SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

For the quarterly period ended March 31, 2008

                                       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 shell company (as defined in
Rule 12b-2 of the Exchange Act).

                                 [ ] Yes [X] No

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

               Large Accelerated Filer [X] Accelerated Filer [ ]
            Non-accelerated Filer [ ] Smaller Reporting Company [ ]

Indicate the number of the registrant's  outstanding common shares of beneficial
interest, as of May 9, 2008:

Common  Shares of  beneficial  interest,  $.10 par value per share - 169,147,565
shares







                                 PUBLIC STORAGE
                                 --------------

                                      INDEX


                                                                          Pages

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

Item 1. Financial Statements (Unaudited)

        Condensed Consolidated Balance Sheets at
           March 31, 2008 and December 31, 2007                                1

        Condensed Consolidated Statements of Income for the
           Three Months Ended March 31, 2008 and 2007                          2

        Condensed Consolidated Statement of Shareholders' Equity
           for the Three Months Ended March 31, 2008                           3

        Condensed Consolidated Statements of Cash Flows
           for the Three Months Ended March 31, 2008 and 2007              4 - 5

        Notes to Condensed Consolidated Financial Statements              6 - 40

Item 2. Management's Discussion and Analysis of
           Financial Condition and Results of Operations                 41 - 77

Item 3. Quantitative and Qualitative Disclosures about Market Risk       77 - 78

Item 4. Controls and Procedures                                               78

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

Item 1. Legal Proceedings                                                     79

Item 1A.Risk Factors                                                     79 - 85

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds      85 - 86

Item 6. Exhibits                                                              86







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




                                                                                       March 31,         December 31,
                                                                                        2008                 2007
                                                                                  -----------------    ----------------
                                                                                     (Unaudited)
                                       ASSETS

                                                                                                 
Cash and cash equivalents....................................................     $     726,932        $     245,444
Real estate facilities, at cost:
   Land......................................................................          2,702,380            3,021,309
   Buildings.................................................................          7,335,953            8,637,498
                                                                                  -----------------    ----------------
                                                                                      10,038,333           11,658,807
   Accumulated depreciation..................................................         (2,152,723)          (2,128,225)
                                                                                  -----------------    ----------------
                                                                                       7,885,610            9,530,582
   Construction in process...................................................             35,901               60,324
                                                                                  -----------------    ----------------
                                                                                       7,921,511            9,590,906

Investment in real estate entities...........................................            625,172              306,743
Goodwill.....................................................................            174,634              174,634
Intangible assets, net.......................................................             71,728              173,745
Restricted cash..............................................................             18,602               18,972
Note receivable from affiliate (Note 3)......................................            618,822                    -
Other assets.................................................................             90,364              132,658
                                                                                  -----------------    ----------------
              Total assets...................................................     $   10,247,765       $   10,643,102
                                                                                  =================    ================
                       LIABILITIES AND SHAREHOLDERS' EQUITY

Notes payable................................................................     $      644,788       $    1,031,847
Debt to joint venture partner................................................             38,128               38,081
Accrued and other liabilities................................................            206,607              303,357
                                                                                  -----------------    ----------------
         Total liabilities...................................................            889,523            1,373,285
Minority interest:
   Preferred partnership interests...........................................            325,000              325,000
   Other partnership interests...............................................             37,711              181,688
Commitments and contingencies (Note 14)
Shareholders' equity:
   Cumulative Preferred Shares of beneficial interest, $0.01 par value,
     100,000,000 shares authorized, 1,739,500 shares issued (in series) and
     outstanding, (1,739,500 at December 31, 2007) at liquidation preference.          3,527,500            3,527,500
   Common Shares of beneficial interest, $0.10 par value, 650,000,000 shares
     authorized, 167,993,060 shares issued and outstanding (169,422,475 at
     December 31, 2007)......................................................             16,800               16,943
   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...........................................................          5,545,253            5,653,975
   Cumulative net income.....................................................          4,473,169            3,960,827
   Cumulative distributions paid.............................................         (4,604,653)          (4,446,181)
   Accumulated other comprehensive income....................................             37,462               50,065
                                                                                  -----------------    ----------------
         Total shareholders' equity..........................................          8,995,531            8,763,129
                                                                                  -----------------    ----------------
              Total liabilities and shareholders' equity.....................     $   10,247,765       $   10,643,102
                                                                                  =================    ================


                            See accompanying notes.
                                       1



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

                                   (Unaudited)



                                                                    Three Months Ended
                                                                         March 31,
                                                                -------------------------------
                                                                    2008             2007
                                                                --------------   --------------

Revenues:
                                                                           
   Self-storage rental income..............................     $    424,820     $    398,608
   Ancillary operating revenue.............................           35,100           32,825
   Interest and other income...............................            2,844            2,125
                                                                --------------   --------------
                                                                     462,764          433,558
                                                                --------------   --------------
Expenses:
  Cost of operations (excluding depreciation and amortization):
      Self-storage facilities..............................          156,915          148,692
      Ancillary operations.................................           17,468           19,309
  Depreciation and amortization............................          122,486          176,366
  General and administrative...............................           14,916           16,516
  Interest expense.........................................           16,487           16,808
                                                                --------------   --------------
                                                                     328,272          377,691
                                                                --------------   --------------
Income from continuing operations before equity in earnings
   of real estate entities, gain on disposition of an interest
   in Shurgard Europe, casualty gain, foreign currency exchange
   gain, expense from derivatives and minority interest
   in income...............................................          134,492           55,867

Equity in earnings of real estate entities.................            2,729            3,977
Gain on disposition of an interest in Shurgard Europe (Note 3)       341,865                -
Casualty gain..............................................                -            2,665
Foreign currency exchange gain.............................           41,014            5,040
Expense from derivatives, net..............................              (43)            (762)
 Minority interest in income...............................           (7,599)          (5,783)
                                                                --------------   --------------
Income from continuing operations..........................          512,458           61,004
Discontinued operations....................................             (116)          (1,226)
                                                                --------------   --------------
Net income.................................................     $    512,342     $     59,778
                                                                ==============   ==============
Net income (loss) allocation:
   Allocable to preferred shareholders.....................     $     60,333    $      58,776
   Allocable to Equity Shares, Series A....................            5,356            5,356
   Allocable to common shareholders........................          446,653           (4,354)
                                                                --------------   --------------
                                                                $    512,342     $     59,778
                                                                ==============   ==============
Net income (loss) per common share - basic
   Continuing operations...................................     $      2.65      $     (0.02)
   Discontinued operations.................................               -            (0.01)
                                                                --------------   --------------
                                                                $      2.65      $     (0.03)
                                                                ==============   ==============
Net income (loss) per common share - diluted
   Continuing operations...................................     $      2.64      $     (0.02)
   Discontinued operations.................................               -            (0.01)
                                                                --------------   --------------
                                                                $      2.64      $     (0.03)
                                                                ==============   ==============
Net income per depositary share of Equity Shares, Series A
   (basic and diluted) ....................................     $      0.61     $       0.61
                                                                ==============   ==============
Basic weighted average common shares outstanding...........         168,586          169,229
                                                                ==============   ==============
Diluted weighted average common shares outstanding.........         169,230          169,229
                                                                ==============   ==============
Weighted average shares of Equity Shares, Series A (basic
   and diluted)............................................           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, 2007..............................      $  3,527,500      $     16,943     $  5,653,975      $  3,960,827

Issuance of common shares in connection with:
   Exercise of employee stock options (46,903 shares).....                 -                 5            2,498                 -
   Vesting of restricted shares (43,878 shares) ..........                 -                 4               (4)                -

Repurchase of common shares (1,520,196 shares) (Note 10) .                 -              (152)        (111,751)                -

Stock-based compensation expense (Note 12) ...............                 -                 -              535                 -

Net income................................................                 -                 -                -           512,342

Cash distributions:
   Cumulative preferred shares (Note 10)..................                 -                 -                -                 -
   Equity Shares, Series A ($0.613 per depositary share)..                 -                 -                -                 -
   Common Shares ($0.55 per share)........................                 -                 -                -                 -

Decrease in accumulated other comprehensive income:
   Other comprehensive loss (Note 2)......................                 -                 -                -                 -
                                                              ----------------   --------------  ----------------  ---------------
Balance at March 31, 2008.................................      $  3,527,500      $     16,800     $  5,545,253      $  4,473,169
                                                              ================   ==============  ================  ===============





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

                                                                                          
Balance at December 31, 2007..............................     $ (4,446,181)     $     50,065      $  8,763,129

Issuance of common shares in connection with:
   Exercise of employee stock options (46,903 shares).....                -                 -             2,503
   Vesting of restricted shares (43,878 shares) ..........                -                 -                 -

Repurchase of common shares (1,520,196 shares) (Note 10) .                -                 -          (111,903)

Stock-based compensation expense (Note 12) ...............                -                 -               535

Net income................................................                -                 -           512,342

Cash distributions:
   Cumulative preferred shares (Note 10)..................          (60,333)                -           (60,333)
   Equity Shares, Series A ($0.613 per depositary share)..           (5,356)                -            (5,356)
   Common Shares ($0.55 per share)........................          (92,783)                -           (92,783)

Decrease in accumulated other comprehensive income:
   Other comprehensive loss (Note 2)......................                -           (12,603)          (12,603)
                                                              ---------------   --------------    --------------
Balance at March 31, 2008.................................     $ (4,604,653)     $     37,462      $  8,995,531
                                                              ===============   ==============    ==============

                            See accompanying notes.
                                       3



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

                                   (Unaudited)



                                                                                      For the Three Months Ended
                                                                                              March 31,
                                                                                    ------------------------------
                                                                                         2008            2007
                                                                                    -------------   --------------
Cash flows from operating activities:
                                                                                               
   Net income...............................................................         $  512,342      $   59,778
   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)..............................................             (1,215)         (1,084)
    Gain on disposition and realized currency translation gain associated
       with disposition of an interest in Shurgard Europe (Note 3) .........           (341,865)              -
    Depreciation and amortization...........................................            122,486         176,366
    Write-off of capitalized development project costs......................                124               -
    Equity in earnings of real estate entities..............................             (2,729)         (3,977)
    Foreign currency exchange gain..........................................            (41,014)         (5,040)
    Expense from derivatives, net...........................................                 43             762
    Distributions received from the real estate entities ...................              6,493           4,171
    Distributions paid to other minority interests..........................             (4,521)         (5,501)
    Minority interest in income.............................................              7,599           5,783
    Other operating activities..............................................            (27,665)        (35,815)
                                                                                    -------------   --------------
       Total adjustments....................................................           (282,264)        135,665
                                                                                    -------------   --------------
       Net cash provided by operating activities............................            230,078         195,443
                                                                                    -------------   --------------
Cash flows from investing activities:
    Capital improvements to real estate facilities .........................             (6,874)         (8,307)
    Construction in process.................................................            (24,111)        (19,080)
    Acquisition of real estate facilities...................................                  -         (22,593)
    Proceeds from the disposition of an interest in Shurgard Europe (Note 3)            601,485               -
    Deconsolidation of Shurgard Europe (Note 3).............................            (34,588)              -
    Proceeds from sales of real estate......................................                  -             322
    Reductions (additions) to restricted cash...............................                370            (211)
    Investment in Shurgard Europe...........................................            (32,911)              -
    Other investing activities..............................................              8,426               -
    Proceeds from sales of held-to-maturity debt securities (Note 2)........                 58           4,777
                                                                                    -------------   --------------
       Net cash provided by (used in) investing activities..................            511,855         (45,092)
                                                                                    -------------   --------------
Cash flows from financing activities:
    Principal payments on notes payable.....................................             (4,368)       (449,604)
    Net repayments on bank credit facilities................................                  -        (213,000)
    Proceeds from borrowings on European notes payable......................             14,654          13,152
    Net proceeds from the issuance of common shares.........................              2,503           5,353
    Net proceeds from the issuance of cumulative preferred shares...........                  -         484,767
    Repurchases of common shares............................................           (111,903)              -
    Redemption of cumulative preferred shares...............................                  -        (302,150)
    Distributions paid to shareholders......................................           (158,472)       (149,125)
    Distributions paid to holders of preferred partnership interests........             (5,403)         (5,403)
                                                                                    -------------   --------------
       Net cash used in financing activities................................           (262,989)       (616,010)
                                                                                    -------------   --------------
Net increase (decrease) in cash and cash equivalents........................            478,944        (465,659)
Net effect of foreign exchange translation on cash..........................              2,544             564
                                                                                    -------------   --------------
Cash and cash equivalents at the beginning of the period....................            245,444         535,684
                                                                                    -------------   --------------
Cash and cash equivalents at the end of the period..........................         $  726,932      $   70,589
                                                                                    =============   ==============


                            See accompanying notes.
                                       4



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

                                   (Unaudited)

                                   (Continued)




Supplemental schedule of non-cash investing and financing activities:

   Foreign currency translation adjustment:
                                                                                                
       Real estate facilities, net of accumulated depreciation..............          $ (96,534)      $ (14,029)
       Construction in process..............................................               (956)           (239)
       Intangible assets, net...............................................             (4,529)           (245)
       Other assets.........................................................             (3,742)           (178)
       Notes payable........................................................             28,912           3,307
       Accrued and other liabilities........................................              5,879             337
       Minority interest - other partnership interests......................              7,249           1,200
       Accumulated other comprehensive income...............................             66,265          10,411

   Deconsolidation of our European operations:
       Real estate facilities, net of accumulated depreciation..............          1,693,524               -
       Construction in process..............................................             10,886               -
       Investment in real estate entities...................................           (594,330)              -
       Note receivable from affiliate.......................................           (618,822)              -
       Intangible assets, net...............................................             78,135               -
       Other assets.........................................................             68,486               -
       Notes payable........................................................           (424,995)              -
       Accrued and other liabilities........................................            (98,571)              -
       Minority interest - other partnership interests......................           (148,901)              -



                            See accompanying notes.
                                       5




                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (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.

              In addition to our self-storage  facilities,  we own (i) interests
     in commercial  properties containing commercial and industrial rental space
     for rent, (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 March 31, 2008, we had direct and indirect equity  interests in
     2,012  self-storage  facilities  located in 38 states  operating  under the
     "Public  Storage" name, and 177 self-storage  facilities  located in Europe
     which  operate  under the  "Shurgard  Storage  Centers"  name. We also have
     direct and  indirect  equity  interests  in  approximately  21 million  net
     rentable square feet of commercial space located in 11 states in the United
     States (the "U.S.") operated under the "PS Business Parks" name.

              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.

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 months  ended March 31, 2008 are not  necessarily  indicative  of the
     results  that may be expected for the year ended  December  31,  2008.  The
     accompanying  unaudited condensed  consolidated financial statements should
     be read together with the  consolidated  financial  statements  and related
     notes  included in the  Company's  Annual  Report on Form 10-K for the year
     ended December 31, 2007.

              Certain  amounts  previously  reported have been  reclassified  to
     conform to the March 31, 2008 presentation.  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

                                       6


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

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

              On  March  31,  2008,  we  entered  into  a  transaction  with  an
     institutional   investor  (the  transaction  referred  to  as  the  "Europe
     Transaction")  whereby the investor acquired a 51% interest in our European
     operations  ("Shurgard Europe").  Shurgard Europe held substantially all of
     our  operations  in Europe.  As of March 31, 2008, we own the remaining 49%
     interest and are the managing member of Shurgard  European  Holdings LLC, a
     new joint venture formed to own Shurgard Europe's  operations.  As a result
     of the Europe Transaction, our remaining investment in Shurgard Europe will
     be accounted for using the equity method, and accordingly,  Shurgard Europe
     will no longer be consolidated effective March 31, 2008 (see Note 3).

              Collectively,  at March 31, 2008, the Company and the Consolidated
     Entities own a total of 1,993 real estate  facilities,  consisting of 1,984
     self-storage  facilities  in the U.S.,  one  self-storage  facility  in the
     United  Kingdom,  three  industrial  facilities  used by the  containerized
     storage operations and five commercial properties.

              At March 31, 2008,  the  Unconsolidated  Entities are comprised of
     our interest in Shurgard  Europe,  PS Business  Parks,  Inc.  ("PSB"),  and
     various limited and joint venture  partnerships (the "Other  Investments").
     At March 31, 2008, PSB owns approximately 19.6 million rentable square feet
     of commercial  space,  Shurgard  Europe has  interests in 176  self-storage
     facilities  in  Europe,  and the  Other  Investments  own in  aggregate  28
     self-storage facilities in the U.S.

     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

                                       7


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

     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 have met these  tests  during  2007 and will meet  these  tests
     during 2008 and,  accordingly,  no provision  for federal  income taxes has
     been made in the accompanying  condensed  consolidated financial statements
     on income  produced and distributed on real estate rental  operations.  Our
     taxable REIT  subsidiaries  are subject to regular  corporate  tax on their
     income.

     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 with remaining  maturities
     of three months or less at the date of acquisition to be cash equivalents.

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

              Financial assets that are exposed to credit risk consist primarily
     of cash and cash  equivalents,  accounts  receivable,  and notes receivable
     from  affiliates.  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.  Our note receivable totaling $618,822,000 at
     March  31,  2008 is owed  by  Shurgard  Europe.  Although  there  can be no
     assurance, we believe that this note is sufficiently  collateralized by the
     assets of Shurgard Europe,  and that we have sufficient  creditor rights to
     maintain  our  collateral  position,  such that the credit risk on the note
     receivable is minimal.

              At March 31, 2008, we have an investment in Shurgard  Europe,  and
     one wholly owned real estate facility in the United  Kingdom.  In addition,
     the  aforementioned  note receivable from Shurgard Europe is denominated in
     Euros. Accordingly,  our operations and our financial position are affected
     by  fluctuations  in the exchange  rates between the Euro,  and to a lesser
     extent, other European currencies, against the U.S. Dollar.

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

              Restricted cash at March 31, 2008 and December 31, 2007, 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

                                       8


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

     incurred.  The purchase cost of existing  self-storage  facilities  that we
     acquire are allocated based upon relative fair value of the land,  building
     and tenant intangible components of the real estate facility.  Expenditures
     for  repairs and  maintenance  are  expensed  when  incurred.  Depreciation
     expense 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  impairment  of our  goodwill  was  identified  in  our  annual
     evaluation at December 31, 2007.

              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 March 31, 2008.

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

              We  utilize  the Fair  Value  Method  (as  defined  in Note 12) of
     accounting for our employee stock options. Restricted share unit expense is
     recorded  over the  relevant  service  period.  See Note 12 for  additional
     information  on our  accounting  for 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,  merchandise
     inventory  held for sale as well as trucks and other  equipment  associated
     with our ancillary operations. Other assets included a total of $56,714,000
     related to Shurgard  Europe at December 31, 2007,  which we  deconsolidated
     effective March 31, 2008 as described in Note 3.

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

              Accrued and other  liabilities at March 31, 2008 consist primarily
     of real property tax accruals, tenant prepayments of rents, trade payables,
     losses  and  loss  adjustment   liabilities  for  our  self-insured   risks
     (described  below) accrued interest and, at December 31, 2007,  value-added
     tax accruals with respect to Shurgard Europe. Accrued and other liabilities
     included  $100,366,000  related to Shurgard  Europe at December  31,  2007,
     which we deconsolidated effective March 31, 2008 as described in Note 3.

                                       9


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

              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  March  31,  2008   totaled   $28,166,000
     ($26,643,000  at  December  31,  2007).  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 property  losses due to specific named perils to goods stored by
     tenants  in our  self-storage  facilities  for  individual  limits  up to a
     maximum of $5,000. For our U.S. operations,  we have third-party  insurance
     coverage  for  losses  from any  individual  event  that  exceeds a loss of
     $1,000,000,  to a maximum of $49,000,000.  Estimated  uninsured  losses are
     accrued and expensed 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 will vary from what we have  accrued.  The  methods  for  making  such
     estimates  and for  establishing  the resulting  liabilities  are regularly
     reviewed.

     Goodwill
     --------

              Goodwill  represents the excess of acquisition  cost over the fair
     value of net  tangible  and  identifiable  intangible  assets  acquired  in
     business  combinations.  Each business  combination from which our goodwill
     arose was for the  acquisition of single  businesses and  accordingly,  the
     allocation of our goodwill to our business segments  (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"). Our goodwill balance
     of $174,634,000 is reported net of accumulated  amortization of $85,085,000
     as of March 31, 2008 and  December 31, 2007 in our  accompanying  condensed
     consolidated balance sheets.

     Other Intangible Assets
     -----------------------

              As we acquire real estate facilities,  we also acquire the tenants
     in place at the date of the  acquisition of each respective  facility.  The
     value of these tenants represent a finite-lived intangible asset (a "Tenant
     Intangible"), and these assets are amortized relative to the benefit of the
     tenants in place to each period. At March 31, 2008, our Tenant  Intangibles
     have a book value of $71,728,000  ($173,745,000  at December 31, 2007), net
     of accumulated  amortization of $312,753,000  ($423,788,000 at December 31,
     2007). During the three months ended March 31, 2008, intangible assets were
     increased  by  approximately  $4,529,000  due to the  impact of  changes in
     foreign  currency  exchange  rates.  On March 31, 2008,  tenant  intangible
     assets decreased  approximately  $78,135,000 due to the  deconsolidation of
     Shurgard Europe, as described more fully in Note 3 below.

              Amortization  expense of $28,411,000  and $85,784,000 was recorded
     for our tenant  intangible assets for the three months ended March 31, 2008
     and 2007,  respectively.  The estimated annual amortization expense for our
     finite-lived intangible assets is as follows:

   2008 (remainder of)                                         $    19,386,000
   2009                                                             10,351,000
   2010                                                              6,366,000
   2011                                                              4,956,000
   2012                                                              3,187,000
   2013 and beyond                                                   8,658,000

                                       10


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

              We  also  have  an  intangible   representing  the  value  of  the
     "Shurgard"  trade  name,  which is used by  Shurgard  Europe  pursuant to a
     licensing  agreement  described  more fully in Note 3, with a book value of
     $18,824,000  at March 31, 2008 and December 31,  2007.  The Shurgard  trade
     name has an indefinite life and, accordingly, we do not amortize this asset
     but instead  analyze it on an annual basis for  impairment.  No impairments
     were noted in the most recent annual analysis at December 31, 2007.

     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.  Interest
     and other income is recognized as earned.

              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.

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

              The local  currency is the  functional  currency  for the European
     operations that we have an interest in. Assets and liabilities  included on
     our  consolidated  balance sheet are translated at  end-of-period  exchange
     rates, while revenues, expenses, and equity in earnings of the related real
     estate  entities,  are  translated at the average  exchange rates in effect
     during the period. The Euro, which represents the functional  currency used
     by  a  majority  of  the  European   operations,   was   translated  at  an
     end-of-period exchange rate of approximately 1.579 U.S. Dollars per Euro at
     March 31, 2008 (1.472 at December 31, 2007) and an average exchange rate of
     1.496  and  1.310  for the three  months  ended  March  31,  2008 and 2007,
     respectively.  Equity is translated  at historical  rates and the resulting
     cumulative  translation  adjustments,  to the  extent not  included  in net
     income,  are included as a component  of  accumulated  other  comprehensive
     income (loss) until the translation  adjustments  are realized.  See "Other
     Comprehensive  Income" below for further information  regarding our foreign
     currency translation gains and losses.

