241

Distributions to minority interest (Preferred Units)............         (10,806)            (8,249)
Distributions to minority interest (common equity)..............         (10,357)            (7,348)
                                                                   ----------------   ----------------
Cash from operations allocable to our shareholders..............         457,959            351,644
Capital improvements to maintain our facilities.................         (28,807)           (23,449)
                                                                   ----------------   ----------------
 Remaining operating cash flow available for distributions to our
    shareholders................................................         429,152            328,195


Distributions paid:
  Preferred share dividends.....................................        (116,091)           (98,991)
  Equity Shares, Series A dividends.............................         (10,712)           (10,712)
  Distributions to common shareholders..........................        (170,018)          (128,595)
                                                                   ----------------   ----------------
Cash available for principal payments on debt and reinvestment..     $   132,331        $    89,897
                                                                   ================   ================



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

         Cash  available  for  principal   payments  on  debt  and  reinvestment
increased  from $89.9  million in the six months  ended June 30,  2006 to $133.3
million  in the six months  ended  June 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, as well as
continued growth in our recently acquired  self-storage  facilities included the
facilities acquired in the merger with Shurgard.

         Our financial  profile is characterized by a low level of debt-to-total
capitalization  and a  conservative  dividend  payout  ratio with respect to the
common stock. We expect to fund our growth  strategies and debt obligations with
(i) cash on hand at June 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;  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

                                       74


British pounds of $300 million. Amounts drawn under the Credit Agreement bear 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 June 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 June 30, 2007). Outstanding borrowings on our revolving line
of credit totaled $70 million at June 30, 2007, which was repaid on July 2, 2007
with proceeds from an issuance of preferred stock discussed below. There were no
outstanding borrowings on the revolving line of credit as of August 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 June 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 Stock totaling $152.2 million and on February 19,
2007, we redeemed our 7.625% Series U Cumulative Preferred Stock 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  Stock for gross  proceeds of $172.5  million.  We
currently have approximately  $172.5 million of additional  preferred securities
that become redeemable at our option during the remainder of 2007.

         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.

         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 June 30, 2007 to be approximately $229.3 million per year.
The annual distribution requirement with respect to our Series N Preferred Stock
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 June 30, 2007, to be approximately $21.6 million per year.

         During the six months ended June 30, 2007, we paid  dividends  totaling
$170,018,000 ($1.00 per common share) to the holders of our common shares. Based
upon shares outstanding at August 6, 2007 and a quarterly  distribution of $0.50
per  share,  which was  declared  by our Board on August 2, 2007 and  payable on
September  27, 2007,  to  shareholders  of record as of September  12, 2007,  we
estimate a dividend  payment with respect to our common shares of  approximately
$85 million for the third quarter of 2007.

         During  each of the six months  ended June 30,  2007 and 2006,  we paid
cash dividends totaling $10,712,000 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

                                       75


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 June 30, 2007,  we estimate the total
regular  distribution  for the third  quarter of 2007 to be  approximately  $5.4
million.

         CAPITAL  IMPROVEMENT  REQUIREMENTS:   During  2007,  we  have  budgeted
approximately  $65,000,000 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 six months ended June 30, 2007, we incurred
capital improvements of approximately $28,807,000.  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,  or
expenditures  associated with improving the visual and structural  appeal of our
existing self-storage facilities.

         DEBT SERVICE REQUIREMENTS:  At June 30, 2007, we have total outstanding
debt of  approximately  $1.1 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 June 30, 2007, we have domestic  mortgage debt  outstanding of
$235 million,  which encumbers 86 self-storage  facilities with an aggregate net
book value of approximately $601 million.  In Europe,  mortgage debt at June 30,
2007 totaled $327 million and  encumbers 63  facilities,  owned by  consolidated
joint ventures,  with an aggregate net book value of approximately  $489 million
at June 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.

         As  of  August  8,  2007,  we  are  under  contract  to  purchase  five
self-storage  facilities (total approximate net rentable square feet of 395,000)
at an aggregate  cost of  approximately  $44 million.  We anticipate  that these
acquisitions  will be funded  entirely by us. Each of these contracts is subject
to significant  contingencies,  and there is no assurance that these  facilities
will be acquired.

         At June 30, 2007,  we have a  development  "pipeline" of 41 projects in
the U.S. and 15 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
June 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  $179.9 million and will be incurred over the next 24 months.  The
following table sets forth certain  information  with respect to our development
pipeline.