     Fair Value Accounting
     ---------------------

              In February  2007,  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 was  effective  for  fiscal  years
     beginning  after November 15, 2007. The Company did not elect to report any
     of its financial assets or liabilities at fair value, and as a result,  the
     adoption of SFAS No. 159 had no material impact on our financial  position,
     operating results or cash flows.

                                       11


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

              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.  SFAS No. 157 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
     accounting  standards require or permit fair value  measurements.  SFAS No.
     157 does  not  require  any new  fair  value  measurements.  SFAS  No.  157
     clarifies  that fair value is an exit price,  representing  the amount that
     would be received  to sell an asset or paid to  transfer a liability  in an
     orderly transaction between market participants.  SFAS No. 157 is effective
     for fiscal years  beginning  after November 15, 2007,  and interim  periods
     within those fiscal years.  In December 2007, the FASB agreed to a one year
     deferral  of  SFAS  No.  157's  fair  value  measurement  requirements  for
     nonfinancial  assets and liabilities  that are not required or permitted to
     be measured at fair value on a recurring  basis.  The Company  adopted SFAS
     No. 157 on January 1, 2008, which had no effect on our financial  position,
     operating results or cash flows.

              SFAS No. 157 establishes a three-tier fair value hierarchy,  which
     prioritizes the inputs used in measuring fair value.  Liabilities  measured
     at fair value on a recurring basis as of March 31, 2008 include our debt to
     joint  venture  partner,  which is described in Note 8, and our estimate of
     the fair value of Other  Minority  Interests,  described in Note 9. Each of
     these  liabilities are valued based upon significant  unobservable  inputs,
     which are "Level 3" inputs as the term is utilized in SFAS No. 157.

     Note Receivable from Affiliate
     ------------------------------

              As of March  31,  2008,  we had a note  receivable  from  Shurgard
     Europe totaling $618,822,000 ($561,182,000 at December 31, 2007). Effective
     March 31, 2008, as a result of the Europe  Transaction,  Shurgard Europe is
     no  longer  consolidated,  accordingly,  the note  receivable  is no longer
     eliminated  in  consolidation  and is  presented as "Note  Receivable  from
     Affiliate" (see Note 3).

              In connection with the Europe  Transaction,  the terms of the note
     were modified.  The outstanding loan balance was increased by approximately
     (euro)10,529,000 ($16,626,000) on March 31, 2008 due to the conversion of a
     portion of our equity  investment  into  intercompany  debt. The note bears
     interest at a fixed rate of 7.5% per annum,  and has an initial term of one
     year  expiring  March 31, 2009,  and an  additional  one year  extension at
     Shurgard Europe's option.  Further,  we are committed to provide additional
     loans to Shurgard Europe,  under these same terms, up to (euro)305  million
     to  fund  Shurgard  Europe's  obligations  to  repay  existing  third-party
     indebtedness  (a total of  (euro)264.2  million at March 31,  2008) owed by
     First Shurgard and Second Shurgard, joint ventures in which Shurgard Europe
     has a 20%  interest  (First  Shurgard  and Second  Shurgard are referred to
     hereinafter  collectively as the "Existing  European Joint Ventures"),  and
     the possible acquisition of the remaining interest in the Existing European
     Joint Ventures.  Shurgard  Europe intends to repay all of its  intercompany
     debt through the issuance of third-party debt as soon as market  conditions
     permit, but no later than March 31, 2010 when all of the loans mature.

              The note  receivable is  denominated  in Euros and is converted to
     U.S. Dollars for financial  reporting  purposes.  We expect the notes to be
     repaid in the near term  (generally,  within  one to two years) and we have
     been  recognizing  foreign  exchange  rate  gains or  losses as a result of
     changes in exchange rates between the Euro and the U.S.  Dollar during each
     period in 2008 and 2007.  During the three  months ended March 31, 2008 and
     2007,  the balances of this loan  increased due to foreign  currency  gains
     totaling $41,014,000 and $5,040,000,  respectively, which are recognized as
     income on our accompanying condensed consolidated statements of income.

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

              We reflect  other  comprehensive  income (loss) for any portion of
     currency translation adjustments related to our European subsidiaries which
     are  not  already   reflected  in  our  current  net  income.   Such  other
     comprehensive  income  (loss)  is  reflected  as  a  direct  adjustment  to
     "Accumulated  Other  Comprehensive  Income"  in the  equity  section of our
     balance sheet.

                                       12


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

              Total  comprehensive  income  for  each  period  reflects  our net
     income, plus our other comprehensive income for the period.

              The  following   table   reflects  the  components  of  our  other
     comprehensive  (loss) income, and our total comprehensive  income, for each
     respective period:

                                                   For the Three Months Ended
                                                           March 31,
                                                  ----------------------------
                                                      2008            2007
                                                  -------------  -------------
                                                     (Amounts in thousands)
     Net income................................    $   512,342    $    59,778
     Other comprehensive income:
        Aggregate foreign currency translation
           adjustments for the period..........         66,265         15,451
        Less: foreign currency translation
           adjustments recognized during the
           period and reflected in "Gain on
           disposition of an interest in
           Shurgard Europe" (Note 3)...........        (37,854)             -
        Less: foreign currency translation
           adjustments reflected in net income
           as "Foreign currency gain"..........        (41,014)        (5,040)
                                                  -------------  -------------
     Other comprehensive (loss) income for the
               period..........................        (12,603)        10,411
                                                  -------------  -------------
     Total comprehensive income................    $   499,739    $    70,189
                                                  =============  =============

                                       13


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

     Accounting for Casualties
     -------------------------

              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 three months
     ended March 31,  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
     --------------------------------

              Shurgard Europe has certain  derivative  financial  instruments in
     its two joint venture partnerships,  including interest rate caps, interest
     rate swaps,  cross-currency  swaps and foreign currency forward  contracts.
     These  derivatives  were entered into by the joint venture  partnerships in
     order to mitigate currency and exchange rate fluctuation risk in connection
     with borrowings,  and are not for speculative or trading purposes. Since we
     acquired  an  interest  in  Shurgard  Europe  in August  2006,  none of the
     derivatives  were  considered  effective  hedges  because  at the  time  we
     acquired an interest in Shurgard  Europe in August 2006, we believed it was
     not highly  likely  that the debt and the  related  derivative  instruments
     would 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.

     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. The following table
     summarizes the historical operations with respect to these facilities:

                                         For the Three Months
                                           Ended March 31,
                                        -----------------------
                                           2008         2007
                                        -----------   ---------
                                        (Amounts in thousands)
Rental income.....................      $     425     $    809
Cost of operations................           (536)      (1,920)
Depreciation expense..............             (5)        (115)
                                        -----------   ---------
Total discontinued operations.....      $    (116)    $ (1,226)
                                        ===========   =========

                                       14


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

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

              In computing net income allocated to our common  shareholders,  we
     first allocate net income to our preferred  shareholders  ($60,333,000  and
     $58,776,000   for  the  three   months  ended  March  31,  2008  and  2007,
     respectively) to arrive at net income allocable to our common shareholders.

              The  remaining  net income is allocated  among our regular  common
     shares and our Equity  Shares,  Series A using the  two-class  method which
     allocates  income based upon the dividends  declared (or  accumulated)  for
     each  security  in the  period,  combined  with each  security's  rights to
     earnings (or losses) that were not distributed to shareholders.  Under this
     method,  the  Equity  Shares,  Series  A,  were  allocated  net  income  of
     $5,356,000  for each of the three  months  ended  March 31,  2008 and 2007,
     respectively.  Net income of $446,653,000  and a loss of $4,354,000 for the
     three months ended March 31, 2008 and 2007, respectively, were 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). The stock options and restricted share units were
     anti-dilutive  in the three months ended March 31, 2007 and were  therefore
     not reflected in diluted net income per common share for that period.

     Recent Accounting Pronouncements and Guidance
     ---------------------------------------------

     Business Combinations
     ---------------------

              In December 2007, the Financial  Accounting  Standards  Board (the
     "FASB")  issued SFAS No.  141(R) and  requires  the  acquiring  entity in a
     business  combination to measure the assets acquired,  liabilities  assumed
     (including  contingencies) and any  noncontrolling  interests at their fair
     values  on  the   acquisition   date.  The  statement  also  requires  that
     acquisition-related  transaction costs be expensed as incurred and acquired
     research   and   development    value   be   capitalized.    In   addition,
     acquisition-related  restructuring costs are to be capitalized only if they
     meet  certain  criteria.  SFAS No.  141(R) is  effective  for fiscal  years
     beginning  December 15, 2008. The application of SFAS No.141(R) may have an
     impact on our  results  of  operations  and  financial  position  beginning
     January 1, 2009 to the extent that we enter into any business  combinations
     in the future.

     Noncontrolling Interests in Consolidated Financial Statements
     -------------------------------------------------------------

              In  December  2007,   the  FASB  issued   Statement  of  Financial
     Accounting  Standards No. 160,  "Noncontrolling  Interests in  Consolidated
     Financial Statements,  an amendment of Accounting Research Bulletin No. 51"
     (or  SFAS  No.  160).   SFAS  No.  160  requires  the   classification   of
     noncontrolling  interests (formerly,  minority interests) as a component of
     the  consolidated  equity.  In addition,  net income will include the total
     income of all  consolidated  subsidiaries  with the attribution of earnings
     and other  comprehensive  income  between  controlling  and  noncontrolling
     interests reported as a separate disclosure on the face of the consolidated
     income statement. The calculation of earnings per share will continue to be
     based on income  amounts  attributable  to the  parent.  SFAS No.  160 also
     addresses accounting and reporting for a change in control of a subsidiary.
     SFAS No. 160 is effective for fiscal years beginning December 15, 2008, and
     is required to be adopted  prospectively,  except for the  presentation and
     disclosure requirements,  which are required to be adopted retrospectively.
     We are currently  evaluating the impact of the  application of SFAS No. 160
     on our results of operations and financial position.

                                       15


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

3.   Europe Transaction
     ------------------

              On March  31,  2008,  an  institutional  investor  acquired  a 51%
     interest in Shurgard European Holdings LLC, a newly formed Delaware limited
     liability  company and the holding company for Shurgard  Europe  ("Shurgard
     Holdings").  Public Storage owns the remaining 49% interest is the managing
     member of Shurgard  Holdings.  In exchange for the 51% interest in Shurgard
     Holdings,    the   investor    paid   Shurgard    Holdings    approximately
     (euro)383,200,000 ($605,627,000) on March 31, 2008, with the purchase price
     to be adjusted for  operating  results (as  defined)  generated by Shurgard
     Europe  during the three months ended March 31, 2008.  This  adjustment  is
     currently estimated to be approximately (euro)4,797,000 ($7,574,000).

              In connection with the Europe Transaction,  the intercompany notes
     receivable  owed by Shurgard  Europe to Public  Storage were  modified (see
     Note 2  under  "Note  Receivable  from  Affiliate,")  and  Shurgard  Europe
     obtained an option, which expires on June 30, 2008, to acquire one facility
     located in the United Kingdom that the Company wholly owns (the "Kensington
     Facility") for an aggregate of (euro)42 million. We believe that the option
     price for this  facility  represents  its  market  value.  Shurgard  Europe
     manages this facility for us in exchange for a management fee.

              Based upon the  provisions  of Statement  of Financial  Accounting
     Standards  No. 66 ("FAS  66"),  we have  determined  that this  transaction
     constitutes the partial  disposition of an interest in Shurgard Europe that
     is eligible  for full profit  recognition.  We have  evaluated  the limited
     liability  agreement,  capitalization,  and other  risk-sharing  and voting
     characteristics  of  Shurgard  Holdings  and  determined  that it does  not
     represent a variable  interest  entity in accordance with the provisions of
     FASB Interpretation No. 46R, "Consolidation of Variable Interest Entities -
     An Interpretation of ARB No. 51" ("FIN 46R").

              The  provisions of Emerging  Issues Task Force 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,"  indicate there is a presumption that the managing member
     of a limited  liability  company  controls  the  company,  unless the other
     member has substantive  "participating" or "kick-out" rights as those terms
     are utilized in the  accounting  standard.  Even though we are the managing
     member,  based  upon the  terms of  Shurgard  Holdings,  the  institutional
     investor  shares with us the  decision-making  authority with respect to a)
     the significant  operating,  capital,  and investing  decisions of Shurgard
     Europe,  including the establishment of annual budgets, and b) the level of
     compensation of, and replacement and selection of Shurgard  Europe's senior
     operating  officers.  As a result, we have concluded that the institutional
     investor has substantive  participating rights and, accordingly,  we do not
     control Shurgard Europe.  Therefore,  we have deconsolidated the operations
     of Shurgard Europe effective March 31, 2008.

              As a  result  of  the  deconsolidation  of  Shurgard  Europe,  our
     investment in real estate entities increased by $594,330,000,  representing
     our net investment in Shurgard Europe at March 31, 2008 immediately  before
     the  transaction.  The  following  adjustments  were made to our  condensed
     consolidated balance sheet to reflect the deconsolidation of our investment
     in Shurgard Europe as of March 31, 2008 (amounts in thousands):

                                                 Total
                                            ---------------
Real estate facilities, net.............      $(1,693,524)
Construction in progress................          (10,886)
Intangible assets.......................          (78,135)
Cash....................................          (34,588)
Note receivable from affiliate..........          618,822
Other assets............................          (68,486)
Notes payable...........................          424,995
Accrued and other liabilities...........           98,571
Minority interest - other partnership
interests                                         148,901
                                            ---------------
                                                $(594,330)
                                            ---------------
                                       16


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

              Our net proceeds  from the  transaction  aggregated  $609,059,000,
     comprised of i) $605,627,000  paid by the  institutional  investor on March
     31, 2008, ii) a receivable  from the investor  totaling  $7,574,000,  iii),
     less  $4,142,000  in legal,  accounting,  and other  expenses  incurred  in
     connection with the transaction. As a result of the disposition, we reduced
     our investment in Shurgard Europe by approximately $305,048,000 for the pro
     rata portion of our March 31, 2008 investment that was sold, and recognized
     a  gain of  $304,011,000  upon  disposition,  representing  the  difference
     between the net proceeds  received of $609,059,000 and the pro rata portion
     of our investment sold of $305,048,000.

              In addition,  as a result of our  disposition of this interest,  a
     portion  of the  cumulative  currency  exchange  gains  we  had  previously
     recognized in Other  Comprehensive  Income with respect to Shurgard  Europe
     was realized.  Accordingly,  we recognized a cumulative  currency  exchange
     gain of  $37,854,000,  representing  51% (the pro rata  portion of Shurgard
     Europe that was sold) of the cumulative  currency  exchange gain previously
     included in Other Comprehensive Income.

              The gain upon disposition of $304,011,000 and associated  realized
     currency  exchange gain totaling  $37,854,000 are both included in the gain
     on disposition  of an interest in Shurgard  Europe of  $341,865,000  in our
     condensed consolidated statement of income for the three months ended March
     31, 2008.

              The results of operations of Shurgard Europe have been included in
     our  condensed  consolidated  statements  of  income  for each of the three
     months  ended March 31, 2008 and 2007,  respectively.  Commencing  with the
     quarter  beginning  April 1, 2008,  our  pro rata  share of  operations  of
     Shurgard  Europe will be reflected on our income  statement under equity in
     earnings of real estate entities.

                                       17


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

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

              Activity in real estate facilities is as follows:

                                                                  Three Months
                                                                      Ended
                                                                 March 31, 2008
                                                               -----------------
                                                                   (Amounts in
                                                                    thousands)
Operating facilities, at cost:
  Beginning balance.......................................        $ 11,658,807
  Capital improvements....................................               6,874
  Newly developed facilities opened for operations........              38,480
  Deconsolidation of Shurgard Europe (Note 3).............          (1,766,122)
  Impact of foreign exchange rate changes.................             100,294
                                                               -----------------
  Ending balance..........................................          10,038,333
                                                               -----------------
Accumulated depreciation:
  Beginning balance.......................................          (2,128,225)
  Depreciation expense....................................             (93,336)
  Deconsolidation of Shurgard Europe (Note 3).............              72,598
  Impact of foreign exchange rate changes.................              (3,760)
                                                               -----------------
  Ending balance..........................................          (2,152,723)
                                                               -----------------
Construction in process:
   Beginning balance......................................              60,324
   Current development....................................              24,111
   Newly developed facilities opened for operations.......             (38,480)
  Deconsolidation of Shurgard Europe (Note 3).............             (10,886)
  Write off of development costs..........................                (124)
   Impact of foreign exchange rate changes................                 956
                                                               -----------------
   Ending balance.........................................              35,901
                                                               -----------------
 Total real estate facilities.............................        $  7,921,511
                                                               =================

              During the three  months ended March 31,  2008,  we completed  two
     expansion  projects  in the U.S.  which in  aggregate  added  approximately
     82,000 net rentable  square feet of  self-storage  space at a total cost of
     $5,017,000.  Also in the three months  ended March 31,  2008,  we completed
     three development projects in Europe which in aggregate added approximately
     166,000 net rentable square feet of  self-storage  space at a total cost of
     $33,463,000.

              Construction in process at March 31, 2008 includes the development
     costs  relating  to 29  projects  (1,231,000  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
     $35,901,000  at March 31,  2008 and total  estimated  costs to  complete of
     $89,345,000.

              From time to time,  our  facilities  are  subject to  condemnation
     proceedings,  resulting  in disposal  of a portion  or, in some cases,  the
     entire  facility.  In  addition,  we dispose  of unused  parcels of land in
     certain  cases.  When an entire  real estate  facility is disposed  of, the
     operating results of these disposed facilities,  including the gain on sale
     are classified in discontinued operations on our consolidated statements of
     income for all periods  presented.  During the three months ended March 31,
     2007, we disposed of a portion of a self-storage  facility for an aggregate
     of $322,000. There was no gain or loss on this transaction.

              As  described  more  fully  in  Note  3,  we  deconsolidated   our
     investment in Shurgard  Europe as of March 31, 2008.  This  deconsolidation
     resulted   in  the   reduction   of   Operating   Facilities,   Accumulated
     Depreciation, and Construction in Process.

                                       18


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

              We  capitalize  interest  incurred  on debt  during  the course of
     construction of our self-storage  facilities.  Interest capitalized for the
     three  months  ended March 31,  2008 and 2007 was  $748,000  and  $741,000,
     respectively.

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.

              For the three months ended March 31, 2008 and 2007,  we recognized
     earnings from our  investments  in real estate  entities of $2,729,000  and
     $3,977,000,   respectively,   and  received  cash  distributions   totaling
     $6,493,000 and  $4,171,000,  respectively.  We invested  $32,911,000 in the
     Real Estate Entities during the three months ended March 31, 2008.

              Our investments in real estate entities  increased by $594,330,000
     due  to  the   deconsolidation   of  Shurgard  Europe,   and  decreased  by
     $305,048,000  representing  the  pro  rata  portion  of our  investment  in
     Shurgard Europe that was disposed of, as described more fully in Note 3.

              The following  table sets forth our investments in the real estate
     entities  at March  31,  2008 and  December  31,  2007,  and our  equity in
     earnings of real estate  entities for the three months ended March 31, 2008
     and 2007 (amounts in thousands):



                                                                    Equity in Earnings of Real
                                   Investments in Real Estate        Estate Entities for the
                                          Entities at              Three Months Ended March 31,
                               ----------------------------------  ----------------------------
                                   March 31,       December 31,
                                     2008              2007            2008           2007
                               --------------     ---------------  -------------  -------------
                                                                       
PSB..........................   $   270,464        $     273,717    $     2,345    $     3,490
Shurgard Europe..............       322,193                    -              -              -
Other Investments............        32,515               33,026            384            487
                               --------------     ---------------  -------------  -------------
  Total......................   $   625,172        $     306,743    $     2,729    $     3,977
                               ==============     ===============  =============  =============


     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 46%
     common  equity  interest in PSB as of March 31,  2008.  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 March 31, 2008 and December 31, 2007. The 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
     March 31, 2008 ($51.90 per share of PSB common stock), the shares and units
     had a market value of  approximately  $660.4  million as compared to a book
     value of $270.5 million.

              At March 31, 2008, PSB owned  approximately  19.6 million 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.

                                       19


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

              The following table sets forth selected  financial  information of
     PSB;  the amounts  represent  100% of PSB's  balances  and not our pro rata
     share.



                                                                    2008              2007
                                                              ----------------  -----------------
                                                                 (Amounts in thousands)
 For the three months ended March 31,
 -----------------------------------
                                                                           
   Total operating revenue..............................      $       70,306     $       65,307
   Costs of operations and other operating expenses.....             (24,536)           (22,141)
   Other income and expense, net........................                (665)               694
   Depreciation and amortization........................             (25,447)           (21,640)
   Minority interest....................................              (3,100)            (3,629)
                                                              ----------------  -----------------
     Net income.........................................      $       16,558     $       18,591
                                                              ================  =================




                                                              At March 31,      At December 31,
                                                                  2008               2007
                                                              ----------------  -----------------
                                                                   (Amounts in thousands)

                                                                           
   Total assets (primarily real estate).................      $    1,489,690     $    1,516,583
   Total debt...........................................              60,381             60,725
   Other liabilities....................................              49,209             51,058
   Preferred equity and preferred minority interests....             811,000            811,000
   Common equity and common minority interests..........             569,100            593,800



                                       20


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

     Investment in Shurgard Europe
     -----------------------------

              As  described  more  fully in Note 3, on March 31,  2008 we had an
     investment  in  Shurgard  Europe,  representing  approximately  49%  of the
     interest of Shurgard Europe. The remaining interest in this entity is owned
     by an institutional investor, which owns 51%.

              The following table sets forth selected  financial  information of
     Shurgard  Europe.  The amounts  presented  herein are  consistent  with the
     foreign  currency  translation  policy  described  more  fully  in  Note 2,
     "Foreign Currency Exchange  Translation." These amounts are based upon 100%
     of  Shurgard  Europe's  balances,  rather  than our  pro rata  share of the
     operations  of  Shurgard  Europe,  and  are  based  upon  Public  Storage's
     historical acquired book basis.

              Amounts  for  all  periods  are  presented,  notwithstanding  that
     Shurgard Europe was deconsolidated  effective March 31, 2008.  Accordingly,
     except for the March 31, 2008 condensed  consolidated  balance  sheet,  all
     amounts (net of  intercompany  eliminations)  are included in our condensed
     consolidated  financial  statements and are not reflected as a component of
     equity  in  earnings,  in the  case of our  condensed  consolidated  income
     statement,  or  investment  in real  estate  entities,  in the  case of our
     condensed consolidated balance sheet.



                                                                    2008              2007
                                                              ----------------  -----------------
                                                                 (Amounts in thousands)
 For the three months ended March 31,
 -----------------------------------
                                                                           
   Self-storage revenues................................      $       54,722     $       43,160
   Ancillary revenues...................................               4,913              3,760
   Self-storage cost of operations......................             (24,654)           (22,652)
   Ancillary cost of operations.........................              (1,409)            (1,337)
   Royalty payable to Public Storage....................                (640)                 -
   Depreciation and amortization........................             (21,871)           (38,217)
   General and administrative...........................              (4,644)            (2,702)
   Interest expense on third party debt.................              (7,308)            (5,089)
   Interest expense on debt to Public Storage...........              (9,644)            (9,650)
   Expense from derivatives, net .......................                 (43)              (762)
   Discontinued operations..............................                 (12)               (89)
   Minority interest....................................               2,142              3,754
                                                              ----------------  -----------------
     Net loss...........................................      $       (8,448)    $      (29,824)
                                                              ================  =================




                                                               At March 31,      At December 31,
                                                                  2008               2007
                                                              ----------------  -----------------
                                                                   (Amounts in thousands)

                                                                           
   Total assets (primarily real estate).................      $    1,885,619     $    1,774,037
   Total debt to third parties..........................             424,995            384,045
   Total debt to Public Storage.........................             618,822            561,182
   Other liabilities....................................             101,980             95,444
   Minority interest....................................             145,492            140,385
   Equity...............................................             594,330            592,981


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

              At March 31, 2008, other  investments  include an aggregate common
     equity  ownership  of  approximately  28% in a) five  entities  that own an
     aggregate of 22 self-storage  facilities that we held on a consistent basis
     since January 1, 2006 and b) entities owning six  self-storage  facilities,
     which we deconsolidated effective May 24, 2007.

                                       21


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

              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:


                                                  2008              2007
                                           -----------------  ------------------
                                                 (Amounts in thousands)
 For the three months ended March 31,
 -----------------------------------
 Total revenue........................     $          5,407    $        5,199
 Cost of operations and other expenses               (2,460)           (2,234)
 Depreciation and amortization........               (1,114)           (1,128)
                                           -----------------  ------------------
     Net income.......................     $          1,833    $        1,837
                                           =================  ==================

                                             At March 31,     At December 31,
                                                 2008              2007
                                           -----------------  ------------------
                                                 (Amounts in thousands)

 Total assets (primarily storage
     facilities)......................     $         75,722    $       75,903
 Total debt...........................               12,326            12,409
 Total accrued and other liabilities..                1,516               774
 Total Partners' equity...............               61,880            62,720

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

              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.  Amounts  drawn on 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 March 31, 2008). 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
     March 31, 2008). We had no outstanding  borrowings on our Credit  Agreement
     at March 31, 2008 or at May 8, 2008.

              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 March 31, 2008.

              At March 31, 2008, we had undrawn standby letters of credit, which
     reduce our borrowing  capability  with respect to our line of credit by the
     amount of the  letters  of credit,  totaling  $19,699,000  ($20,408,000  at
     December 31, 2007).  The  beneficiaries  of these standby letters of credit
     were primarily  certain  insurance  companies  associated  with our captive
     insurance and tenant re-insurance activities.

                                       22


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

7.   Notes Payable

              The  carrying  amounts of our notes  payable at March 31, 2008 and
     December 31, 2007 consist of the following (dollar amounts in thousands):




                                                                                 March 31,       December 31,
                                                                                    2008             2007
                                                                               --------------   --------------
  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
     $10,136 of unamortized premium at March 31, 2008) ..................           210,136           210,905

   DOMESTIC MORTGAGE NOTES:

  5.59% average effective rate fixed rate mortgage notes payable, secured by 57
     real estate facilities with a net book value of $419,543 at March 31, 2008
     and stated note rates between 4.95% and 7.76%, due between April 2008 and
     August 2015 (carrying amount includes $3,063 of
     unamortized premium at March 31, 2008) .............................           149,311           150,288
  5.29% average effective rate fixed rate mortgage notes payable,  secured by
     31 real estate facilities with a net book value of $174,727 at March 31,
     2008, stated note rates between 5.40% and 8.75%, principal and interest
     payable monthly, due at varying dates between October 2009 and September
     2028 (carrying amount includes $3,309 of unamortized premium
     at March 31, 2008)..................................................            85,341            86,609

  EUROPEAN SECURED NOTES PAYABLE:

  First  Shurgard  credit  agreement,  due originally in 2008 but extended to
     May 2009............................................................                 -           189,064
  Second Shurgard credit agreement, due in July 2009.....................                 -           187,665
  Liability under Capital Leases.........................................                 -             7,316
                                                                               --------------   --------------
         Total notes payable.............................................       $   644,788       $ 1,031,847
                                                                               ==============   ==============


              All of our notes payable  represent  preexisting debt that we have
     assumed in connection  with the  acquisition  of real estate  facilities or
     business  combinations.  The  Domestic  Unsecured  Notes  Payable  and  the
     Domestic  Mortgage Notes were recorded at their  estimated fair values upon
     acquisition  based upon estimated  market rates for debt  instruments  with
     similar terms and ratings.  Any initial  premium or discount,  representing
     the  difference  between  the  stated  note  rate  and  fair  value  on the
     respective  date of assumption,  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 March 31, 2008.

                                       23


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

              The  Domestic   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 March 31, 2008.

              First Shurgard and Second Shurgard, in which Shurgard Europe has a
     20% interest, have senior credit agreements that were put into place, prior
     to the Shurgard Merger, to fund development  costs of various  self-storage
     projects.  On March 31, 2008, we  deconsolidated  Shurgard Europe and, as a
     result,  the related  notes  payable  owed by the Existing  European  Joint
     Ventures are no longer included in our consolidated balance sheet.

              At March 31, 2008,  approximate  principal maturities of our notes
     payable are as follows (amounts in thousands):

                                     Domestic     Domestic
                                    Unsecured   Mortgage Notes
                                  Notes Payable    Payable           Total
                                  ------------- --------------   -----------
2008 (remainder of)..........     $    1,802      $   21,271      $   23,073
2009.........................          3,764           8,788          12,552
2010.........................          3,985          10,669          14,654
2011.........................        200,585          27,445         228,030
2012.........................              -          55,195          55,195
Thereafter...................        200,000         111,284         311,284
                                  ------------- --------------   -----------
                                  $  410,136      $  234,652      $  644,788
                                  ============= ==============   ===========
Weighted average effective rate        5.8%            5.5%            5.7%
                                  ============= ==============   ===========

              We incurred  interest  expense with respect to our notes  payable,
     capital  leases,   debt  to  joint  venture  partner  and  line  of  credit
     aggregating  $17,235,000  and  $17,549,000 for the three months ended March
     31,  2008  and  2007,   respectively.   These  amounts  were  comprised  of
     $18,450,000  and  $18,633,000  in cash for the three months ended March 31,
     2008 and 2007, respectively, less $1,215,000 and $1,084,000 in amortization
     of premium net of increase in Debt to Joint  Venture  Partner  described in
     Note 8, respectively.

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

              Due to our continuing  interest in ten facilities  that we sold to
     an unconsolidated affiliated joint venture, and the likelihood that we will
     exercise our option to acquire our partner's  interest,  we have  accounted
     for our partner's  investment in these  facilities  as, in substance,  debt
     financing.  Accordingly,  our  partner's  investment  with respect to these
     facilities  is accounted for as a liability on our  accompanying  condensed
     consolidated balance sheets. Our partner's share of operations with respect
     to these  facilities  has been  accounted  for as  interest  expense on our
     accompanying condensed consolidated statements of income.

              The  outstanding  balances of $38,128,000  and $38,081,000 due the
     joint  venture  partner  as of  March  31,  2008  and  December  31,  2007,
     respectively,  are estimated at fair value. 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 we will record  adjustments 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
     determine the fair value of this  liability  based upon our estimate of the
     fair value of the underlying net assets  (principally  real estate assets),
     applying the related liquidation  provisions of the partnership  agreement.
     We determine the fair value of the  underlying  real estate by reference to
     the historical  operating  results,  and apply an estimate of the effective
     earnings  multiple based upon our review of market  transactions  and other
     market data.  The increase in fair value from  $38,081,000  at December 31,
     2007 to $38,128,000  at March 31, 2008 is due  principally to the excess of
     interest expense (as described below) over interest paid.

                                       24


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

              A total of $808,000 and $788,000 was recorded as interest  expense
     on our condensed consolidated statements of income with respect to our Debt
     to Joint Venture  Partner  during the three months ended March 31, 2008 and
     2007,  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 $761,000 and  $745,000  paid to our joint  venture
     partner  (an  8.0%  return  payable   currently  in  accordance   with  the
     partnership  agreement)  during the three  months  ended March 31, 2008 and
     2007,  respectively,  and increases in the Debt to Joint Venture Partner of
     $47,000  and $43,000  for the three  months  ended March 31, 2008 and 2007,
     respectively.

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

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

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

     Preferred Partnership Interests

              The following  table  summarizes the preferred  partnership  units
     outstanding at March 31, 2008 and December 31, 2007:



                                                             March 31, 2008            December 31, 2007
                                                        -------------------------- ---------------------------
                    Earliest Redemption   Distribution     Units       Carrying       Units        Carrying
      Series                Date              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
     $5,403,000  for each of the three  months  ended  March 31,  2008 and 2007,
     comprised of distributions paid.

              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 on 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 March 31, 2008 and
     December 31, 2007 as well as the income allocated to minority interests for
     the three  months  ended March 31, 2008 and 2007 with  respect to the other
     partnership interests:

                                       25


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)




                                                                          Minority interest in income (loss)
                                           Minority interest at               for the three months ended
                                      ------------------------------     ------------------------------------
                                       March 31,      December 31,           March 31,          March 31,
  Description of Minority Interest        2008            2007                 2008               2007
----------------------------------    ------------  ----------------     ----------------   -----------------
                                                            (Amounts in thousands)
                                                                                  
Existing European Joint Ventures.       $       -      $    140,385         $     (2,142)     $    (3,754)
PS Officers' Europe Investment...               -             3,520                 (111)               -
Convertible Partnership Units....           5,448             5,516                  612               (8)
Other consolidated partnerships..          32,263            32,267                3,837            4,142
                                      ------------  ----------------     ----------------   -----------------
Total other partnership interests       $  37,711      $    181,688         $      2,196      $       380
                                      ============  ================     ================   =================



              Distributions  paid to  minority  interests  for the three  months
     ended March 31, 2008 and 2007 were $4,521,000 and $5,501,000, respectively.
     Minority interests  increased  $7,249,000 and $1,200,000 as a result of the
     impact of foreign currency  translation in the three months ended March 31,
     2008 and 2007, respectively.

              The Existing European Joint Ventures
              ------------------------------------

              Through the Shurgard Merger,  we acquired an interest in two joint
     venture entities:  First Shurgard SPRL ("First Shurgard") formed in January
     2003 and Second Shurgard SPRL ("Second Shurgard") formed in May 2004. Those
     joint  ventures  (referred to  collectively  hereinafter  as the  "Existing
     European  Joint  Ventures")  were  expected  to  develop  or  acquire up to
     approximately  75 storage  facilities in Europe.  Shurgard Europe has a 20%
     interest in each of these  ventures.  We have  determined that the Existing
     European  Joint  Ventures are each VIEs,  and that  Shurgard  Europe is the
     primary  beneficiary.  Accordingly,  the accounts of the Existing  European
     Joint Ventures have been included in our consolidated  financial statements
     until March 31, 2008,  when Shurgard  Europe was  deconsolidated  (see also
     Note 3), reducing minority interests by $145,492,000 at March 31, 2008. See
     Note 5  under  "Investment  in  Shurgard  Europe"  for  further  historical
     information  regarding  Shurgard  Europe,  including the Existing  European
     Joint Ventures.

              PS Officers' Europe Investment
              ------------------------------

              In the  second  quarter  of 2007,  we sold an  approximately  0.6%
     common  equity  interest  in  Shurgard  Europe to various  officers  of the
     Company (the "PS Officers"),  other than our chief executive  officer.  The
     aggregate  proceeds  of the sale were  $4,909,000.  The sale  price for the
     interests was based upon the pro rata net asset value computed using, among
     other sources, information provided by an independent third party appraisal
     firm of the net asset value of  Shurgard  Europe as of March 31,  2007.  In
     connection  with the sale of these LLP  Interests,  we  recorded  a gain of
     $1,193,000  during the second quarter of 2007,  representing  the excess of
     the sales  proceeds  over the book  value of the LLP  Interests  sold.  For
     periods  commencing  from the sale of the interest  through March 31, 2008,
     the PS  Officers'  pro rata share of the  earnings of  Shurgard  Europe are
     reflected in minority interest in income - other  partnership  interests on
     our accompanying  condensed  consolidated statement of income for the three
     months ended March 31, 2008.

              The investment of the PS Officers is included in minority interest
     - other partnership  interests on our accompanying  condensed  consolidated
     balance  sheet at December 31,  2007.  As described in Note 3, on March 31,
     2008, we deconsolidated Shurgard Europe and, as a result, minority interest
     was reduced  $3,409,000.  See Note 5 under  "Investment in Shurgard Europe"
     for further historical information regarding Shurgard Europe, including the
     PS Officers' Europe Investment.

                                       26


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

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

              At March 31, 2008 and December 31, 2007,  one of the  Consolidated
     Entities  had   approximately   231,978   convertible   partnership   units
     ("Convertible  Units")  outstanding   representing  a  limited  partnership
     interest  in  the  entity.  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
              -------------------------------

              At March 31, 2008 and December 31,  2007,  the other  consolidated
     partnerships  reflect  common  equity  interests  that  we do not own in 33
     entities  (generally  partnerships)  that own in aggregate 177 self-storage
     facilities.  The related partnership agreements 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.

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

              In May 2003,  the FASB issued  Statement of  Financial  Accounting
     Standards  No. 150 - "Accounting  for Certain  Financial  Instruments  with
     Characteristics  of both  Liabilities  and Equity"  ("SFAS No. 150").  This
     statement  prescribes  reporting  standards for financial  instruments that
     have   characteristics  of  both  liabilities  and  equity.  This  standard
     generally indicates that certain financial instruments that give the issuer
     a choice of settling 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  values of the Other  Partnership
     Interests are approximately $306 million and $532 million at March 31, 2008
     and December 31, 2007, respectively. The decrease between December 31, 2007
     and  March  31,  2008 is due to the  deconsolidation  of  Shurgard  Europe,
     accordingly, the fair value of the Existing European Joint Ventures and the
     PS  Officers'  Europe  Investment  is not  included  in the March 31,  2008
     estimated fair value. We determine the fair value of the Other  Partnership
     Interests  based upon our estimate of the fair value of the  underlying net
     assets  (principally real estate assets),  applying the related liquidation
     provisions  of the related  partnership  agreement.  We determine  the fair
     value  of the  underlying  real  estate  by  reference  to  the  historical
     operating results, and apply an estimate of the effective earnings multiple
     based upon our review of market transactions and other market data.

                                       27


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

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

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

              At March 31, 2008 and  December  31,  2007,  we had the  following
     series of Cumulative Preferred Shares of beneficial interest outstanding:



                                                             At March 31, 2008            At December 31, 2007
                           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          20,000        500,000
Series N                    7/2/12            7.000%           6,900        172,500           6,900        172,500
                                                        -------------  ------------   -------------    -----------
     Total Cumulative Preferred Shares                     1,739,500    $ 3,527,500       1,739,500    $ 3,527,500
                                                        =============  ============   =============    ===========


              The  holders  of our  Cumulative  Preferred  Shares  have  general
     preference rights with respect to liquidation and quarterly  distributions.
     Holders of the preferred  shares,  except under certain  conditions  and as
     noted below, will not be entitled to vote on most matters.  In the event of
     a  cumulative  arrearage  equal to six  quarterly  dividends  or failure to
     maintain  a  Debt  Ratio  (as  defined)  of  50% or  less,  holders  of all
     outstanding  series of preferred  shares  (voting as a single class without
     regard to series)  will have the right to elect two  additional  members to
     serve on the  Company's  Board until events of default have been cured.  At
     March 31,  2008,  there were no dividends in arrears and the Debt Ratio was
     5.5%.

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

                                       28


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

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

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

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

              At  March  31,  2008  and  December  31,  2007,  we had  8,744,193
     depositary  shares  outstanding,  each  representing  1/1,000  of an Equity
     Share,  Series A ("Equity  Shares A").  The Equity  Shares A rank on parity
     with our common shares and junior to the Cumulative  Preferred  Shares with
     respect to general  preference  rights and have a liquidation  amount which
     cannot  exceed  $24.50  per  share.  Distributions  with  respect  to  each
     depositary  share  shall be the  lesser  of:  (i) five  times the per share
     dividend  on our  common  shares  or  (ii)  $2.45  per  annum.  We  have no
     obligation  to  pay   distributions   on  the   depositary   shares  if  no
     distributions are paid to common shareholders.

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

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

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

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

              During the three  months ended March 31,  2008,  we issued  90,781
     common shares in connection with employee stock-based compensation.

              Our Board of Trustees  previously  authorized the repurchase  from
     time to time of up to 25,000,000 of our common shares on the open market or
     in privately  negotiated  transactions.  On May 8, 2008, such authorization
     was increased to 35,000,000  common  shares.  During the three months ended
     March 31, 2008,  we  repurchased  a total of 1,520,196 of our common shares
     for an aggregate of approximately  $111.9 million.  Through March 31, 2008,
     we have  repurchased a total of 23,721,916 of our common shares pursuant to
     this authorization.

                                       29


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

              At March 31,  2008 and  December  31,  2007,  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 three months ended March 31, 2008:

                                             Distributions Per
                                            Share or Depositary      Total
                                                   Share          Distributions
                                            ------------------- ---------------
Preferred Shares:
Series V..............................             $0.469       $   3,234,000
Series W..............................             $0.406           2,153,000
Series X..............................             $0.403           1,935,000
Series Y..............................             $0.428             685,000
Series Z..............................             $0.391           1,758,000
Series A..............................             $0.383           1,761,000
Series B..............................             $0.445           1,937,000
Series C..............................             $0.413           1,898,000
Series D..............................             $0.386           2,086,000
Series E..............................             $0.422           2,384,000
Series F..............................             $0.403           4,031,000
Series G..............................             $0.438           1,750,000
Series H..............................             $0.434           1,824,000
Series I..............................             $0.453           9,380,000
Series K..............................             $0.453           8,337,000
Series L..............................             $0.422           3,881,000
Series M..............................             $0.414           8,281,000
Series N..............................             $0.438           3,018,000
                                                                -------------
                                                                   60,333,000
Common Shares:
Equity Shares, Series A...............             $0.613           5,356,000
Common ...............................             $0.550          92,783,000
                                                                -------------
   Total dividends....................                          $ 158,472,000
                                                                =============

              The dividend  rate on our common shares was $0.55 per common share
     for the three months ended March 31, 2008.  The dividend rate on the Equity
     Share A was $0.6125 per  depositary  share for the three months ended March
     31, 2008.

11.  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

                                       30


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

     properties  in the U.S. Our European  self-storage  segment  comprises  our
     interest in the  self-storage  and associated  activities owned by Shurgard
     Europe and the operations of the Kensington Facility. See also Note 3 for a
     discussion of the  disposition of an interest in, and  deconsolidation  of,
     Shurgard Europe effective March 31, 2008.

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

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

              The  domestic  self-storage  and domestic  ancillary  segments are
     evaluated by management  based upon the net segment income of each segment.
     Net segment income  represents  net income in conformity  with GAAP and our
     significant  accounting  policies as denoted in Note 2, before interest and
     other income,  interest expense,  and corporate general and  administrative
     expense. Interest and other income, interest expense, corporate general and
     administrative expense, minority interest in income and gains and losses on
     sales of real estate  assets are not  allocated to these  segments  because
     management  does not utilize them to evaluate the results of  operations of
     each segment.  In addition,  there is no presentation of segment assets for
     these  other  segments  because  total  assets  are not  considered  in the
     evaluation of these segments.

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

              Our European  operations  are primarily  independent  of our other
     segments, with a separate management team that makes the financing, capital
     allocation,  and other significant decisions.  As a result, this segment is
     evaluated  by  management  as a  stand-alone  business  unit.  The European
     segment presentation includes all of the revenues, expenses, and operations
     of this business unit to the extent  included in our financial  statements,
     including  interest  expense  paid  to  outside  parties  and  general  and
     administrative  expense.  At  December  31,  2007,  assets of our  European
     operations  include  real  estate with a book value of  approximately  $1.6
     billion,  intangibles with a book value of approximately  $87 million,  and
     other assets with a book value of  approximately  $60 million.  At December
     31, 2007,  liabilities  of our  European  operations  include  intercompany
     payables  of $562  million,  debt of $384  million,  and  accrued and other
     liabilities of $101 million. At March 31, 2008, our condensed  consolidated
     balance sheet  includes an investment in Shurgard  Europe with a book value
     of $322.2 million, a note receivable  totaling  (euro)391.9 million ($618.8
     million),  as well as the related assets and  liabilities of the Kensington
     Facility.