                                       76





DEVELOPMENT PIPELINE SUMMARY
AS OF JUNE 30, 2007                                                         Total
                                                    Number      Net       estimated      Costs incurred
                                                      of      rentable   development       through         Costs to
                                                   projects    sq. ft.      costs          06/30/07         complete
                                                  ---------- ---------- --------------   --------------  --------------
                                                                  (Amounts in thousands, except number of projects)
                                                                                           
    U.S. under construction                           14          824   $    60,970       $   41,225      $   19,745
    U.S. in development, land acquired                27          962        78,732            7,610          71,122
    European projects in construction                  7          358        74,737           45,407          29,330
    European projects under development                8          407        64,088            4,403          59,685
                                                  ---------- ---------- --------------   --------------  --------------
   Total Development Pipeline                         56        2,551   $   278,527       $   98,645      $  179,882
                                                  ========== ========== ==============   ==============  ==============



         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
June 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) ............    $1,180,720     $  36,014   $  247,524    $ 202,444     $ 48,211    $  254,135    $  392,392

Line of credit and other
short-term bank financing (2)..        70,058        70,058            -            -            -             -             -

Capital leases (3).............        41,206           350          728          742          688         1,333        37,365

Operating leases (4)...........       264,046        13,287       18,898       15,857       11,966        10,430       193,608

Construction commitments (5)...        49,075        38,899       10,176            -            -             -             -
                                   ------------  ------------ ------------ ------------ ------------ -----------  --------------
Total..........................    $1,605,105     $ 158,608   $  277,326    $ 219,043     $ 60,865    $  265,898    $  623,365
                                   ============  ============ ============ ============ ============ ===========  ==============



(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)  Amounts include borrowings under our $300 million revolving line of credit.
     See  Note  6  to  our  condensed   consolidated  financial  statements  for
     additional  information  on our line of credit  and other  short-term  bank
     financing.

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

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

(5)  Includes  obligations for facilities  currently under  construction at June
     30, 2007 as described  above under  "Acquisition  and  Development  of Real
     Estate Facilities."

                                       77


         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 June 30,
2007  condensed   consolidated   financial  statements,   our  partner's  equity
contributions with respect to certain  transactions are classified as debt under
the  caption  "Debt to Joint  Venture  Partner"  in our  condensed  consolidated
balance  sheets.  At June  30,  2007,  our  Debt to Joint  Venture  Partner  was
$37,350,000. 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 June 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 August 8,
2007),  we did not repurchase  any shares.  From the inception of the repurchase
program through June 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 June 30, 2007, our debt as a percentage of total
shareholders' equity (based on book values) was 12.7%.

         Our preferred  shares are not  redeemable at the option of the holders.
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 V - September  30,  2007,  Series W - October 6, 2008,
Series X - November  13, 2008,  Series Y - January 2, 2009,  Series Z - March 5,
2009,  Series A - March 31, 2009, Series B - June 30, 2009, Series C - September
13, 2009,  Series D - February 28, 2010,  Series E - April 27, 2010,  Series F -
August 23,  2010,  Series G - December  12,  2010,  Series H - January 19, 2011,
Series I - May 3, 2011,  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 $981,018,000 and $70,000,000,
respectively, at June 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  $1.6  billion at June 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.

                                       78


         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 5.32%  and a  EURIBOR  of  4.12%  at June  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 June 30, 2007 (dollar amounts in thousands).




                            2007       2008        2009          2010        2011     Thereafter      Total    Fair Value
                         ----------- ---------- ----------- ------------  ----------- -----------  ----------- -------------
                                                                                        
Fixed rate debt........  $   5,884   $ 23,909   $   12,312   $   14,401    $227,598   $ 363,607    $  647,711   $ 647,711
Average interest rate..      6.52%      6.37%        6.01%        6.10%       5.83%      5.79%
----------------------------------------------------------------------------------------------------------------------------
Variable rate debt (1).  $  70,000   $      -   $        -   $        -    $     -    $       -    $   70,000   $  70,000
Average interest rate..      5.67%
------------------------ ----------- ---------- ------------ ------------- ---------- ------------ ------------ ------------
Variable rate EURIBOR
  debt (2).............  $       -   $175,694   $  150,903   $       -     $ -        $       -    $  326,597   $ 326,597
Average interest rate..                 6.11%        6.11%
----------------------------------------------------------------------------------------------------------------------------
Interest rate swaps
Swap on EURIBOR........  $       -   $    847   $    2,738   $        -    $     -    $       -    $    3,585   $   3,585




(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
     ($365.1  million as of June 30, 2007).  As of June 30, 2007,  the available
     amount under those credit  facilities  was in  aggregate  (euro)28  million
     ($37.7 million).