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

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

                                       31


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

For the three months ended March 31, 2008



                                                                                     DOMESTIC        OTHER ITEMS
                                                       DOMESTIC       EUROPEAN       ANCILLARY      NOT ALLOCATED       TOTAL
                                                     SELF-STORAGE    OPERATIONS      OPERATIONS      TO SEGMENTS    CONSOLIDATED
                                                    -------------   ------------    ------------   --------------   -------------
                                                                                (Amounts in thousands)
Revenues:
                                                                                                     
   Self-storage rental income....................   $    369,757     $   55,063      $        -      $         -    $  424,820
   Ancillary operating revenue...................              -          4,916          30,184                -        35,100
   Interest and other income.....................              -              -               -            2,844         2,844
                                                    -------------   ------------    ------------   --------------   -------------
                                                         369,757         59,979          30,184            2,844       462,764
                                                    -------------   ------------    ------------   --------------   -------------
Expenses:
  Cost of operations (excluding depreciation and
  amortization below):
      Self-storage facilities....................        132,155         24,760               -                -       156,915
      Ancillary operations.......................              -          1,410          16,058                -        17,468
  Depreciation and amortization..................         99,379         22,222             885                -       122,486
  General and administrative.....................              -          4,650               -           10,266        14,916
  Interest expense...............................              -          7,308               -            9,179        16,487
                                                    -------------   ------------    ------------   --------------   -------------
                                                         231,534         60,350          16,943           19,445       328,272
                                                    -------------   ------------    ------------   --------------   -------------
Income (loss) from continuing operations before
   equity in earnings of real estate entities,
   gain on disposition of an interest in Shurgard
   Europe, foreign currency exchange gain,
   expense from derivatives and minority
   interest in (income) loss.....................        138,223           (371)         13,241          (16,601)      134,492

Equity in earnings of real estate entities.......            384              -           2,345                -         2,729
Gain on disposition of an interest in Shurgard
   Europe........................................              -              -               -          341,865       341,865
Foreign currency exchange gain...................              -         41,014               -                -        41,014
Expense from derivatives, net....................              -            (43)              -                -           (43)
Minority interest in (income) loss...............         (4,338)         2,142               -           (5,403)       (7,599)
                                                    -------------   ------------    ------------   --------------   -------------
Income from continuing operations................        134,269         42,742          15,586          319,861       512,458
Discontinued operations..........................              -            (12)              -             (104)         (116)
                                                    -------------   ------------    ------------   --------------   -------------
Net income.......................................   $    134,269     $   42,730      $   15,586      $   319,757    $  512,342
                                                    =============   ============    ============   ==============   =============



                                       32


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

For the three months ended March 31, 2007



                                                                                      DOMESTIC        OTHER ITEMS
                                                      DOMESTIC        EUROPEAN        ANCILLARY      NOT ALLOCATED      TOTAL
                                                    SELF-STORAGE     OPERATIONS       OPERATIONS      TO SEGMENTS   CONSOLIDATED
                                                   --------------   ------------    -------------   --------------  ------------
                                                                                (Amounts in thousands)
Revenues:
                                                                                                     
   Self-storage rental income....................   $    354,919     $   43,689      $        -      $       -      $  398,608
   Ancillary operating revenue...................              -          3,779          29,046              -          32,825
   Interest and other income.....................              -              -               -          2,125           2,125
                                                   --------------   ------------    -------------   --------------  ------------
                                                         354,919         47,468          29,046          2,125         433,558
                                                   --------------   ------------    -------------   --------------  ------------
Expenses:
  Cost of operations (excluding depreciation and
  amortization below):
      Self-storage facilities....................        125,866         22,826               -              -         148,692
      Ancillary operations.......................              -          1,342          17,967              -          19,309
  Depreciation and amortization..................        136,551         38,966             849              -         176,366
  General and administrative.....................              -          2,708               -         13,808          16,516
  Interest expense...............................              -          5,089               -         11,719          16,808
                                                   --------------   ------------    -------------   --------------  ------------
                                                         262,417         70,931          18,816         25,527         377,691
                                                   --------------   ------------    -------------   --------------  ------------
Income (loss) from continuing operations before
   equity in earnings of real estate entities,
   casualty gain, foreign currency exchange gain,
   expense from derivatives and minority
   interest in (income) loss.....................         92,502        (23,463)         10,230        (23,402)         55,867

Equity in earnings of real estate entities.......            487              -           3,490              -           3,977
Casualty gain....................................          2,665              -               -              -           2,665
Foreign currency exchange gain...................              -          5,040               -              -           5,040
Expense from derivatives, net....................              -           (762)              -              -            (762)
Minority interest in (income) loss...............         (4,134)         3,754               -         (5,403)         (5,783)
                                                   --------------   ------------    -------------   --------------  ------------
Income (loss) from continuing operations.........         91,520        (15,431)         13,720        (28,805)         61,004
Discontinued operations..........................              -            (89)              -         (1,137)         (1,226)
                                                   --------------   ------------    -------------   --------------  ------------
Net income (loss)................................   $     91,520     $  (15,520)     $   13,720      $ (29,942)     $   59,778
                                                   ==============   ============    =============   ==============  ============


                                       33


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

12.   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 the
     Company's  common  shares at a price equal to the fair market  value of the
     common shares 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  shares (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.

              For the three  months  ended March 31, 2008 and 2007,  we recorded
     $384,000 and $303,000,  respectively,  in stock option compensation expense
     related to options granted after January 1, 2002.

              A total of 830,000  stock  options were  granted  during the three
     months ended March 31, 2008,  46,903 shares were  exercised,  and no shares
     were  forfeited.  A total of 2,472,571  stock options were  outstanding  at
     March 31, 2008 (1,689,474 at December 31, 2007).

              Outstanding  stock options are included on a one-for-one  basis in
     our diluted  weighted  average  shares,  less a reduction  for the treasury
     stock method applied to a) the average cumulative measured but unrecognized
     compensation  expense  during the period and b) the strike  price  proceeds
     expected from the employee upon exercise.

              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  service  period,  net of  estimates  for future  forfeitures,  as
     compensation  expense.  The related  employer  portion of payroll  taxes is
     expensed as incurred.

              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 three months ended March 31, 2008,  206,475  restricted
     share units were granted  with an aggregate  fair value on the date of each

                                       34


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

     respective  grant of  approximately  $16,572,000,  12,345  restricted share
     units were forfeited  (aggregate  grant-date  fair value of $466,000),  and
     67,502  restricted share units vested  (aggregate  grant-date fair value of
     $5,037,000)  with an  aggregate  fair value on the date of each  respective
     vesting of  $5,424,000.  This  vesting  resulted in the  issuance of 43,878
     common shares. In addition, cash compensation was paid to employees in lieu
     of 23,624  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 March 31, 2008,  approximately  735,396  restricted share units
     were  outstanding  (608,768 at December 31,  2007) with an  aggregate  fair
     value at March 31, 2008, based upon the closing price of our common shares,
     of  approximately  $65,171,000.  A total of  $2,390,000  and  $2,205,000 in
     restricted  share expense was recorded for the three months ended March 31,
     2008 and 2007, respectively,  which includes amortization of the fair value
     of the grant  reflected  as an  increase  to  paid-in  capital,  as well as
     payroll taxes we incurred upon each respective vesting.

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

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

              Mr.  Hughes,  the Company's  Chairman of the Board of Trustees 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  royalty-free  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  25.3% of our common shares outstanding at March 31, 2008. 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  three  months  ended  March  31,  2008 and  2007,
     respectively,   we  received  $225,000  and  $188,000,   respectively,   in
     reinsurance  premiums  attributable to the Canadian  facilities.  Since our
     right to provide  tenant  reinsurance  to the  Canadian  facilities  may be
     qualified, there is no assurance that these premiums will continue.

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

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

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

              Dann V. Angeloff, a trustee of the Company, is the general partner
     of a limited  partnership  formed in June of 1973 that owns a  self-storage

                                       35


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

     facility that is managed by us. We recorded management fees with respect to
     this  facility  amounting to $19,000 and $18,000 for the three months ended
     March 31, 2008 and 2007, 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 $195,000  and  $183,000  for the three months
     ended  March  31,  2008 and 2007,  respectively,  in  management  fees with
     respect to PSB's property management services.  At March 31, 2008, included
     in other  liabilities are normal recurring  amounts owed to PSB of $434,000
     ($717,000 at December 31,  2007),  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.

              During  2007,  PSB acquired  certain  commercial  facilities  that
     include self-storage space. We are managing this self-storage space for PSB
     for a management fee equal to 6% of revenues  generated by the self-storage
     space.  We  recorded  management  fees  with  respect  to these  facilities
     amounting  to $11,000 and $12,000 for the three months ended March 31, 2008
     and 2007, respectively.

              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 $97,000 and $80,000
     for the three months ended March 31, 2008 and 2007, respectively.

              Shurgard  Europe  also  entered  into a licensing  agreement  with
     Public  Storage  effective  January 1,  2008,  under  which it pays  Public
     Storage a fee equal to 1.0% of its pro rata share of  revenues  in exchange
     for the rights to use the "Shurgard Europe" trade name.  Amounts under this
     licensing   agreement   will  begin  to  be  reflected  in  our   condensed
     consolidated financial statements beginning April 1, 2008.

              Shurgard Europe manages the Kensington facility for us in exchange
     for a fee of 7% of revenues. Such fees will be included in our consolidated
     financial   statements   for  periods   after  March  31,  2008,   when  we
     deconsolidated Shurgard Europe.

              As  described  more fully in Note 2 under  "Note  Receivable  from
     Affiliate,"  Shurgard  Europe owes us an aggregate of  (euro)391.9  million
     ($618.8  million) at March 31, 2008.  This note bears  interest at 7.5% per
     annum.

              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  $648,000 and $614,000 for the
     three months ended March 31, 2008 and 2007, 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.

              In the  second  quarter  of 2007,  we sold an  approximately  0.6%
     common  equity  interest  in  Shurgard  Europe to various  officers  of the
     Company (the "PS Officers"),  other than our chief executive  officer.  The
     aggregate  proceeds  of the sale were  $4,909,000.  The sale  price for the
     interests was based upon the pro rata net asset value computed using, among

                                       36


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

     other sources, information provided by an independent third party appraisal
     firm of the net asset value of  Shurgard  Europe as of March 31,  2007.  In
     connection with the initial sale of these LLP Interests to our officers, we
     recorded  a  gain  of  $1,193,000   during  the  second  quarter  of  2007,
     representing  the excess of the sales  proceeds  over the book value of the
     LLP Interests sold. In connection with the acquisition by an  institutional
     investor of a 51% interest in Shurgard Europe,  Shurgard Holdings agreed to
     purchase,  on June 20, 2008, each holder's interest in Shurgard Europe at a
     price  based on the price  paid by the  institutional  investor.  The total
     repurchase amount is $7.1 million. See Note 5 under "Investment in Shurgard
     Europe" for  further  historical  information  regarding  Shurgard  Europe,
     including the PS Officers' Europe Investment.

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

              Legal Matters
              -------------

              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. The plaintiff has filed an appeal to
     the Court's June 22, 2007 summary judgment ruling. An appeal to the Court's
     June 22, 2007 order  granting  the  Company's  summary  judgment  motion is
     currently pending.

                                       37


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (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,  the  plaintiff  amended the
     complaint  to  allege a  national  class and  claims  for  unfair  business
     practices,  unjust  enrichment,  money had and received,  and negligent and
     intentional  misrepresentation.  Ultimately  all  claims  except for unjust
     enrichment  were dismissed.  A subsequent  demurrer was filed and sustained
     without leave to amend. The case was therefore dismissed. The plaintiff has
     appealed the trial court's ruling and this appeal is currently pending.

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

              The Company  holds  indirectly a 20% interest in each of two joint
     ventures in Europe,  First Shurgard and Second  Shurgard that  collectively
     own 70 self-storage  properties in Europe. On August 24, 2006, the Company,
     through  its  affiliate,  Shurgard  Europe,  served  an exit  notice on the
     European joint venture partners informing them of its intention to purchase
     their interests in First Shurgard and Second Shurgard  pursuant to an early
     exit procedure that the Company  believes is provided for in the respective
     joint venture agreements.  The exit notice offered to pay the joint venture
     partners an amount for their interests in accordance with the provisions of
     the joint venture  agreements.  The joint ventures  partners have contested
     both the valuation of their interests and whether the Company has the right
     to purchase its interests under this early exit procedure.  Accordingly, it
     is uncertain as to whether the Company will acquire such interests pursuant
     to the early exit notice served. On January 17, 2007, Shurgard Europe filed
     an arbitration request with the International Chamber of Commerce to compel
     arbitration  of the  matter.  The  arbitration  proceedings  are  currently
     scheduled to begin on June 30, 2008.

              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  $22 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
     property  losses due to specific named perils to goods stored by tenants at
     our  self-storage  facilities  for  individual  limits up to a  maximum  of
     $5,000.  We have third-party  insurance  coverage for claims paid exceeding
     $1,000,000  resulting  from  any  one  individual  event,  to  a  limit  of
     $49,000,000. At

                                       38


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

     March 31, 2008, we had approximately 518,000 reinsured policies outstanding
     representing aggregate coverage of approximately $1.2 billion. We rely on a
     third-party  insurance  company to provide the insurance and are subject to
     licensing requirements and regulations in several states. No assurances can
     be given  that our  business  can  continue  to be  conducted  in any given
     jurisdiction.  For the three  months  ended  March  31,  2008,  our  tenant
     insurance  revenues  accounted for  approximately 3% of our total revenues.
     Our  exposure to tenant  insurance  losses is minimal  with  respect to our
     European operations due to third-party insurance coverage.

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

              We  currently  have  29  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  $125 million of which $35,901,000 has
     been spent at March 31, 2008. These projects are subject to  contingencies.
     We expect to incur these expenditures over the next 12 - 24 months.

              As of  May  8,  2008,  we  are  under  contract  to  purchase  one
     self-storage  facility in California (total approximate net rentable square
     feet of  109,000)  at an  aggregate  cost of  $14,600,000,  which  includes
     approximately  $9,900,000  of assumed  debt.  This  contract  is subject to
     significant contingencies,  and there is no assurance that these facilities
     will be acquired.

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

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

  2008......................................    $    5,020
  2009......................................        11,604
  2010......................................        11,060
  2011......................................         7,375
  2012......................................         6,032
  Thereafter................................        83,567
                                                ----------
                                                $  124,658
                                                ==========

              Expenses under operating leases were approximately  $7,200,000 and
     $7,452,000   for  the  three   months   ended  March  31,  2008  and  2007,
     respectively.

15.  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 REIT taxable income
     which is  distributed  to our  shareholders,  provided that we meet certain
     tests.  We  believe  we will meet  these  tests  during  2007 and 2008 and,
     accordingly,  no  provision  for federal  income taxes has been made in the
     accompanying condensed consolidated financial statements on income produced
     and distributed on real estate rental operations.

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

              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

                                       39


                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008
                                   (Unaudited)

     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, 2004, 2005, 2006, 2007 and the first quarter of 2008.

              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.

16.      Subsequent Events
         -----------------

              On April 22, 2008, we acquired a self-storage  facility located in
     California (total  approximate net rental square feet of 101,000) at a cost
     of $16,079,000.

                                       40



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: This Quarterly Report on Form 10-Q contains
forward-looking  statements  within the meaning of the federal  securities laws.
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 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 any  forward-looking  statements in this report, or which management may make
orally or in writing  from time to time,  as  predictions  of future  events nor
guarantees of future performance.  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 expressly disclaim any obligation to update publicly or otherwise
revise any forward-looking  statements,  whether as a result of new information,
new estimates,  or other factors, events or circumstances after the date of this
document,  except where expressly required by law.  Accordingly,  you should use
caution in relying  on past  forward-looking  statements  to  anticipate  future
results.

         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  Annual Report on Form 10-K for the year ended  December 31,
2007 and in our  other  filings  with the  Securities  and  Exchange  Commission
("SEC"). These risks include, among other things, the following:

         o  general  risks  associated  with the ownership and operation of real
            estate  including  changes  in  demand,   potential   liability  for
            environmental contamination, adverse changes in tax, real estate and
            zoning laws and regulations, and the impact of natural disasters;

         o  risks  associated with downturns in the national and local economies
            in the markets in which we operate;

         o  the impact of  competition  from new and existing  self-storage  and
            commercial facilities and other storage alternatives;

         o  difficulties  in our  ability  to  successfully  evaluate,  finance,
            integrate  into our  existing  operations  and manage  acquired  and
            developed properties;

         o  risks related to our participation in joint ventures;

         o  risks associated with international  operations  including,  but not
            limited to,  unfavorable  foreign  currency rate  fluctuations  that
            could adversely affect our earnings and cash flows;

         o  the impact of the regulatory environment as well as national, state,
            and local laws and regulations including,  without limitation, those
            governing  environmental,  tax and insurance matters and real estate
            investment trusts ("REITs");

         o  risks  associated with a possible failure by us to qualify as a REIT
            under the Internal Revenue Code of 1986, as amended;

         o  disruptions or shutdowns of our automated processes and systems;

         o  difficulties in raising capital at a reasonable cost;

                                       41


         o  delays in the development process; and

         o  economic uncertainty due to the impact of war or terrorism.

         The risks  included  here are not  exhaustive as it is not possible for
management  to predict all  possible  risk factors that may exist or emerge from
time to time. Investors should refer to our future reports and other information
filed from time to time with the SEC for additional information.

CRITICAL ACCOUNTING POLICIES

         Management's Discussion and Analysis of Financial Condition and Results
of Operations discusses our condensed consolidated  financial statements,  which
have been prepared in accordance with United States ("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
condensed  consolidated  financial  statements and accompanying notes. Note 2 to
our March 31, 2008 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 the
application  of  which  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  REIT under the Code and applicable  state laws. We also believe that
Shurgard  qualified as a REIT. A REIT  generally  does not pay  corporate  level
federal  income  taxes on its REIT  taxable  income that is  distributed  to its
shareholders,  and accordingly, we do not pay federal income tax on the share of
our REIT taxable income that is distributed to our shareholders.

         We therefore  do not estimate or accrue any federal  income tax expense
for income  earned and  distributed  related to REIT  operations.  This estimate
could be 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 for which 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 for 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.

                                       42


         ESTIMATED  LEVEL OF RETAINED RISK AND UNPAID TENANT CLAIM  LIABILITIES:
As  described in Notes 2 and 14 to our  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  will be in  excess  of or less  than  the  amounts  recorded  and the
difference could be material.  At March 31, 2008, we had  approximately  518,000
reinsured policies in the U.S.  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 14 to our
March 31, 2008 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,  general and administrative  expense, as well as television,
yellow page, and other advertising expenditures are expensed as incurred.

         VALUATION OF ASSETS AND LIABILITIES ACQUIRED IN THE SHURGARD MERGER: We
have estimated the fair value of real estate,  intangible assets,  debt, and the
other assets and other liabilities acquired in the Shurgard Merger. In addition,
we have estimated the fair market value of 38.9 million shares that we issued to
the Shurgard  shareholders.  These  estimates  are based upon many  assumptions,
including  interest  rates,  market values of land and buildings in the U.S. and
Europe,  estimated future cash flows from the then tenant base in place, and the
recoverability  of certain  assets.  We believe that the  assumptions  used were
reasonable,  however,  these assumptions were subject to a significant degree of
judgment,  and others could come to materially  different  conclusions as to the
estimated  values,  if  different  assumptions  were used.  If the  values  were
determined  using different  assumptions  than those used, our  depreciation and
amortization expense, interest expense, real estate, debt, and intangible assets
could have been materially different.

                                       43



DISPOSITION OF AN INTEREST IN SHURGARD EUROPE

         On March 31, 2008, an institutional investor acquired a 51% interest in
Shurgard  European  Holdings  LLC, a newly  formed  Delaware  limited  liability
company  and the holding  company for  Shurgard  Europe  ("Shurgard  Holdings").
Public Storage owns the remaining 49% interest and will continue as the managing
member of  Shurgard  Holdings.  In  exchange  for the 51%  interest  in Shurgard
Holdings,  the investor paid Shurgard Holdings  approximately  (euro)383,200,000
($605,627,000)  on March 31, 2008,  with the  purchase  price to be adjusted for
operating  results (as defined)  generated by Shurgard  Europe  during the three
months  ended March 31,  2008.  This  adjustment  is  currently  estimated to be
approximately (euro)4,797,000 ($7,574,000).

         In  connection  with the Europe  Transaction,  the  intercompany  notes
receivable  owed by Shurgard  Europe to Public Storage were modified (see Note 2
under  "Note  Receivable  from  Affiliate",  in our  March  31,  2008  condensed
consolidated financial statements) and Shurgard Europe obtained an option, which
expires on June 30, 2008, to acquire one facility  located in the United Kingdom
that the Company  wholly owns (the  "Kensington  Facility")  for an aggregate of
(euro)42 million.  We believe that the option price for this facility represents
its market value. Shurgard Europe manages this facility for us in exchange for a
management fee.

         Shurgard  Europe also  entered into a licensing  agreement  with Public
Storage  effective  January 1, 2008,  under which it pays  Public  Storage a fee
equal to 1.0% of its pro rata share of revenues  in  exchange  for the rights to
use the "Shurgard Europe" trade name.

         As a result of the Europe  Transaction,  our  remaining  investment  in
Shurgard Europe will be accounted for using the equity method,  and accordingly,
Shurgard  Europe will no longer be  consolidated  effective  March 31, 2008. See
Note 3 to our March 31, 2008 condensed consolidated financial statements for our
additional information regarding our investment in Shurgard Europe.

         The results of operations of Shurgard  Europe have been included in our
condensed  consolidated  statements of income for each of the three months ended
March 31, 2008 and 2007,  respectively.  Commencing  with the quarter  beginning
April 1, 2008,  our  pro rata  share of  operations  of Shurgard  Europe will be
reflected  on our income  statement  under  "equity in  earnings  of real estate
entities."

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

FOR THE THREE  MONTHS  ENDED  MARCH 31,  2008 AS  COMPARED TO THE SAME PERIOD IN
2007:

         Net income for the three months ended March 31, 2008 was $512.3 million
compared  to  $59.8  million  for the  same  period  in  2007,  representing  an
improvement of $452.5  million.  This  improvement is primarily due to a gain of
$341.9 million  recognized on the disposition of an interest in Shurgard Europe,
reduced  amortization   expense,   improved  operations  from  our  real  estate
facilities and an increase in foreign currency exchange gain.

         Depreciation and  amortization  expense for the quarter ended March 31,
2008  decreased by $53.9 million,  as compared to the same period in 2007.  This
decrease is primarily  due to a reduction  in  amortization  expense  related to
intangible  assets  that we  obtained  in the August  22,  2006  acquisition  of
Shurgard Storage  Centers,  Inc. (the "Shurgard  Merger").  For the three months
ended March 31, 2008,  amortization  expense  related to our  intangible  assets
totaled $28.4 million as compared to $85.8 million for the same period in 2007.

         Net  operating  income,   before  depreciation  expense,  for  all  our
self-storage  operations totaled $267.9 million for the three months ended March
31, 2008 as compared to $249.9 million for the same period in 2007, representing
an  increase  of $18.0  million.  Most of this  increase  was  generated  by the
facilities that were acquired in the Shurgard Merger as net operating income for
these facilities was approximately $90.8 million for the quarter ended March 31,
2008 as compared to $77.2 million for the same period in 2007.

         During the  quarter  ended  March 31,  2008,  we  recognized  a foreign
currency  exchange gain totaling $41.0 million,  as compared to $5.0 million for
the same period in 2007,  relating to our note receivable from Shurgard  Europe.
The gain in each period was the result of the  continued  weakening  of the U.S.
Dollar relative to the Euro during each period.

                                       44


         For the three months ended March 31, 2008, net income  allocable to our
common  shareholders  (after  allocating  net income to our preferred and equity
shareholders)  was $446.7  million or $2.64 per common share on a diluted  basis
compared  to a net loss of $4.4  million or $0.03 per common  share on a diluted
basis for the same period in 2007, representing an improvement of $451.1 million
or $2.67  per  common  share on a  diluted  basis.  These  improvements  are due
primarily  to the impact of the  factors  described  above  with  respect to the
improvement in our net income.

         For the three months ended March 31, 2008 and 2007, we allocated  $60.3
million and $58.8  million 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.

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

         DOMESTIC SELF-STORAGE OPERATIONS:  Our domestic self-storage operations
are by far the  largest  component  of our  operating  activities,  representing
approximately  80% of our total  revenues  generated  for the three months ended
March  31,  2008.  Rental  income  with  respect  to our  domestic  self-storage
operations  grew by 4.2% in the three months ended March 31, 2008 as compared to
the same period in 2007. The year-over-year growth in rental income is primarily
due to the  addition of new  facilities  to our  portfolio,  either  through our
acquisition or development  activities,  combined with increased revenues in our
Same Store Facilities (defined below).

         To enhance year-over-year comparisons,  the following table summarizes,
and the ensuing discussion  describes the operating results of three groups that
management  analyzes  with respect to the Company's  performance:  i) the Public
Storage Same Store group,  representing  our  facilities  that we have owned and
have been  stabilized  prior to  January 1, 2006,  ii) the  Shurgard  Same Store
group,  representing  the  facilities  that we  acquired  August 22, 2006 in the
Shurgard Merger which have been  stabilized  since January 1, 2006, and iii) the
Other  Facilities,  representing  facilities (other than the Shurgard Same Store
Group) that were acquired or developed  since January 1, 2006, or which have not
been operated at a stabilized  level of operations  due to  development or other
activities since January 1, 2006.

                                       45





Domestic Self - Storage Operations Summary:            Three Months Ended March 31,
-------------------------------------------        ------------------------------------
                                                                             Percentage
                                                      2008         2007        Change
                                                   ------------ -----------  ----------
                                                       (Dollar amounts in thousands)
Rental income:
                                                                       
   Public Storage Same Store Facilities........    $   245,529  $  239,649      2.5%
   Shurgard Same Store Facilities..............         81,252      77,520      4.8%
   Other Facilities............................         42,976      37,750     13.8%
                                                   ------------ -----------  ----------
     Total rental income.......................        369,757     354,919      4.2%
                                                   ------------ -----------  ----------
Cost of operations before depreciation and
    amortization expense (a):
   Public Storage Same Store Facilities........         86,705      82,244      5.4%
   Shurgard Same Store Facilities..............         28,642      28,279      1.3%
   Other Facilities............................         16,808      15,343      9.5%
                                                   ------------ -----------  ----------
      Total cost of operations.................        132,155     125,866      5.0%
                                                   ------------ -----------  ----------
Net operating income before depreciation and
    amortization expense (a):
   Public Storage Same Store Facilities........        158,824     157,405      0.9%
   Shurgard Same Store Facilities..............         52,610      49,241      6.8%
   Other Facilities............................         26,168      22,407     16.8%
                                                   ------------ -----------  ----------
   Total net operating income before
        depreciation and amortization expense (a)      237,602     229,053      3.7%
                                                   ------------ -----------  ----------
Depreciation and amortization expense:
   Public Storage Same Store Facilities........        (44,375)    (44,314)     0.1%
   Shurgard Same Store Facilities..............        (36,838)    (71,803)   (48.7)%
   Other Facilities............................        (18,166)    (20,434)   (11.1)%
                                                   ------------ -----------  ----------
   Total depreciation and amortization expense.        (99,379)   (136,551)   (27.2)%
                                                   ------------ -----------  ----------
Net operating income (loss):
   Public Storage Same Store Facilities........        114,449     113,091      1.2%
   Shurgard Same Store Facilities..............         15,772     (22,562)  (169.9)%
   Other Facilities............................          8,002       1,973    305.6%
                                                   ------------ -----------  ----------
   Total net operating income..................    $   138,223  $   92,502     49.4%
                                                   ============ ===========  ==========

Weighted average square foot occupancy during
   the period..................................          87.9%       87.5%      0.5%
Number of self-storage facilities (at end of
   period).....................................          1,984       1,983      0.1%
Net rentable square feet (in thousands, at end
   of period):.................................        124,910     124,252      0.5%



(a)  Total net operating income before depreciation and amortization or "NOI" is
     a non-GAAP  (generally accepted  accounting  principles)  financial measure
     that excludes the impact of depreciation and amortization expense. See Note
     11 to our March  31,  2008  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.

                                       46


         Domestic - Public Storage Same Store Facilities

         The facilities included in the Public Storage Same Store Facilities are
all stabilized  and have been owned since January 1, 2006 and therefore  provide
meaningful comparative data for 2006, 2007 and 2008.

         We  increased  the  number of  facilities  included  in the Same  Store
Facilities ("Same Store  Facilities") from 1,316 facilities at December 31, 2007
to 1,373  facilities  at March 31, 2008.  The increase in the Same Store pool of
facilities  is due to the inclusion of 80  facilities  previously  classified as
Acquired,  Developed or Expansion  facilities  and the removal of 23  facilities
that are now classified as Expansion  facilities.  These facilities are included
in the Same Store  Facilities  because they are all  stabilized  and owned since
January 1, 2006 and will therefore provide meaningful  comparative data for 2007
and 2008. The 23 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 2008 and  accordingly  will no
longer provide meaningful comparative data for 2007 and 2008.

         As a result of the increase in the number of Same Store Facilities, the
relative weighting of markets has changed.  Accordingly,  comparisons should not
be made  between  information  presented  in our 2007 reports for the 1,316 Same
Store  Facilities and the current 1,373 Same Store Facilities to identify trends
in occupancies, realized rents per square foot, or other operating trends.

         The Same  Store  Facilities  contain  approximately  82.3  million  net
rentable  square feet,  representing  approximately  (66%) 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,  "Public
Storage Same Store Facilities"



PUBLIC STORAGE SAME STORE FACILITIES                         Three Months Ended March 31,
                                                        -------------------------------------
                                                                                   Percentage
                                                             2008         2007       Change
                                                        ------------   ----------- ----------
                                                        (Dollar amounts in thousands, except
                                                              weighted average amounts)
                                                                               
Rental income......................................     $   234,742    $  229,201       2.4%
Late charges and administrative fees collected.....          10,787        10,448       3.2%
                                                        ------------   ----------- ----------
   Total rental income.............................         245,529       239,649       2.5%
                                                        ------------   ----------- ----------
Cost of operations before depreciation and amortization:
     Direct property payroll.......................          17,550        16,883       4.0%
     Property taxes................................          25,192        24,198       4.1%
     Repairs and maintenance.......................           8,280         7,470      10.8%
     Media advertising.............................           4,811         3,617      33.0%
     Other advertising and promotion...............           3,190         3,554     (10.2)%
     Utilities.....................................           6,239         5,911       5.5%
     Property insurance............................           2,229         2,584     (13.7)%
     Telephone reservation center..................           2,237         2,192       2.1%
     Other cost of management......................          16,977        15,835       7.2%
                                                        ------------   ----------- ----------
   Total cost of operations........................          86,705        82,244       5.4%
                                                        ------------   ----------- ----------
Net operating income before depreciation and
   amortization expense (a)........................         158,824       157,405       0.9%
Depreciation and amortization expense..............         (44,375)      (44,314)      0.1%
                                                        ------------   ----------- ----------
 Net operating income..............................     $   114,449    $  113,091       1.2%
                                                        ============   =========== ==========
Gross margin (before depreciation and amortization
expense)...........................................          64.7%         65.7%       (1.5)%

Weighted average for the fiscal year:
   Square foot occupancy (b).......................          89.0%         89.7%       (0.8)%
   Realized annual rent per occupied
    square foot (c)(e).............................     $    12.81     $   12.41        3.2%
   REVPAF (d) (e)..................................     $    11.40     $   11.14        2.3%

 Weighted average at March 31:
   Square foot occupancy...........................          89.5%         90.1%       (0.7)%
   In place annual rent per occupied square foot (f)    $    13.82     $   13.32        3.8%
Total net rentable square feet (in thousands)......         82,333        82,333          -
Number of facilities...............................          1,373         1,373          -


(a)  Total net operating income before depreciation and amortization  expense 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  expense,  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  expense to consolidated  net income is included in Note 11 to
     our March 31, 2008 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 expense in evaluating our operating results

                                       47


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

(c)  Realized  annual  rent per  occupied  square  foot is  computed by dividing
     rental income,  which excludes 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.

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

(e)  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.

(f)  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.

         Rental income  increased  approximately  2.5% in the three months ended
March 31,  2008 as compared to the same  period in 2007.  These  increases  were
primarily  attributable  to higher  average  realized  annual  rental  rates per
occupied square foot, which were 3.2% higher in the three months ended March 31,
2008 as compared to the same period in 2007,  offset  partially by lower average
occupancy levels.

         In 2007, growth in rental income was approximately 2.4%, which like our
first quarter growth of 2.5%, is below our  historically  experienced  levels of
rental  income  growth,  and  significantly  below the level of rental growth we
experienced  in 2006.  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 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.

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

                                       48


         However,  since we believe  that we have now closed the  occupancy  gap
between the acquired  Shurgard  properties  versus the Public  Storage  existing
portfolio at March 31, 2008, we believe that the pressure on the Public  Storage
Same Store portfolio has subsided. Despite this positive development,  the other
aforementioned  factors noted above may still continue to have a negative impact
on our revenue  growth,  and as a result it is unclear as to when we may achieve
higher  levels of revenue  growth in the Public  Storage Same Store pool than we
achieved in 2007 and so far in 2008.

         Cost of operations (excluding  depreciation and amortization) increased
by 5.4% in the three  months ended March 31, 2008 as compared to the same period
in 2007.

         Payroll  expense  increased by 4.0% in the three months ended March 31,
2008 as compared to the same period in 2007. The increase is due  principally to
increased  labor hours with  respect to our  property  managers.  We expect this
level of increase to continue to be experienced in the remainder of 2008.

         Property  tax  expense  increased  by  4.1%,  due to  higher  estimated
assessments.  We expect the  increases in property tax expense for the remainder
of 2008 to be  consistent  with the level  experienced  thus far.  Property  tax
expense  fluctuates  on a quarterly  basis,  as indicted in the table below with
respect to 2007.  The  quarterly  property  tax expense for 2008 will  similarly
fluctuate  on a sequential  basis with the fourth  quarter  being  significantly
lower.  Overall we expect each quarter's  property  expense to be  approximately
4.0% to 4.5% higher than for the same period in 2007.

         Repairs  and  maintenance  expenditures  increased  10.8% in the  three
months ended March 31, 2008.  Excluding snow removal costs,  which  increased in
the  quarter  ended March 31, 2008 as compared to the same period in 2007 due to
more severe winter weather,  repairs and maintenance expenditures increased 5.8%
during the three  months  ended March 31, 2008 as compared to the same period in
2007. We expect repairs and  maintenance  expenditures  (other than snow removal
costs) to continue to grow  moderately  in the  remainder of 2008 as compared to
the same period in 2007.

         Media  advertising  for  the  Same  Store  Facilities   increased  from
$3,617,000  in the three months ended March 31, 2007 to  $4,811,000 in the three
months  ended March 31, 2008.  We expect to continue  with  aggressive  pricing,
promotional discounts and marketing in the second quarter of 2008 to continue to
drive  improvement in our overall  occupancy  levels.  Future media  advertising
expenditures  are not  determinable  at this time, and will be driven in part by
demand for our self-storage spaces, our current occupancy levels, as well as our
evaluation  of the most  effective  mix of  yellow  page,  media,  and  Internet
advertising.

         Other advertising and promotion is comprised principally of yellow page
and Internet  advertising,  which  declined 10.2% during the quarter ended March
31, 2008 as compared to the same period in 2007.

         Our aggregate future levels of advertising 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.

         Utility expenses  increased 5.5% in the quarter ended March 31, 2008 as
compared to the same period in 2007.  Assuming  continuance of current trends in
petroleum and other energy prices we would expect  utility  expenses to continue
to  increase  in the  remainder  of 2008.  However,  utility  expenses  are also
dependent  upon  changes in demand  driven by weather and  temperature,  both of
which are volatile and not predictable.

         Insurance  expense  decreased 13.7% in the quarter ended March 31, 2008
as compared  to the same period in 2007,  reflecting  significant  decreases  in
property insurance  resulting  primarily from the softer insurance  markets.  We
expect similar decreases in the remainder of 2008 relative to 2007.

                                       49


         Telephone  reservation center costs increased 2.1% in the quarter ended
March 31, 2008 as  compared to the same period in 2007.  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
2008 until we determine our appropriate ongoing level of expenses.

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




                                               For the Quarter Ended
                      ---------------------------------------------------------------------
                         March 31            June 30       September 30         December 31        Entire Year
                      ------------       ------------     --------------       ------------      --------------
                             (Amounts in thousands, except for per square foot amount)
Total rental income:
                                                                                     
     2008             $   245,529
     2007             $   239,649          $ 244,592        $   252,567         $   246,534         $  983,342

Total cost of operations
(excluding depreciation
and amortization expense):
     2008             $    86,705
     2007             $    82,244          $  82,737        $    79,859         $    73,297         $  318,137

Property tax expense:
     2008             $    25,192
     2007             $    24,198          $  22,987        $    24,062         $    18,937         $   90,184

Media advertising expense:
     2008             $     4,811
     2007             $     3,617          $   5,748        $     3,098         $     2,019         $   14,482

Other advertising and
promotion expense:
     2008             $     3,190
     2007             $     3,554          $   4,003        $     3,221         $     2,969         $   13,747

REVPAF:
     2008             $     11.40
     2007             $     11.14          $   11.37        $     11.73         $     11.47         $    11.42

Weighted average realized
annual rent per occupied
square foot:
     2008             $     12.81
     2007             $     12.41          $   12.44        $     12.97         $     12.94         $    12.69

Weighted average occupancy
levels for the period:
     2008                   89.0%
     2007                   89.7%              91.4%              90.4%               88.6%              90.0%



                                       50



ANALYSIS OF REGIONAL TRENDS

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

                                             Three Months Ended March 31,
                                         -----------------------------------
                                            2008         2007        Change
                                         -----------  ------------ ---------
                                           (Amounts in thousands, except for
                                                weighted average data)
Same Store Facilities Operating Trends
by Region
Rental income:
   Southern California  (147
   facilities)......................     $    42,514  $    40,949     3.8%
   Northern California  (137
   facilities)......................          29,203       28,097     3.9%
   Texas  (158 facilities)..........          21,886       21,009     4.2%
   Florida  (142 facilities)........          25,611       26,346    (2.8)%
   Illinois  (96 facilities)........          17,814       17,064     4.4%
   Georgia  (65 facilities).........           8,882        8,861     0.2%
   All other states  (628 facilities)         99,619       97,323     2.4%
                                         -----------  ------------ ---------
Total rental income.................         245,529      239,649     2.5%

Cost of operations before depreciation
 and amortization expense:
   Southern California..............           9,222        9,299    (0.8)%
   Northern California..............           7,677        7,456     3.0%
   Texas............................           9,471        9,111     4.0%
   Florida..........................           9,568        8,917     7.3%
   Illinois.........................           8,918        7,984    11.7%
   Georgia..........................           3,056        3,010     1.5%
   All other states.................          38,793       36,467     6.4%
                                         -----------  ------------ ---------
Total cost of operations............          86,705       82,244     5.4%

Net operating income before depreciation
 and amortization expense:
   Southern California..............          33,292       31,650     5.2%
   Northern California..............          21,526       20,641     4.3%
   Texas............................          12,415       11,898     4.3%
   Florida..........................          16,043       17,429    (8.0)%
   Illinois.........................           8,896        9,080    (2.0)%
   Georgia..........................           5,826        5,851    (0.4)%
   All other states.................          60,826       60,856     0.0%
                                         -----------  ------------ ---------
Total net operating income before
   depreciation and amortization
   expense..........................     $   158,824  $   157,405     0.9%

Weighted average occupancy:
   Southern California..............          90.4%        90.6%     (0.2)%
   Northern California..............          89.2%        90.0%     (0.9)%
   Texas............................          90.0%        89.7%      0.3%
   Florida..........................          87.7%        90.5%     (3.1)%
   Illinois.........................          87.6%        88.6%     (1.1)%
   Georgia..........................          88.4%        90.1%     (1.9)%
   All other states.................          88.9%        89.3%     (0.4)%
                                         -----------  ------------ ---------
Total weighted average occupancy....          89.0%        89.7%     (0.8)%

REVPAF:
   Southern California..............     $     17.57  $    16.94     3.7%
   Northern California..............           14.82       14.28     3.8%
   Texas............................            8.11        7.76     4.5%
   Florida..........................           11.37       11.71    (2.9)%
   Illinois.........................           11.47       10.99     4.4%
   Georgia..........................            8.47        8.44     0.4%
   All other states.................           10.37       10.14     2.3%
                                         -----------  ------------ ---------
Total REVPAF........................     $     11.40  $    11.14     2.3%

                                       51




   Same Store Facilities Operating
   Trends by Region (Continued)               Three Months Ended March 31,
                                         -----------------------------------
                                            2008         2007         Change
                                         -----------  ------------ ---------
                                           (Amounts in thousands, except for
                                                 weighted average data)
Realized annual rent per occupied square foot:
   Southern California..............     $    19.45   $    18.70      4.0%
   Northern California..............          16.61        15.87      4.7%
   Texas............................           9.01         8.65      4.2%
   Florida..........................          12.96        12.94      0.2%
   Illinois.........................          13.09        12.41      5.5%
   Georgia..........................           9.59         9.37      2.3%
   All other states.................          11.67        11.35      2.8%
                                         -----------  ------------ ---------
Total realized rent per square foot.     $    12.81   $    12.41      3.2%
                                         ===========  ============ =========

In place annual rent per occupied square foot at March 31:
Southern California.................     $     21.01  $     20.03     4.9%
Northern California.................           18.02        17.10     5.4%
Texas...............................            9.68         9.29     4.2%
Florida.............................           13.97        13.96     0.1%
Illinois............................           13.95        13.23     5.4%
Georgia.............................           10.42        10.15     2.7%
All other states....................           12.58        12.17     3.4%
                                         -----------  ------------ ---------
Total in place rent per occupied
square foot:........................     $     13.82  $     13.32     3.8%
                                         ===========  ============ =========

         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.

         The Florida market principally includes Miami, Orlando, Tampa, and West
Palm Beach. The absence of hurricanes has adversely  impacted growth in Florida.
Over the long term we believe that this market  benefits from  continued  strong
population growth and barriers to entry.

                                       52


         DOMESTIC - SHURGARD SAME STORE FACILITIES
         -----------------------------------------

         In connection with the Shurgard  Merger,  we acquired 487  self-storage
facilities in the U.S. located in 23 states. A total of 416 facilities have been
operating  at a mature  stabilized  occupancy  level  for  several  years  under
Shurgard  management  prior to the  merger  and then  under the  Public  Storage
management following the merger. These stabilized  facilities are referred to as
"Shurgard Same Store Facilities."

         The facilities  included in the Shurgard Same Store  Facilities are all
stabilized  and have been  owned  since  January 1, 2006 and  therefore  provide
meaningful  comparative  data  for  2007  and  2008.  The  Shurgard  Same  Store
Facilities  contain   approximately  27.1  million  net  rentable  square  feet,
representing  approximately 22% 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 a  preceding  table
entitled  "Self-Storage   Operations"  table  under  the  caption,  "Same  Store
Facilities - Shurgard." The following table sets forth additional operating data
with respect to these facilities:



Selected Operating Data for the Shurgard Domestic Same
------------------------------------------------------
Store Facilities (416 Facilities): (unaudited)                 Three Months Ended March 31,
----------------------------------------------            ---------------------------------------
                                                                                      Percentage
                                                             2008          2007         Change
                                                          ------------- ------------  -----------
                                                           (Dollar amounts in thousands, except
                                                                  weighted average data)
Revenues:
                                                                                
    Rental income.................................         $   78,500    $   74,953      4.7%
    Late charges and administrative fees collected              2,752         2,567      7.2%
                                                          ------------- ------------  -----------
    Total revenues................................             81,252        77,520      4.8%

Cost of operations (before depreciation and
amortization):
    Property taxes................................              8,513         8,120      4.8%
    Direct property payroll.......................              5,294         5,683     (6.8)%
    Media advertising.............................              1,555         1,203     29.3%
    Other advertising and promotion...............                940         1,079    (12.9)%
    Utilities.....................................              2,384         2,504     (4.8)%
    Repairs and maintenance.......................              2,442         2,521     (3.1)%
    Telephone reservation center..................                677           665      1.8%
    Property insurance............................                765           865    (11.6)%
    Other costs of management.....................              6,072         5,639      7.7%
                                                          ------------- ------------  -----------
  Total cost of operations........................             28,642        28,279      1.3%
                                                          ------------- ------------  -----------
Net operating income before depreciation and
   amortization expense (a).......................             52,610        49,241      6.8%
Depreciation and amortization expense (b).........            (36,838)      (71,803)   (48.7)%
                                                          ------------- ------------  -----------
Operating income (loss)...........................         $   15,772    $  (22,562)   (169.9)%
                                                          ============= ============  ===========
Gross margin (before depreciation)................              64.7%         63.5%      1.9%
Weighted average for the period:
  Square foot occupancy (c).......................              88.4%         86.3%      2.4%
  Realized annual rent per occupied square foot (d) (f)    $    13.11    $    12.82      2.3%
  REVPAF (e) (f)..................................         $    11.59    $    11.06      4.8%

Weighted average at March 31:
  Square foot occupancy...........................              88.9%         87.1%       2.1%
  In place annual rent per occupied square foot (g)        $    14.04    $    13.76       2.0%
Total net rentable square feet (in thousands).....             27,103        27,103         -
Number of facilities..............................                416           416         -



(a)  Total net operating income before depreciation and amortization  expense 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  expense,  and is reconciled to the segment total in the table

                                       53


     "domestic  self-storage  operations summary" above. A reconciliation of our
     total self-storage  segment's net operating income before  depreciation and
     amortization  expense to consolidated  net income is included in Note 11 to
     our March 31, 2008 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 expense in evaluating our operating results.

(b)  Depreciation and amortization  expense for the quarter ended March 31, 2008
     decreased  primarily due to a reduction in amortization  expense related to
     intangible assets that we obtained in the Shurgard Merger

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

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

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

(f)  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.

(g)  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.

         As noted above,  it has been our  objective to close the  occupancy gap
between the Shurgard  Same Store  Facilities  and the Public  Storage Same Store
Facilities,  which  was  600  basis  points  at  September  30,  2006,  and  was
essentially  eliminated  at 60 basis points at March 31, 2008.  In attempting to
accomplish  this  objective,  we  significantly  expanded our domestic  pricing,
promotional, and media programs in the fourth quarter of 2006.