         At June 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)...  $   246.1   $   124.0   $   118.0    $     -    $   -        $      -
Weighted average interest rate...      3.75%       3.72%       3.73%          -        -               -




         Based on our outstanding  variable-rate  EURIBOR debt and interest rate
swaps at March 31, 2007, a  hypothetical  increase in the interest  rates of 100
basis points would cause the value of our  derivative  financial  instruments to
increase by $3.2 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 $3.1 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

                                       79


of "disclosure  controls and procedures" in Rules 13a-15(e) of the Exchange Act.
In designing and evaluating the disclosure  controls and procedures,  management
recognized  that any controls and  procedures,  no matter how well  designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives  and  management  necessarily  was  required to apply its judgment in
evaluating the cost-benefit  relationship of possible controls and procedures in
reaching that level of reasonable  assurance.  Also, the Company has investments
in certain  unconsolidated  entities.  As the Company does not control or manage
these  entities,  its disclosure  controls and  procedures  with respect to such
entities are substantially  more limited than those it maintains with respect to
its consolidated subsidiaries.

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

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

                                       80




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 June 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 six months ended June 30, 2007.

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

         The Company held its annual meeting of shareholders on May 3, 2007, and
the following matters were voted on at the meeting:

1.   The election of the following  members of our Board for the succeeding year
     or until their successors are duly qualified and elected

                                         Total Votes
                            ----------------------------------------
          Name              Total Votes For     Total Votes Withheld
----------------------      ----------------    --------------------
B. Wayne Hughes                  152,359,529             4,108,298
Ronald L. Havner, Jr.            152,935,432             3,532,392
Dann V. Angeloff                 150,053,595             6,414,249
William C. Baker                 153,975,050             2,492,774
John T. Evans                    153,381,299             3,086,525
Uri P. Harkham                   152,940,807             3,527,017
B. Wayne Hughes, Jr.             151,069,005             5,398,818
Harvey Lenkin                    148,633,446             7,834,377
Gary E. Pruitt                   154,336,517             2,131,307
Daniel C. Staton                 154,177,165             2,290,658

2.   The Company's  shareholders  approved  ratification  of the  appointment of
     Ernst & Young LLP as the Company's independent auditors for the fiscal year
     ended   December  31,  2007.   There  were   153,322,014   votes  cast  for
     ratification;  2,334,166 votes cast against ratification; and 811,644 votes
     abstained.

3.   The  Company's  shareholders  approved  the Public  Storage 2007 Equity and
     Performance-Based Incentive Compensation Plan. There were 133,398,565 votes
     cast for approval;  10,539,333 votes cast against  approval;  and 1,048,559
     votes abstained.

4.   The Company's shareholders approved a proposal to reorganize the Company as
     a Maryland  real estate  investment  trust.  Of the shares of common  stock
     voted at the meeting,  95,201,017 votes were cast in favor of the proposal;
     48,344,864 shares voted against;  988,107 shares abstained;  and 11,104,174
     were broker  non-votes.  Of the Company's shares of Equity Stock,  Series A
     and Equity Stock,  Series AAA voting  together as a class,  4,596,785 votes
     were cast in favor of the merger  agreement,  140,240 shares voted against;
     5,025 shares abstained; and 377,192 were broker non-votes. Of the Company's
     preferred stock voting together as a class,  1,028,473  shares were cast in
     favor of the merger  agreement;  15,802 shares voted  against;  and 862,428
     shares abstained.

                                       81


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: August 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.

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.

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.

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.

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.  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 Stock Option and Incentive 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 Restricted  Share Unit Agreement.  Filed with the 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 Stock  Option and  Incentive  Plan 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 Restricted Stock Unit Agreement. Filed herewith.

10.31* Form of Stock Option Agreement. Filed herewith.

10.32  Form of Stock Purchase Agreement. Filed herewith.

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.

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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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