         As we have raised the occupancy of the Shurgard Same Store  Facilities,
we have recently been able to be less  aggressive on pricing and as a result our
trends in realized rent per occupied  square foot have improved from a reduction
of 1.4% in the first six months of 2007  versus the same  period in 2006,  to an
increase  of 1.6% in the last six months of 2007 versus the same period in 2006,
and a 2.4%  increase in the first quarter of 2008 as compared to the same period
in 2007.  For the  remainder of 2008,  we expect the growth in the Shurgard Same
Store  Facilities  to be  greater  than that of the  Public  Storage  Same Store
Facilities, as year-over-year occupancy trends should continue to be favorable.

         Property tax expense increased 4.8% in the three months ended March 31,
2008 due to higher assessments.  We expect the increase in the full year of 2008
to be approximately 5%. Property tax expense fluctuates on a quarterly basis, as
indicted in the table below with  respect to 2007.  The  quarterly  property tax
expense for 2008 will similarly  fluctuate on a sequential basis with the fourth
quarter being  significantly  lower.  Overall we expect each quarter's  property
expense to be  approximately  4.0% to 4.5%  higher  than for the same  period in
2007.

         Direct  property  payroll  declined 6.8% during the quarter ended March
31,  2008 as  compared  to the same  period  in 2007.  As  previously  reported,
Shurgard paid its property managers higher levels of compensation than we do. We
kept the legacy  Shurgard  property  managers at their  pre-merger  compensation
levels  until  December  31, 2006 to minimize  turnover.  The  remaining  legacy
Shurgard  property managers were adjusted to the Public Storage property manager
pay scale effective  January 1, 2007.  Certain of these former Shurgard property
managers who were  receiving pay at the high end of Public  Storage's pay scale,
were  replaced  with  property  managers  at the  lower  end of the  pay  scale,
resulting in lower  average  rates in the first  quarter of 2008 versus the same
period in 2007.  This was offset  partially by  increased  turnover in the first
quarter of 2007, resulting in some understaffing.

         Media advertising for the Shurgard Same Store Facilities increased from
$1,203,000 in the three months ended March 31, 2007 to $1,555,000 in the three

                                       54


months  ended March 31, 2008.  We expect to continue  with  aggressive  pricing,
promotional discounts and marketing in the second quarter of 2008 to continue to
drive  improvement in our overall  occupancy levels and to counteract an overall
slowdown in demand.  Future media advertising  expenditures are not determinable
at this time, and will be driven in part by demand for our self-storage  spaces,
our current  occupancy  levels,  as well as our evaluation of the most effective
mix of yellow page, media, and Internet advertising.

         Other advertising and promotion is comprised principally of yellow page
and Internet  advertising,  which  declined 12.9% during the quarter ended March
31, 2008 as compared to the same period in 2007.

         Utility expenses  decreased 4.8% in the quarter ended March 31, 2008 as
compared to the same period in 2007.  Assuming  continuance of current trends in
petroleum and other energy prices we would expect  utility  expenses to increase
in the remainder of 2008.  However,  utility  expenses are also  dependent  upon
changes in demand driven by weather and temperature,  both of which are volatile
and not predictable.

         Insurance  expense  decreased 11.6% in the quarter ended March 31, 2008
as compared  to the same period in 2007,  reflecting  significant  decreases  in
property insurance  resulting  primarily from the softer insurance  markets.  We
expect  similar  decreases in the remainder of 2008 relative to the same periods
in 2007.

         Telephone  reservation center costs increased 1.8% in the quarter ended
March 31, 2008 as  compared to the same period in 2007.  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
2008 until we determine our appropriate ongoing level of expenses.

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

                                       55





                                               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:
                                                                                     
     2008             $    81,252
     2007             $    77,520          $  80,552        $    83,550         $    81,351         $  322,973

Total cost of operations
(excluding depreciation
and amortization expense):
     2008             $    28,642
     2007             $    28,279          $  27,743        $    26,809         $    25,260         $  108,091

Property tax expense:
     2008             $     8,513
     2007             $     8,120          $   8,123        $     8,278         $     7,452         $   31,973

Media advertising expense:
     2008             $     1,555
     2007             $     1,203          $   1,841        $       946         $       603         $    4,593

Other advertising and
promotion expense:
     2008             $       940
     2007             $     1,079          $   1,024        $       959         $       905         $    3,967

REVPAF:
     2008             $     11.59
     2007             $     11.06          $   11.49        $     11.91         $     11.61         $    11.52

Weighted average realized
annual rent per occupied
square foot:
     2008             $     13.11
     2007             $     12.82          $   12.87        $     13.37         $     13.26         $    13.08

Weighted average occupancy
levels for the period:
     2008                   88.4%
     2007                   86.3%              89.3%              89.1%               87.6%              88.1%



                                       56




         OTHER FACILITIES

         In addition to the Public  Storage and  Shurgard  Same Store  groups of
facilities,  at March 31 2008, we had 195  facilities  that were not  classified
into  either  of  these  pools.   These  properties  include  recently  acquired
facilities,  recently  developed  facilities and  facilities  that were recently
expanded by adding  additional  storage units. In general,  these facilities are
not stabilized  with respect to occupancies or rental rates.  As a result of the
fill-up  process  and  timing  of when  the  facilities  were  put  into  place,
year-over-year changes can be significant.

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



OTHER FACILITIES                                            Three Months Ended March 31,
                                                           2008        2007         Change
                                                       ----------- ------------   ------------
                                                        (Dollar amounts in thousands, except
                                                                square foot amounts)
Rental income:
                                                                         
   Facilities put in place in 2007...............      $    1,353   $      20     $    1,333
   Facilities put in place prior to 2007.........          19,776      16,811          2,965
   Deconsolidated Shurgard Facilities (a)........             527       1,362           (835)
   Expansion facilities..........................          21,320      19,557          1,763
                                                       ----------- ------------   ------------
   Total rental income...........................          42,976      37,750          5,226
                                                       ----------- ------------   ------------
Cost of operations before depreciation and
 amortization expense:
   Facilities put in place in 2007...............      $      782   $      44     $      738
   Facilities put in place prior to 2007.........           7,874       7,518            356
   Deconsolidated Shurgard Facilities............             261         606           (345)
   Expansion facilities..........................           7,891       7,175            716
                                                       ----------- ------------   ------------
   Total cost of operations......................          16,808      15,343          1,465
                                                       ----------- ------------   ------------
Net operating income (loss) before depreciation and
    amortization expense:
   Facilities put in place in 2007...............      $      571   $     (24)    $      595
   Facilities put in place prior to 2007.........          11,902       9,293          2,609
   Deconsolidated Shurgard Facilities............             266         756           (490)
   Expansion facilities..........................          13,429      12,382          1,047
   Total net operating income before depreciation and
      amortization expense (b)...................          26,168      22,407          3,761
Depreciation and amortization expense............         (18,166)    (20,434)         2,268
                                                       ----------- ------------   ------------
   Net operating income..........................      $    8,002   $   1,973     $    6,029
                                                       =========== ============   ============
Weighted average square foot occupancy during the
period:
   Facilities put in place in 2007...............           58.3%       35.2%         65.6%
   Facilities put in place prior to 2007.........           83.5%       75.1%         11.2%
   Deconsolidated Shurgard Facilities............           88.6%       88.3%          0.3%
   Expansion facilities..........................           80.4%       78.0%          3.1%
                                                       ----------- ------------   ------------
                                                            81.1%       77.0%          5.3%
                                                       =========== ============   ============


                                       57





OTHER FACILITIES                                            Three Months Ended March 31,
                                                       ---------------------------------------
                                                            2008        2007         Change
                                                       ----------- ------------   ------------

Weighted average realized annual rent per occupied
square foot for the period:
                                                                            
   Facilities put in place in 2007...............      $    12.99   $     1.29       907.0%
   Facilities put in place prior to 2007.........           11.85        11.20         5.8%
   Deconsolidated Shurgard Facilities............            9.48         9.81        (3.4)%
   Expansion facilities..........................           11.67        11.54         1.1%
                                                       ----------- ------------   ------------
                                                       $    11.76   $    11.34         3.7%
                                                       =========== ============   ============
In place annual rent per occupied square foot at
March 31:
   Facilities put in place in 2007...............      $    15.09   $    11.37        32.7%
   Facilities put in place prior to 2007.........           14.43        13.96         3.4%
   Deconsolidated Shurgard Facilities............            8.76        10.30       (15.0)%
   Expansion facilities..........................           14.37        14.38        (0.1)%
                                                       ----------- ------------   ------------
                                                       $    14.32   $    13.99         2.4%
                                                       =========== ============   ============
At March 31:
    Number of Facilities:
      Facilities put in place in 2007............              10            2           8
      Facilities put in place prior to 2007......              89           89           -
      Deconsolidated Shurgard Facilities.........               5           11          (6)
      Expansion facilities.......................              91           92          (1)
                                                       ----------- ------------   ------------
                                                              195          194           1
                                                       =========== ============   ============
    Net rentable square feet (in thousands):
      Facilities put in place in 2007............             679          175           504
      Facilities put in place prior to 2007......           6,906        6,906             -
      Deconsolidated Shurgard Facilities.........             268          624          (356)
      Expansion facilities.......................           7,621        7,111           510
                                                       ----------- ------------   ------------
                                                           15,474       14,816           658
                                                       =========== ============   ============


(a)  Includes  11  facilities  acquired  in the  merger  with  Shurgard  that we
     discontinued  consolidation in our financial  statements  effective May 24,
     2007. On November 15, 2007, we recommenced  consolidation  of five of these
     properties.  The  operations  for these 11 facilities  from January 1, 2007
     through May 24, 2007,  combined with the operations of the five  facilities
     that we recommenced  consolidation after November 15, 2007, are included in
     this table.

(b)  Total net operating income before depreciation and amortization or "NOI" is
     a non-GAAP  (generally accepted  accounting  principles)  financial measure
     that excludes the impact of depreciation and amortization  expense, for our
     self-storage  facilities  represents  a portion  of our total  self-storage
     segment's  net  operating  income  before   depreciation  and  amortization
     expense,  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  and  amortization  expense to consolidated net
     income is included in Note 11 to our March 31, 2008 condensed  consolidated
     financial  statements,  "Segment  Information."  Although  depreciation and
     amortization  expense  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.

         The properties denoted under "Facilities put in place in 2007" were put
into  operation  within the  Public  Storage  system at  various  dates in 2007.
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 March 31, 2008 and 2007, reflect the amounts for those facilities
we  owned  at each of those  respective  dates.  The  properties  denoted  under
"Facilities put in place prior to 2007" include domestic  facilities acquired in
the merger with Shurgard,  except the Deconsolidated Shurgard Facilities and the
Shurgard  Same Store  Facilities.  Such  properties  also  include  other  newly
developed and acquired facilites.

                                       58


         During the first three months of 2008, we completed  two  expansions to
existing  real  estate  facilities  (82,000  net  rentable  square  feet) for an
aggregate  cost of $5.0 million.  At March 31, 2008,  our  development  pipeline
includes  three  newly  developed  self-storage  facilities  located in the U.S.
adding  168,000 net rentable  square feet at an aggregate  cost of $22.3 million
and 25 projects to expand our  existing  real estate  facilities  located in the
U.S.,  by  1,026,000  net  rentable  square feet at an  aggregate  cost of $90.8
million.  These  projects  are  subject  to  contingencies  including  obtaining
governmental approvals, but we expect completion of these projects over the next
12 - 24 months.

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

         We expect that our  non-stabilized  facilities will continue to provide
earnings  growth  during  2008 as these  facilities  continue  to improve  their
occupancy levels as well as realized rental rates.

         Effective  May  24,  2007,  due to a loss  in  control  of the  related
partnerships that owned these facilities, we began deconsolidating 11 facilities
with an aggregate of 624,000 net rentable  square feet  (referred to hereinafter
as "The Deconsolidated  Shurgard Properties") that we had originally acquired in
the  Shurgard  Merger.  On  November  15,  2007,  as a  result  of  acquiring  a
controlling  ownership interest,  we recommenced  consolidating five of these 11
facilities in our  operations.  The operating  results for these  facilities are
included  in the  table  above  for the  period  each  respective  facility  was
consolidated.  Our pro-rata share of the operating results of the Deconsolidated
Shurgard  Properties for the periods they were not consolidated are presented in
Equity in Earnings of Real Estate Entities.

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

         Our level of newly developed facilities,  and starts to newly developed
facilities, has declined significantly in the last few years due to increases in
construction  cost,  increases  in  competition  with retail,  condominium,  and
apartment operators for quality construction sites in urban locations,  and more
difficult  zoning and permitting  requirements,  which has reduced the number of
attractive  sites  available  for  development  and reduced our  development  of
facilities. It is unclear when, or if, these conditions will improve.

                                       59


         EUROPEAN SELF-STORAGE OPERATIONS

         At March 31, 2008, Shurgard Europe's operations comprise 177 facilities
with an aggregate of 9,281,000  net rentable  square feet,  of which 96 of these
facilities are referred to as the Europe Same Store Facilities  (defined below).
Public Storage also wholly-owns the Kensington facility.  The portfolio consists
of 105  wholly  owned  facilities  including  the  Kensington  facility,  and 72
facilities owned by the two joint venture  partnerships,  in which we have a 20%
equity interest.

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



Europe self - storage operations summary:              Three Months Ended March 31,
-----------------------------------------          ------------------------------------
                                                      2008         2007        Change
                                                   ----------- ------------  ----------
                                                       (Dollar amounts in thousands)
Rental income:
   Facilities deconsolidated effective
   March 31, 2008:
                                                                      
      Europe Same Store Facilities (a).........    $   35,020  $    29,550     18.5%
      Other facilities wholly owned by Shurgard
      Europe (b)...............................         1,915        1,749      9.5%
      Existing European JV Facilities (c)......        17,787       11,861     50.0%
   Kensington facility (d).....................           341          529    (35.5)%
                                                   ----------- ------------  ----------
     Total rental income.......................        55,063       43,689     26.0%
                                                   ----------- ------------  ----------
Cost of operations before depreciation and
    amortization expense (e):
   Facilities deconsolidated effective
   March 31, 2008:
      Europe Same Store Facilities (a).........        13,319       12,602     5.7%
      Other facilities wholly owned by Shurgard
      Europe (b)...............................         1,014          744     36.3%
      Existing European JV Facilities (c)......        10,321        9,306     10.9%
    Kensington facility (d)....................           106          174    (39.1)%
                                                   ----------- ------------  ----------
      Total cost of operations.................        24,760       22,826      8.5%
                                                   ----------- ------------  ----------
Net operating income before depreciation and
    amortization expense (e):
   Facilities deconsolidated effective
   March 31, 2008:
      Europe Same Store Facilities (a).........        21,701       16,948     28.0%
      Other facilities wholly owned by Shurgard
      Europe (b)...............................           901        1,005    (10.3)%
      Existing European JV Facilities (c)......         7,466        2,555    192.2%
    Kensington facility (d)....................           235          355    (33.8)%
                                                   ----------- ------------  ----------
   Total net operating income before
        depreciation and amortization expense (e)      30,303       20,863     45.2%
Depreciation and amortization expense..........       (22,222)     (38,966)   (43.0)%
                                                   ----------- ------------  ----------
Net operating income (loss)....................    $    8,081  $   (18,103)  (144.6)%
                                                   =========== ============  ==========
Weighted average square foot occupancy during
   the period:
   Facilities deconsolidated effective
   March 31, 2008:
      Europe Same Store Facilities (a).........         88.2%        88.5%     (0.3)%
      Other facilities wholly owned by Shurgard
      Europe (b)...............................         69.0%        88.6%    (22.1)%
      Existing European JV Facilities (c)......         75.9%        70.1%      8.3%
    Kensington facility (d)....................         92.6%        86.0%      7.7%
                                                   ----------- ------------  ----------
                                                        82.8%        81.7%      1.3%
                                                   =========== ============  ==========


                                       60




Europe self - storage operations summary:              Three Months Ended March 31,
-----------------------------------------          ------------------------------------
(continued)                                           2008         2007        Change
                                                   ----------- ------------  ----------
                                                       (Dollar amounts in thousands)
At March 31:
Number of Facilities:
   Facilities deconsolidated effective
   March 31, 2008:
                                                                 
     Europe Same Store Facilities (a)..........           96           96         -
     Other facilities wholly owned by Shurgard
     Europe (b)................................            8            6         2
     Existing European JV Facilities (c).......           72           64         8
   Kensington facility (d).....................            1            1         -
                                                   ----------- ------------  ----------
                                                         177          167        10
                                                   =========== ============  ==========
Net rentable square feet (in thousands):
   Facilities deconsolidated effective
   March 31, 2008:
     Europe Same Store Facilities (a)..........        5,286        5,286         -
     Other facilities wholly owned by Shurgard
     Europe (b)................................          391          252       139
     Existing European JV Facilities (c).......        3,566        3,155       411
   Kensington facility (d).....................           38           38         -
                                                   ----------- ------------  ----------
                                                       9,281        8,731       550
                                                   =========== ============  ==========


(a)  The European Same Store  facilities,  described  below, are comprised of 96
     facilities that are wholly owned by Shurgard Europe.

(b)  The other wholly owned facilities  include eight facilities wholly owned by
     Shurgard Europe which are not considered  same-store  facilities.  Shurgard
     Europe opened a newly developed facility during the quarter ended March 31,
     2008, for an aggregate cost of approximately $14.5 million.

(c)  First  Shurgard and Second  Shurgard,  in which  Shurgard  Europe has a 20%
     equity interest,  (the "Existing European Joint Venture") own 70 facilities
     which were acquired or developed from 2003 to 2007, and two facilities that
     were newly  developed in the quarter  ended March 31, 2008 for an aggregate
     of approximately $19.0 million.

(d)  The Kensington facility is wholly owned by Public Storage and, as a result,
     will continue to be included in our  consolidated  operating  results after
     the  deconsolidation  of Shurgard Europe.  Shurgard Europe has an option to
     acquire the Kensington facility from us for (euro)42 million, which expires
     June 30, 2008.

(e)  Total net operating income before depreciation and amortization  expense 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 11 to our March
     31,   2008   condensed   consolidated   financial   statements,    "Segment
     Information,"  which  includes a  reconciliation  of net  operating  income
     before  depreciation  and  amortization  expense  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  expense in  evaluating  our
     operating results.

         Due to the disposition of a 51% interest in Shurgard Europe, see Note 3
to our condensed consolidated financial statements, the operating results of the
facilities,  except for the Kensington  facility,  will no longer be included in
our  consolidated  financial  statements  after  March 31,  2008.  Instead,  our
pro-rata  share of the  operating  results  of these  facilities  and the  other
operating  results of Shurgard  Europe will be included in equity in earnings of
real estate entities.

         First  Shurgard and Second  Shurgard,  joint ventures in which Shurgard
Europe has a 20% equity  interest  (collectively,  the "Existing  European Joint
Ventures")  opened  two  facilities  in the first  three  months of 2008 with an
aggregate development cost of $19,048,000.

                                       61


         The operating data presented in the table below are reflected utilizing
the average  exchange  rates for the three months  ended March 31, 2008,  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 months ended March 31, 2008.



Selected Operating Data for the 96 facilities operated
------------------------------------------------------
by Shurgard Europe on a stabilized basis since January 1,
---------------------------------------------------------
2006 ("Europe Same Store Facilities"):                        Three Months Ended March 31,
--------------------------------------                  ------------------------------------------
                                                                                      Percentage
                                                             2008          2007         Change
                                                        ------------- -------------- -------------
                                                           (Dollar amounts in thousands, except
                                                             weighted average data, utilizing
                                                               constant exchange rates) (a)
Revenues:
                                                                                    
    Rental income.................................       $     34,432  $     32,649          5.5%
    Late charges and administrative fees collected                588           314         87.3%
                                                        ------------- -------------- -------------
    Total revenues (b)............................             35,020        32,963          6.2%

Cost of operations (excluding depreciation
 and amortization expense):
    Property taxes ...............................              1,582         1,326         19.3%
    Direct property payroll.......................              3,898         4,018        (3.0)%
    Advertising and promotion.....................                899         1,368       (34.3)%
    Utilities.....................................                875           947        (7.6)%
    Repairs and maintenance.......................                929           922          0.8%
    Property insurance............................                215           400       (46.3)%
    Other costs of management.....................              4,921         5,119        (3.9)%
                                                        ------------- -------------- -------------
  Total cost of operations (b)....................             13,319        14,100        (5.5)%
                                                        ------------- -------------- -------------
   Net operating income (excluding depreciation and
   amortization expense) (c)......................       $    21,701   $    18,863          15.0%
                                                        ============= ============== =============
Gross margin (before depreciation and amortization
expense)..........................................              62.0%         57.2%          8.4%
Weighted average for the period:
  Square foot occupancy (d).......................              88.2%         88.5%        (0.3)%
  Realized annual rent per occupied square foot (e)            $29.54        $27.92          5.8%
  REVPAF (f) (g)..................................             $26.06        $24.71          5.5%

Weighted average at March 31:
  Square foot occupancy...........................              87.3%         89.0%        (1.9)%
  In place annual rent per occupied square foot (h)            $31.62        $29.55          7.0%
Total net rentable square feet (in thousands).....             5,286          5,286            -



(a)  The majority of Shurgard Europe's  operations are denominated in Euros. For
     comparative purposes,  amounts for 2007 and 2008 are translated at constant
     exchange rates representing the average exchange rates for the three months
     ended  March  31,  2008.  The  average  exchange  rate  for  the  Euro  was
     approximately  1.4963  during the three months  ended March 31,  2008.  The
     amounts  that  are  included  in  our  condensed   consolidated   financial
     statements are based upon the actual exchange rate for each period.

(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.  "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.

                                       62


(c)  Net operating income (excluding  depreciation and amortization  expense) or
     "NOI" is a non-GAAP (generally accepted  accounting  principles)  financial
     measure that excludes the impact of depreciation and amortization  expense.
     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 expense in evaluating our operating results.

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

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

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

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

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

         The Europe  Same Store  properties  continue to reflect  above  average
growth. With occupancy  stabilized at above 85%, we believe that Shurgard Europe
has 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 U.S.  and  incorporating  them  into  their
operating model.

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



                                                       Three Months Ended March 31,
                                                  --------------------------------------
                                                                             Percentage
                                                      2008         2007        Change
                                                  -------------  ----------- -----------
                                                   (Dollar amounts in thousands, except
                                                         per square foot amounts,
                                                    utilizing constant exchange rates)
Rental income:
                                                                        
   Belgium.....................................      $   4,593    $   4,180      9.9%
   Denmark.....................................          1,601        1,548      3.4%
   France......................................          8,836        8,653      2.1%
   Netherlands.................................          7,435        6,736     10.4%
   Sweden......................................          7,354        6,938      6.0%
   United Kingdom..............................          5,201        4,908      6.0%
                                                  -------------  ----------- -----------
     Total rental income.......................      $  35,020    $  32,963      6.2%
                                                  =============  =========== ===========
Cost of operations before depreciation and
    amortization expense:
   Belgium.....................................      $   1,969    $   1,937      1.7%
   Denmark.....................................            563          582     (3.3)%
   France......................................          3,921        4,016     (2.4)%
   Netherlands.................................          2,548        2,820     (9.6)%
   Sweden......................................          2,552        2,789     (8.5)%
   United Kingdom..............................          1,766        1,956     (9.7)%
                                                  -------------  ----------- -----------
     Total cost of operations before
     depreciation and amortization expense.....      $  13,319    $  14,100     (5.5)%
                                                  =============  =========== ===========


                                       63





(continued)
                                                       Three Months Ended March 31,
                                                  --------------------------------------
                                                                             Percentage
                                                      2008         2007        Change
                                                  -------------  ----------- -----------
                                                   (Dollar amounts in thousands, except
                                                         per square foot amounts)

Net operating income:
                                                                       
Belgium........................................    $     2,624   $    2,243     17.0%
Denmark........................................          1,038          966      7.5%
France.........................................          4,915        4,637      6.0%
Netherlands....................................          4,887        3,916     24.8%
Sweden.........................................          4,802        4,149     15.7%
United Kingdom.................................          3,435        2,952     16.4%
                                                  -------------  ----------- -----------
Total net operating income.....................    $    21,701  $    18,863     15.0%
                                                  =============  =========== ===========
Weighted average occupancy levels for the period:
   Belgium.....................................          88.2%        85.3%      3.4%
   Denmark.....................................          89.8%        93.9%     (4.4)%
   France......................................          86.7%        89.8%     (3.5)%
   Netherlands.................................          88.5%        87.0%      1.7%
   Sweden......................................          89.1%        90.5%     (1.5)%
   United Kingdom..............................          88.8%        88.4%      0.5%
                                                  -------------  ----------- -----------
                                                         88.2%        88.5%     (0.3)%
                                                  =============  =========== ===========
Weighted average realized annual rent per
    occupied square foot:
   Belgium.....................................       $    20.51   $    19.38    5.8%
   Denmark.....................................            33.18        31.10    6.7%
   France......................................            32.43        30.81    5.3%
   Netherlands.................................            28.00        26.15    7.1%
   Sweden......................................            28.81        26.93    7.0%
   United Kingdom..............................            43.10        40.95    5.3%
                                                  -------------  ----------- -----------
                                                      $    29.54   $    27.92    5.8%
                                                  =============  =========== ===========
Net rentable square feet (in thousands):
   Belgium.....................................            999          999       -
   Denmark.....................................            210          210       -
   France......................................          1,236        1,236       -
   Netherlands.................................          1,172        1,172       -
   Sweden......................................          1,130        1,130       -
   United Kingdom..............................            539          539       -
                                                  -------------  ----------- -----------
                                                         5,286        5,286       -
                                                  =============  =========== ===========
Number of facilities:
   Belgium.....................................             17           17       -
   Denmark.....................................              4            4       -
   France......................................             23           23       -
   Netherlands.................................             22           22       -
   Sweden......................................             20           20       -
   United Kingdom..............................             10           10       -
                                                  -------------  ----------- -----------
                                                            96           96      -
                                                  =============  =========== ===========


                                       64


         Ancillary Operations:  Ancillary operations include (i) the reinsurance
of  policies  against  losses to goods  stored by  tenants  in our  self-storage
facilities,  (ii) sale of  merchandise  at our  self-storage  facilities,  (iii)
containerized  storage  operations,  (iv)  truck  rentals  at  our  self-storage
facilities  and (v)  commercial  property  operations,  and (vi)  management  of
facilities  owned by third-party  owners and facilities owned by affiliates that
are not included in our consolidated financial statements.

         The following table sets forth our ancillary operations:

                                             Three Months Ended March 31,
                                           ------------------------------------
                                               2008        2007        Change
                                           ----------- -----------  -----------
                                               (Amounts in thousands)
Revenues:
    Tenant reinsurance premiums.....       $   13,822  $   11,788   $   2,034
    Merchandise sales...............            6,586       6,952        (366)
    Shurgard Europe ancillary operations        4,916       3,779       1,137
    Containerized storage ..........            3,088       3,203        (115)
    Truck rentals...................            1,975       2,676        (701)
    Commercial property operations..            4,057       3,750         307
    Property management.............              656         677         (21)
                                           ----------- -----------  -----------
       Total revenues...............           35,100      32,825       2,275
                                           ----------- -----------  -----------
Cost of operations:
    Tenant reinsurance..............            3,018       4,068      (1,050)
    Merchandise sales...............            5,213       6,402      (1,189)
    Shurgard Europe ancillary operations        1,410       1,342          68
    Containerized storage...........            2,685       2,615          70
    Truck rentals...................            3,479       3,405          74
    Commercial property operations..            1,605       1,419         186
    Property management.............               58          58           -
                                           ----------- -----------  -----------
       Total cost of operations.....           17,468      19,309      (1,841)
                                           ----------- -----------  -----------
Depreciation:
    Tenant reinsurance..............                -           -           -
    Merchandise sales...............                -           -           -
    Shurgard Europe ancillary operations            -           -           -
    Containerized storage..........              (233)       (207)        (26)
    Truck rentals...................                -           -           -
    Commercial property operations..             (652)       (642)        (10)
    Property management.............                -           -           -
                                           ----------- -----------  -----------
       Total depreciation...........             (885)       (849)        (36)
                                           ----------- -----------  -----------
Net income (loss):
    Tenant reinsurance..............           10,804       7,720       3,084
    Merchandise sales...............            1,373         550         823
    Shurgard Europe ancillary operations        3,506       2,437       1,069
    Containerized storage...........              170         381        (211)
    Truck rentals...................           (1,504)       (729)       (775)
    Commercial property operations..            1,800       1,689         111
    Property management.............              598         619         (21)
                                           ----------- -----------  -----------
   Total net income................        $   16,747  $   12,667    $  4,080
                                           =========== ===========  ===========

         Tenant reinsurance  operations:  We reinsure policies offered through a
non-affiliated  insurance  broker  against  losses to goods  stored by  tenants,
primarily in our domestic  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.

                                       65


         Our increase in tenant reinsurance revenues were attributable to higher
rates, and an increase in the percentage of our existing tenants  retaining such
policies,  with respect to our ongoing tenant  insurance  activities in the U.S.
Approximately 50.7% and 41.5% of our tenants had such policies at March 31, 2008
and 2007, respectively.

         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  domestic  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 in the
U.S.,  our  subsidiaries  maintain  trucks on site for rent to our  self-storage
customers  and the  general  public on a  short-term  basis for  local  use.  In
addition, we also act as an agent for a national truck rental company to provide
their rental trucks to customers for long-distance use. The revenues and cost of
operations  for these  activities  are  included  in the  table  above as "Truck
rentals."

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

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

         Shurgard   Europe   ancillary   operations:   Shurgard   Europe  offers
merchandise and tenant  insurance to its tenants,  similar to the business model
in the United  States.  As  described  in Note 3 to our  condensed  consolidated
financial statements, Shurgard Europe's operations will no longer be included in
our  consolidated  financial  statements  after  March 31,  2008.  Instead,  our
pro-rata  share of the  operating  results  of these  facilities  and the  other
operating  results of Shurgard Europe will be included in "equity in earnings of
real  estate  entities."  As a result,  no further  amounts  will be included in
ancillary  revenues or ancillary  cost of  operations  for the  Shurgard  Europe
facilities.

         Containerized   storage  operations:   We  have  containerized  storage
facilities  located in six 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).

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

         There can be no assurance as to the level of the containerized  storage
business's  operations  or  profitability,  and  we  continue  to  evaluate  the
business's operations.  Based upon these evaluations,  we have closed certain of
these facilities in recent years,  including two facilities in the quarter ended
March 31, 2008 which are included in "discontinued operations" and we may decide
to close additional facilities in the future.

         Commercial property operations: Commercial property operations included
in our condensed  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.

                                       66


         Our commercial operations are comprised of 1,455,000 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.  We do not expect any  significant  growth in
net  operating  income from this segment of our  business  for the  remainder of
2008.

         EQUITY  IN  EARNINGS  OF  REAL  ESTATE  ENTITIES:  In  addition  to our
ownership  of equity  interests  in PSB, we had general and limited  partnership
interests  in five limited  partnerships  at March 31, 2008 (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,
and account for such investments using the equity method.

         Equity in earnings of real estate  entities  for the three months ended
March 31, 2008  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:

Historical summary:                             Three Months Ended March 31,
-------------------                        ------------------------------------
                                               2008         2007        Change
                                           -----------   ----------- ----------
                                                 (Amounts in thousands)
Property operations:
  PSB....................................  $  21,779     $  19,689   $   2,090
  Consistent investments (1).............        819           766          53
  Other Investments (2)..................        330             -         330
                                           -----------   ----------- ----------
                                              22,928        20,455       2,473
                                           -----------   ----------- ----------
Depreciation:
  PSB....................................    (11,591)       (9,496)     (2,095)
  Consistent investments (1).............       (279)         (259)        (20)
  Other Investments (2)..................       (302)            -        (302)
                                           -----------   ----------- ----------
                                             (12,172)       (9,755)     (2,417)
                                           -----------   ----------- ----------
Other: (3)
  PSB (4)................................     (7,843)       (6,703)     (1,140)
  Consistent investments (1).............        (23)          (20)         (3)
  Other Investments (2)..................       (161)            -        (161)
                                           -----------   ----------- ----------
                                              (8,027)       (6,723)     (1,304)
                                           -----------   ----------- ----------
Total equity in earnings of real estate entities:
  PSB....................................      2,345         3,490      (1,145)
  Consistent investments (1).............        517           487          30
  Other Investments (2)..................       (133)            -        (133)
                                           -----------   ----------- ----------
                                           $   2,729     $   3,977   $  (1,248)
                                           ===========   =========== ==========

(1)  Amounts  primarily reflect equity in earnings recorded for investments that
     have been held consistently throughout each of the three months ended March
     31,  2008 and 2007,  including  our  investment  in the  Acquisition  Joint
     Venture that is accounted for on the equity method of accounting  (see Note
     8 to our condensed consolidated financial statements).

(2)  As described in Note 5 to our condensed  consolidated financial statements,
     we deconsolidated  certain  investments in limited  partnerships  owning 11
     properties  effective May 24, 2007,  and equity in earnings with respect to
     these  partnerships  commenced  effective  May 24,  2007.  We  subsequently
     acquired interests in certain of these  deconsolidated  partnerships owning
     five properties and  recommenced  consolidating  these interests  effective
     November 15, 2007.

(3)  "Other" reflects our share of general and administrative expense,  interest
     expense, interest income, and other non-property;  non-depreciation related
     operating results of these entities.

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

                                       67


         Throughout  each of the three months ended March 31, 2008 and 2007,  we
owned 5,418,273 common shares and 7,305,355  operating  partnership units (units
which are  convertible  into common shares on a  one-for-one  basis) in PSB. Our
percentage  ownership  of PSB  increased  in the  first  quarter  of 2008 as PSB
repurchased  its stock.  At March 31, 2008,  PSB owned and operated 19.6 million
net rentable square feet of commercial  space located in eight states.  PSB also
manages  commercial space owned by the Company and affiliated  entities at March
31, 2008 pursuant to property management agreements.

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

         The "Consistent  Investments" are comprised  primarily of our equity in
earnings  from four limited  partnerships,  as well as our equity in earnings of
two properties owned by the Acquisition Joint Venture as described more fully in
Note  8  to  our  condensed  consolidated  financial  statements.   We  held  an
approximate  consistent  level of equity interest  throughout 2007 and 2008. The
Company  formed  the four  limited  partnerships  during  the  1980's and is the
general partner of these partnerships, and we entered into the Acquisition Joint
Venture in 2004. We manage each of these facilities for a management fee that is
included in "Ancillary operations."

         Our future earnings with respect to the "Consistent  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 the Same Store Facilities as discussed above. See
Note 5 to our March 31, 2008 condensed consolidated financial statements for the
operating  results of these  entities  for the three months ended March 31, 2008
and 2007. Assuming that we exercise our option to acquire our Partner's interest
in the  Acquisition  Joint  Venture,  which is  exercisable  in 2008,  equity in
earnings with respect to two of these properties will cease.

         As  described  in  Note  3  to  our  condensed  consolidated  financial
statements,  due to the  disposition of a 51% interest in Shurgard  Europe,  our
pro-rata share of the operating  results of Shurgard Europe after March 31, 2008
will be included in "equity in earnings of real estate  entities." Such earnings
will be dependent  upon the future  operating  results of Shurgard  Europe.  See
Notes 3 and 5 to our March 31, 2008 condensed consolidated financial statements,
as well as the other disclosures  herein with respect to Shurgard Europe,  for a
presentation  of  summarized  financial  information  with  respect to  Shurgard
Europe's operations for the three months ended March 31, 2008 and 2007.

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

         INTEREST AND OTHER INCOME: Interest and other income was $2,844,000 and
$2,125,000  for the three  months  ended March 31, 2008 and 2007,  respectively.
Interest and other income  increased  principally  as a result of higher average
cash balances invested in interest bearing  accounts,  partially offset by lower
interest rates.

         As  described  more  fully in Note 3 to our  March 31,  2008  condensed
consolidated  financial  statements,  we have  deconsolidated  Shurgard Europe's
operations  effective March 31, 2008. In connection with the Europe Transaction,
the intercompany  debt of (euro)391.9  million ($618.8 million) owed by Shurgard
Europe to Public  Storage was adjusted to bear  interest  rate at 7.5% per year,
with an initial term of one year with an additional  one year  extension  option
exercisable by Shurgard Europe.  In addition,  under the related loan agreements
Public Storage is committed to provide  additional  loans to Shurgard  Europe to
repay  existing  third-party  indebtedness  and the possible  acquisition of the
remaining  interest in the Existing  European Joint  Ventures.  Shurgard  Europe
intends to repay all of its  intercompany  debt to Public  Storage  through  the
issuance of third-party debt as soon as market conditions  permit,  but no later
than March 31, 2010.

         As a result, we will commence recording interest income with respect to
our note  receivable  from Shurgard  Europe  effective  March 31, 2008 following
deconsolidation,  because this note  interest  will no longer be  eliminated  in

                                       68


consolidation.  Aggregate  interest income received from Shurgard Europe,  based
upon the $618.8 million  balance at March 31, 2008 and the interest rate of 7.5%
per year, would be an aggregate of approximately $11.6 million per quarter.  The
interest income that we would reflect would be approximately 51% of this amount,
as the  remainder  (representing  our 49% pro  rata  ownership  interest)  would
constitute  intercompany  interest and would be eliminated against our equity in
earnings of Shurgard Europe.

         The  level of  interest  income  recorded  will be  dependent  upon the
balances  due from  Shurgard  Europe  as well as the  exchange  rate of the Euro
versus the Dollar.

         DEPRECIATION AND  AMORTIZATION:  Depreciation and amortization  expense
was  $122,486,000 and $176,366,000 for the three months ended March 31, 2008 and
2007, respectively.

         The  decrease in  depreciation  and  amortization  expense in the three
months  ended  March  31,  2008 as  compared  to the same  period in 2007 is due
principally  to  the  amortization  of  intangibles  acquired  primarily  in the
Shurgard Merger  totaling  $28,391,000 in the 2008 period and $85,784,000 in the
2007 period.  These intangible assets represent the value of the storage tenants
in place at the time of the  merger,  and are being  amortized  relative  to the
expected  future  benefit of the tenants in place to each period.  We expect the
amortization   expense  with  respect  to  these   intangibles   to  approximate
$19,386,000 for the remainder of 2008. Future depreciation  expense will also be
reduced by the level of depreciation and amortization incurred on the facilities
owned by Shurgard  Europe,  which is being  deconsolidated  effective  March 31,
2008.  Such  facilities had  $22,212,000  and  $38,815,000 in  depreciation  and
intangible  amortization  expense for the three  months ended March 31, 2008 and
2007, respectively,  and such depreciation will be eliminated from our financial
statements for periods after March 31, 2008.

         GENERAL  AND  ADMINISTRATIVE:  General and  administrative  expense was
$14,916,000,  and $16,516,000 for the three months ended March 31, 2008 and 2007
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,
certain   expenses  related  to  capital  raising  and  merger  and  acquisition
activities, employee severance, and stock-based compensation.

         General and  administrative  expense  includes the following items that
vary depending upon our activities:  a) costs and expenses  totaling  $3,358,000
during the three months ended March 31, 2007,  incurred in  connection  with the
integration  of Shurgard  and Public  Storage and b)  $2,487,000  in  additional
incentive  compensation  in the three months ended March 31, 2008 related to the
disposition of an interest in Shurgard Europe.

         Future general and  administrative  expense will also be reduced by the
levels  incurred by Shurgard  Europe,  which is being  deconsolidated  effective
March  31,  2008.   Shurgard   Europe   incurred   $4,650,000   in  general  and
administrative  expense  (including the  aforementioned  $2,487,000 in incentive
compensation) during the quarter ended March 31, 2008. Shurgard Europe's general
and  administrative  expense  incurred  after  March 31,  2008 will no longer be
reflected in our financial statements.

         Approximately  $25 million of  additional  incentive  compensation  was
approved  and paid after March 31, 2008 with  respect to the  disposition  of an
interest in Shurgard Europe.  These amounts will be reflected in our general and
administrative expense for the quarter ended June 30, 2008.

         INTEREST EXPENSE:  Interest expense was $16,487,000 and $16,808,000 for
the three months ended March 31, 2008 and 2007,  respectively.  See also Notes 7
and 8 to our March 31, 2008 condensed  consolidated  financial  statements for a
schedule of our debt balances,  principal  repayment  requirements,  and average
interest rates.

         Capitalized  interest  expense totaled  $748,000,  and $741,000 for the
three months ended March 31, 2008 and 2007, respectively, in connection with our
development  activities.  Included  in the  interest  capitalized  for the three
months ended March 31, 2008 and 2007 is $429,000 and $483,000,  respectively, in
connection with our development activities in Europe.

         Future interest  expense will also be reduced by the levels incurred by
Shurgard  Europe,  which is  being  deconsolidated  effective  March  31,  2008.
Shurgard Europe incurred  $7,308,000 and $5,089,000 in interest  expense for the

                                       69


three  months  ended  March  31,  2008  and  2007,  respectively,   relative  to
third-party  debt  (excluding  the debt  payable  to  Public  Storage)  that was
included in our financial statements.  Interest expense incurred after March 31,
2008 will no longer be reflected in our financial statements.

         GAIN ON  DISPOSITION  OF AN INTEREST IN SHURGARD  EUROPE:  On March 31,
2008, an  institutional  investor  acquired a 51% interest in Shurgard  European
Holdings LLC, a newly formed Delaware limited  liability company and the holding
company for  Shurgard  Europe  ("Shurgard  Holdings").  Public  Storage owns the
remaining 49% interest is the managing member of Shurgard Holdings.  In exchange
for the 51% interest in Shurgard  Holdings,  the investor paid Shurgard Holdings
approximately  (euro)383,200,000  ($605,627,000)  on March  31,  2008,  with the
purchase  price to be adjusted for operating  results (as defined)  generated by
Shurgard Europe during the three months ended March 31, 2008. This adjustment is
currently estimated to be approximately (euro)4,797,000 ($7,574,000).

         Our  net  proceeds  from  the  transaction   aggregated   $609,059,000,
comprised of i)  $605,627,000  paid by the  institutional  investor on March 31,
2008,  ii) a  receivable  from the  investor  totaling  $7,574,000,  iii),  less
$4,142,000 in legal, accounting,  and other expenses incurred in connection with
the transaction.  As a result of the  disposition,  we reduced our investment in
Shurgard Europe by  approximately  $305,048,000  for the pro rata portion of our
March 31, 2008  investment  that was sold, and recognized a gain of $304,011,000
upon disposition,  representing the difference between the net proceeds received
of $609,059,000 and the pro rata portion of our investment sold of $305,048,000.

         In addition, as a result of our disposition of this interest, a portion
of the cumulative currency exchange gains we had previously  recognized in Other
Comprehensive Income with respect to Shurgard Europe was realized.  Accordingly,
we recognized a cumulative  currency exchange gain of $37,854,000,  representing
51% (the pro rata  portion of Shurgard  Europe that was sold) of the  cumulative
currency exchange gain previously included in Other Comprehensive Income.

         The gain upon  disposition  of  $304,011,000  and  associated  realized
currency  exchange  gain totaling  $37,854,000  are both included in the gain on
disposition of an interest in Shurgard  Europe of  $341,865,000 in our condensed
consolidated statement of income for the three months ended March 31, 2008.

         FOREIGN  EXCHANGE  GAIN:  At March 31,  2008,  Shurgard  Europe owed us
approximately  (euro)391.9  million  ($618.8  million as of March 31, 2008).  We
expect Shurgard Europe to obtain external financing in the next 12 to 24 months,
but not later than March 31, 2010,  which will fund the  repayment of the loans.
These amounts are  denominated in Euros but have not been hedged.  The amount of
U.S.  Dollars that will be received on  repayment  will depend upon the exchange
rates at the  time.  Based  upon the  change in  estimated  U.S.  Dollars  to be
received caused by fluctuation in currency rates during each of the three months
ended March 31, 2008 and 2007, foreign currency translation gains of $41,014,000
and $5,040,000  were recorded in those periods.  The U.S.  Dollar  exchange rate
relative  to the Euro was  approximately  1.579 and 1.472 at March 31,  2008 and
December 31, 2007, respectively.

         Future  foreign  exchange  gains or losses will be dependent  primarily
upon the movement of the Euro relative to the U.S. Dollar,  the amount owed from
Shurgard  Europe  and  our  continued   expectation  with  respect  to  repaying
intercompany debt.

         EXPENSE FROM DERIVATIVES,  NET: This represents the net gain or loss 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.  We
recognized  net expense of $43,000 and $762,000 for the three months ended March
31,  2008 and 2007,  respectively.  We do not expect  any  further  activity  in
derivatives because all such derivatives are owned by Shurgard Europe, which was
deconsolidated effective March 31, 2008.

                                       70


         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 months ended March 31, 2008 and 2007:



                                                          Three Months Ended March 31,
                                                      2008           2007           Change
                                                  ------------   -------------   ----------
                                                         (Amounts in thousands)
                                                                        
Preferred partnership interests..............     $     5,403    $     5,403     $       -
Existing European Joint Ventures  (a)........          (2,142)        (3,754)        1,612
Other minority interests (b).................           4,338          4,134           204
                                                  ------------   -------------   ----------
    Total minority interests in income.......     $     7,599    $     5,783     $   1,816
                                                 =============   =============   ==========



(a)  These amounts reflect income allocated to minority  interests from entities
     we  acquired  in the  Shurgard  Merger.  These  interests  include  the 80%
     partner's  interests in the European  joint  ventures,  First  Shurgard and
     Second Shurgard,  as well as those in domestic joint ventures.  Included in
     minority  interest in income is  $3,184,000  and  $2,833,000  for the three
     months ended March 31, 2008 and 2007 in depreciation expense.

(b)  The other minority interests include  depreciation  expense of $784,000 and
     $590,000 respectively,  for the three months ended March 31, 2008 and 2007,
     respectively.

         Future  minority  interest  will be  reduced  by the level of  minority
interest for the Existing  European Joint Ventures,  because Shurgard Europe was
deconsolidated effective March 31, 2008. Such future minority interest in income
for  periods  after  March  31,  2008  will  not be  included  in our  financial
statements.

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
requirements to shareholders for the foreseeable future.

         Operating as a REIT,  our ability to retain cash flow for  reinvestment
is  restricted.  In order for us to  maintain  our REIT  status,  a  substantial
portion of our  operating  cash flow must be used to make  distributions  to our
shareholders (see "REQUIREMENT TO PAY DISTRIBUTIONS"  below).  However,  despite
the  significant  distribution  requirements,  we have  been  able to  retain  a
significant  amount of our operating cash flow. The following  table  summarizes
our  ability  to  fund   distributions  to  the  minority   interests,   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.

                                       71




                                                                       For the Three Months Ended
                                                                               March 31,
                                                                     -------------------------------
                                                                         2008              2007
                                                                     --------------  ---------------
                                                                          (Amount in thousands)
                                                                                
Net cash provided by operating activities (a)......................   $   230,078     $   195,443

Allocable to minority interests (Preferred Units)..................        (5,403)         (5,403)
                                                                     --------------  ---------------
Cash from operations allocable to our shareholders.................       224,675         190,040

Capital improvements to maintain our facilities....................        (6,874)         (8,307)
                                                                     --------------  ---------------
Remaining operating cash flow available for distributions to our
   shareholders....................................................       217,801         181,733
Distributions paid:
   Preferred share dividends.......................................       (60,333)        (58,776)
   Equity Shares, Series A dividends...............................        (5,356)         (5,356)
   Common shareholders.............................................       (92,783)        (84,993)
                                                                     --------------  ---------------
Cash from operations available for principal payments on debt and
   reinvestment (b)................................................   $    59,329     $    32,608
                                                                     ==============  ===============


(a)  Represents  net cash provided  from  operating  activities  for each of the
     respective  three month  periods ended March 31, 2008 and 2007 as presented
     in our condensed consolidated statements of cash flows.

(b)  Cash  available for principal  payments on debt and  reinvestment  is not a
     substitute  for cash flows from  operations  in our  liquidity,  ability to
     repay our debt, or to meet our distribution requirements.

         Cash from  operations  available  for  principal  payments  on debt and
reinvestment  increased  from $32.6  million in the three months ended March 31,
2007 to $59.3 million in the three months ended March 31, 2008. In addition,  we
have unrestricted cash on hand at March 31, 2008 totaling $727 million.

         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 shares. We expect to fund our growth strategies and debt obligations with
(i) cash on hand at March 31, 2008,  (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  shares 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 of our 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

                                       72


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 March 31, 2008). 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 March 31,  2008).  We had no  outstanding  borrowings on our
Credit Agreement at March 31, 2008 or May 9, 2008.

         At March 31,  2008,  we had undrawn  standby  letters of credit,  which
reduce our  borrowing  capacity with respect to our line of credit by the amount
of the standby letters of credit, totaling $19.7 million.

         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 March 31, 2008.

         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.

         We believe that our size and financial flexibility enables us to access
capital when appropriate. Since the beginning of 2005 through March 31, 2008, we
have  raised  approximately  $2.6  billion  of  preferred  securities  and  used
approximately   $1.2   billion  of  these  net   proceeds  in  order  to  redeem
higher-coupon  preferred  securities.  Over the past several  months,  accessing
capital through the credit markets has become very difficult, in part due to the
lack of liquidity, particularly with respect to real estate companies.

         Since  September  30, 2007,  our 7.500%  Series V Cumulative  Preferred
Shares ($172.5 million) have been redeemable at our option; however, we have not
called  these  shares for  redemption.  It is not  advantageous  to redeem these
shares at this time because,  based upon current  market  conditions,  we cannot
issue additional preferred securities at a lower coupon rate than the securities
that  would  be  called.  In  addition,  in  October  2008 our  6.500%  Series W
Cumulative  Preferred Shares ($132.5  million),  and in November 2008 our 6.450%
Series X Cumulative  Preferred  Shares  ($120.0  million)  become  available for
redemption  at our option.  The timing of  redemption  of any of these series of
preferred  shares will depend upon many factors  including  when,  or if, market
conditions  improve such that we can issue new preferred  shares at a lower cost
of capital than the shares that would be redeemed.

         In the past we have typically raised  additional  capital in advance of
the  redemption  dates to ensure that we have  available  funds to redeem  these
securities.  Provided  market  conditions  improve in the  future,  we may raise
capital in advance to fund redemptions.

         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 Code,
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 REIT taxable income that is distributed
to our  shareholders,  provided  that at least 90% of our  taxable  income is so
distributed  to  our  shareholders.  We  believe  we  have  satisfied  the  REIT
distribution requirement since 1981.

         Aggregate  dividends  paid during the three months ended March 31, 2008
totaled $60.3 million to the holders of our Cumulative  Preferred Shares,  $92.8
million to the holders of our common  shares and $5.4  million to the holders of
our Equity Shares,  Series A. Although we have not finalized the  calculation of
our 2007 taxable income, we believe that the aggregate dividends paid in 2007 to
our  shareholders   enable  us  to  continue  to  meet  our  REIT   distribution
requirements.

         During the three  months ended March 31,  2008,  we paid  distributions
totaling  $5.4 million  with  respect to our  Preferred  Partnership  Units.  We

                                       73


estimate  the 2008  distribution  requirements  with  respect  to the  preferred
partnership  units  outstanding  at March 31, 2008,  to be  approximately  $21.6
million.  In  addition,  we estimate  the 2008  distribution  requirements  with
respect  to  our  preferred  shares   outstanding  at  March  31,  2008,  to  be
approximately  $241.3 million,  assuming no additional preferred share issuances
or redemptions during 2008.

         For 2008,  distributions  with respect to the common  shares and Equity
Shares,   Series  A  will  be  determined  based  upon  our  REIT   distribution
requirements  after taking into  consideration  distributions  to the  preferred
shareholders.  We anticipate  that, at a minimum,  quarterly  distributions  per
common share for 2008 will be $0.55 per common share.  For the second quarter of
2008, a quarterly  distribution  of $0.55 per common share has been  declared by
our Board and will be payable on June 30, 2008 to  shareholders  of record as of
June 13, 2008. Based upon shares outstanding as of March 31, 2008, we estimate a
dividend  payment  with  respect to our  common  shares of  approximately  $92.4
million for the second quarter of 2008.  Notwithstanding  the  significant  gain
recognized  for book purposes as a result of our  disposition of 51% of Shurgard
Europe,  we  currently  do not expect an  increase to be  necessary  to our 2008
distribution to meet our REIT distribution requirements.

         With respect to the depositary  shares  representing the Equity Shares,
Series A, we have no obligation to pay  distributions  if no  distributions  are
paid  to  the  common  shareholders.  To  the  extent  that  we  do  pay  common
distributions  in any year, the holders of the depositary  shares receive annual
distributions  equal to the lesser of (i) five times the per share  dividend  on
the common shares 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.

         CAPITAL  IMPROVEMENT  REQUIREMENTS:   During  2008,  we  have  budgeted
approximately $92 million 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 three  months  ended March 31,  2008,  we
incurred capital improvements of approximately $6.9 million.

         EUROPEAN  ACTIVITIES:  Pursuant to our disposition of a 51% interest in
Shurgard  Europe on March 31, 2008 (see Note 3 to our March 31,  2008  condensed
consolidated  financial  statements),  the intercompany notes receivable owed by
Shurgard Europe to Public Storage were modified, principally to fix the interest
rate to 7.5% per annum and extend the maturity date to March 31, 2009 (March 31,
2010 if Shurgard Europe exercises its option to extend one additional year). The
notes totaled approximately $618.8 million at March 31, 2008.

         We are committed to provide additional loans to Shurgard Europe,  under
the same  terms as the  existing  loans,  for up to  (euro)305  million  ($481.6
million as of March 31, 2008) to fund Shurgard Europe's obligations with respect
to its existing joint venture partnerships.  We are also committed to fund up to
$88.2  million of  addition  equity  contributions  to  Shurgard  Europe to fund
certain investing activities.

         We expect that Shurgard Europe will repay the loans no later than March
31, 2010 or sooner if capital  markets become  accessible to Shurgard  Europe on
appropriate  terms.  Given the difficulty in the credit markets,  it is possible
that  Shurgard  Europe may be unable to repay the loans prior to March 31, 2010.
Our business  operations  are not dependent on the  repayment of such loans,  if
Shurgard  Europe is unable to repay the amounts  due to Public  Storage by March
31, 2010.

         DEBT SERVICE REQUIREMENTS: At March 31, 2008, we have total outstanding
debt of  approximately  $683 million.  We do not believe we have any significant
refinancing risks with respect to our debt.

         Our  portfolio  of  real  estate   facilities   remains   substantially
unencumbered.  At March 31, 2008, we have domestic  mortgage debt outstanding of
$234.7 million, which encumbers 88 self-storage facilities with an aggregate net
book value of approximately $594.3 million.

         We anticipate that our retained operating cash flow will continue to be
sufficient to enable us to make scheduled  principal and interest payments.  See
Notes 7 and 8 to our March 31, 2008 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  OF REAL ESTATE  ASSETS:  During 2008, we have  significant
interest in acquiring real estate facilities, as well as related mortgage loans.
However,  it is difficult to estimate  the amount of such  acquisitions  we will
undertake.

                                       74


         DEVELOPMENT  OF  FACILITIES:  At March 31, 2008,  we have a development
"pipeline"  of 28  projects in the U.S.  and one project in the United  Kingdom,
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 March 31, 2008, we have acquired the land
for all of these projects.

         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  $89.3 million and will be incurred  over the next 24 months.  The
following table sets forth certain  information  with respect to our development
pipeline.

                                       75


DEVELOPMENT PIPELINE SUMMARY
AS OF MARCH 31, 2008



                                                             Total
                                     Number     Net        estimated      Costs incurred
                                       of     rentable    development       through         Costs to
                                    projects   sq. ft.       costs          03/31/08        complete
                                   ---------  ---------  --------------   --------------   ------------
                                                   (Amounts in thousands, except number of projects)
                                                                            
    Under construction                 11          578    $   65,778      $   30,176       $  35,602
    In development                     18          653        59,468           5,725          53,743
                                   ---------  ---------  --------------   --------------   ------------
   Total Development Pipeline          29        1,231    $  125,246      $   35,901       $  89,345
                                   =========  =========  ==============   ==============   ============


         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.  The future costs with respect to all other
development projects will be funded by us.

         CONTRACTUAL OBLIGATIONS

         Our  significant  contractual  obligations  at March 31, 2008 and their
impact on our cash flows and liquidity are summarized below for the years ending
December 31 (amounts in thousands):



                                     Total        2008         2009        2010         2011        2012      Thereafter
                                   -----------  ----------  -----------  ----------  ----------   ---------  -----------
                                                                                        
Long-term debt (1) ............    $  792,476   $  49,705   $   46,836    $  48,221   $250,723    $ 73,874   $ 323,117

Operating leases (2)...........       124,658       5,020       11,604       11,060      7,375       6,032      83,567

Construction commitments (3)...        35,602      32,042        3,560            -          -           -           -
                                   -----------  ----------  -----------  ----------  ----------   ---------  -----------
Total..........................    $  952,736   $  86,767   $   62,000    $  59,281   $258,098    $ 79,906   $ 406,684
                                   ===========  ==========  ===========  ==========  ==========   =========  ===========


(1)  Amounts  include  interest  payments  on our notes  payable  based on their
     contractual terms. See Note 7 to our March 31, 2008 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)  We lease trucks,  land,  equipment and office space under various operating
     leases. Certain leases are cancelable with substantial penalties.

(3)  Includes  obligations for facilities  currently under construction at March
     31,  2008  as  described  above  under   "Acquisition  and  Development  of
     Facilities."

                                       76


         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  U.S.  from  third  parties  (the
"Acquisition Joint Venture"). As described more fully in Note 8 to our March 31,
2008  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 March  31,  2008,  our Debt to Joint  Venture  Partner  was
$38,128,000. For a six-month period beginning 54 months after formation, we have
the right to acquire our partner's  interest  based upon the market value of the
properties.  If we do not exercise our option, our partner can elect to purchase
our  interest  in the  properties  during a  six-month  period  commencing  upon
expiration of our six-month option period.  If our partner fails to exercise its
option,  the Acquisition  Joint Venture will be liquidated and the proceeds will
be distributed to the partners according to the joint venture agreement. We have
not included our Debt to Joint Venture  Partner as a  contractual  obligation in
the  table  above,  since we only  have the  right,  rather  than a  contractual
obligation, to acquire our partner's interest.

         We have not included any additional funding requirements that we may be
required make to Shurgard Europe as a contractual obligation in the table above,
since it is uncertain  whether or not we will be required to fund any additional
amounts.

         OFF-BALANCE  SHEET  ARRANGEMENTS:  At March 31, 2008 we had no material
off-balance sheet arrangements as defined under Regulation S-K 303(a)(4) and the
instructions thereto.

         SHARE REPURCHASE PROGRAM:  Our Board has authorized the repurchase from
time to time of up to  25,000,000  of our common shares 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 and 2007, we did not  repurchase  any
shares.  During 2008 (through May 8, 2008), we repurchased  1,520,196 shares for
approximately  $111.9  million.  From the  inception of the  repurchase  program
through May 8, 2008, we have repurchased a total of 23,721,916  common shares at
an aggregate cost of approximately $679.1 million.

         As  disclosed  previously,  our Board of Trustees  has  authorized  the
repurchase  from time to time of up to  25,000,000  of our common  shares on the
open market or in privately negotiated  transactions.  On May 8, 2008, the Board
of Trustees  authorized an increase in the total repurchase  authorization  from
25,000,000 common shares to 35,000,000 common shares.

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 March 31, 2008, our debt as a percentage of total
shareholders' equity (based on book values) was 7.6%.

         Our preferred  shares are not  redeemable at the option of the holders.
Our  Series V shares  are  currently  redeemable  by us.  Except  under  certain
conditions  relating to the  Company's  qualification  as a REIT,  the preferred
shares are not redeemable by the Company prior to the following dates:  Series W
- October 6, 2008,  Series X - November  13,  2008,  Series Y - January 2, 2009,
Series Z - March 5, 2009,  Series A - March 31, 2009,  Series B - September  30,
2009,  Series C - September 13, 2009,  Series D - February 28, 2010,  Series E -
April 27, 2010, Series F - August 23, 2010, Series G - December 12, 2010, Series
H - January 19, 2011,  Series I - May 3, 2011, Series K - August 8, 2011, Series
L - October 20, 2011, Series M - January 9, 2012 and Series N - July 2, 2012. On
or after the respective  dates,  each of the series of preferred  shares will be
redeemable  at the  option  of the  Company,  in whole  or in  part,  at $25 per
depositary share (or share in the case of the Series Y), plus accrued and unpaid
dividends through the redemption date.

         Our  market  risk  sensitive  instruments  include  notes  payable  and
borrowing  on bank  credit  facilities,  which  totaled  $644,788,000  and none,
respectively, at March 31, 2008.

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

                                       77


         We  have  foreign  currency  exposures  related  to our  investment  in
Shurgard Europe.  The aggregate book value of our investment in such real estate
and intangibles was  approximately  $11,125,000 at March 31, 2008, and we have a
note receivable from Shurgard  Europe,  which is denominated in Euros,  totaling
(euro)391.9  million  ($618,822,000)  at  March  31,  2008.  We  also  have  the
obligation,  in certain  circumstances,  to loan up to an  additional  (euro)305
million to Shurgard Europe.

         The table below summarizes annual debt maturities and  weighted-average
interest rates on our  outstanding  debt at the end of each year and fair values
required to evaluate  our  expected  cash-flows  under debt  agreements  and our
sensitivity  to  interest  rate  changes at March 31,  2008  (dollar  amounts in
thousands).




                            2008       2009        2010          2011        2012     Thereafter      Total     Fair Value
                         ----------  ---------  ----------   -----------  ---------  -----------  -----------  -------------
                                                                                        
Fixed rate debt........  $  23,073   $ 12,552   $   14,654   $  228,030    $55,195    $ 311,284    $  644,788   $ 644,788
Average interest rate..      6.73%      6.72%        6.71%        6.01%      5.80%        5.50%
----------------------------------------------------------------------------------------------------------------------------

Variable rate debt (1).  $      -    $     -    $       -    $       -     $    -     $      -     $       -    $      -
Average interest rate..
----------------------------------------------------------------------------------------------------------------------------


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

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 Securities  Exchange Act of 1934, as amended
("Exchange  Act"),  is recorded,  processed,  summarized and reported within the
time  periods  specified  in  accordance  with  SEC  guidelines  and  that  such
information is  communicated  to the Company's  management,  including its Chief
Executive  Officer  and  Chief  Financial  Officer,  to allow  timely  decisions
regarding  required  disclosure based on the definition of "disclosure  controls
and  procedures"  in Rules  13a-15(e)  and  15d-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) of the Exchange  Act.  Based on that
evaluation,  the Company's Chief Executive  Officer and Chief Financial  Officer
concluded that 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  quarter  to which  this  report  relates  that have
materially affected, or are reasonable likely to materially affect, our internal
control over financial reporting.

                                       78



PART II.   OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS
           -----------------

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

ITEM 1A.   RISK FACTORS
           ------------

         In addition to the other  information in this Quarterly  Report on Form
10-Q,  you should  consider  the risks  described  below that we believe  may be
material  to  investors  in  evaluating  the  Company.   This  section  contains
forward-looking  statements,  and in considering  these  statements,  you should
refer to the  qualifications and limitations on our  forward-looking  statements
that are  described in Forward  Looking  Statements  at the beginning of Part I,
Item 2.

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

         The value of our  investments  may be reduced by general  risks of real
estate  ownership.  Since we derive  substantially  all of our income  from real
estate  operations,  we  are  subject  to  the  general  risks  of  owning  real
estate-related assets, including:

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

         o  changes in general economic or local conditions;

         o  natural disasters, such as earthquakes and floods;

         o  potential terrorist attacks;

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

         o  the impact of environmental protection laws;

         o  changes in interest  rates and  availability  of permanent  mortgage
            funds which may render the sale of a nonstrategic property difficult
            or  unattractive  including the impact of the current turmoil in the
            credit markets;

         o  increases in insurance premiums,  property tax assessments and other
            operating and maintenance expenses;

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

         o  tenant and employment-related claims.

         In addition,  we self-insure  certain of our property loss,  liability,
and workers  compensation  risks for which other real estate  companies  may use
third-party  insurers.  This  results  in a higher  risk of losses  that are not
covered  by  third-party  insurance  contracts,  as  described  in Note 14 under
"Insurance and Loss Exposure" to our consolidated  financial statements at March
31, 2008.

         There is significant competition among self-storage facilities and from
other storage alternatives.  Most of our properties are self-storage facilities,
which generated most of our revenue for the quarter ended March 31, 2008.  Local
market  conditions will play a significant  part in how competition  will affect

                                       79


us.  Competition in the market areas in which many of our properties are located
from other self-storage facilities and other storage alternatives is significant
and has affected the occupancy  levels,  rental rates and operating  expenses of
some of our properties.  Any increase in availability of funds for investment in
real estate may accelerate  competition.  Further  development  of  self-storage
facilities may intensify competition among operators of self-storage  facilities
in the market areas in which we operate.

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

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

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

         Delays in development  and fill-up of our  properties  would reduce our
profitability.  From January 1, 2004,  through March 31, 2008, we have opened 20
newly developed self-storage facilities in the U.S. In addition, our development
"pipeline" at March 31, 2008 consists of 29 projects with total  estimated costs
of $125  million.  We  anticipate  the  development  of these 29  projects to be
completed in the next two years. Construction delays due to weather,  unforeseen
site  conditions,  personnel  problems,  and  other  factors,  as  well  as cost
overruns,  would adversely  affect our  profitability.  Delays in the rent-up of
newly developed  storage space as a result of competition or other factors would
also adversely impact our profitability.

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

         We must comply with the Americans  with  Disabilities  Act and fire and
safety  regulations,   which  can  require  significant  expenditures.  All  our
properties must comply with the Americans with Disabilities Act and with related
regulations  (the  "ADA").  The ADA has  separate  compliance  requirements  for

                                       80


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

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

WE GROW OUR BUSINESS PRIMARILY THROUGH  ACQUISITIONS OF EXISTING  PROPERTIES AND
ARE SUBJECT TO RISKS RELATED TO ACQUISITIONS.

         We grow our business in large part through the  acquisition of existing
properties,   including  acquisitions  of  businesses  owned  by  other  storage
operators.  In addition to the general  risks  related to real estate  described
above which may also adversely impact operations at acquired properties,  we are
also subject to the following risks in connection with property acquisitions and
the integration of acquired properties into our operations.

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

         Any failure to  successfully  integrate  acquired  operations  with our
existing  business  could  negatively  impact our  financial  results.  To fully
realize any  anticipated  benefits  from an  acquisition,  we must  successfully
complete  the  combination  of the  businesses  of Public  Storage and  acquired
properties in a manner that permits cost savings to be realized.  It is possible
that the  integration  process  could  result in a decline in  occupancy  and/or
rental  rates,   the  disruption  of  each  company's   ongoing   businesses  or
inconsistencies  in standards,  controls,  procedures,  practices,  policies and
compensation   arrangements  that  adversely  affect  our  ability  to  maintain
relationships  with tenants and  employees or to achieve  anticipated  benefits,
particularly with large acquisitions.

         Some acquired properties are subject to property tax reappraisals which
may increase our property tax expense. Some of the facilities we acquired in the
Shurgard  Merger have been,  and will  continue to be,  subject to property  tax
reappraisal  that could increase  property tax expense and adversely  affect our
profitability.  Up to 17% of the domestic  properties  we acquired in the merger
are located in jurisdictions  that may provide for property tax reappraisal upon
a change of ownership and so may face further reassessment.

AS A RESULT OF OUR OWNERSHIP OF 49% OF THE INTERNATIONAL  OPERATIONS OF SHURGARD
EUROPE, WE ARE EXPOSED TO ADDITIONAL RISKS RELATED TO INTERNATIONAL BUSINESSES.

         We have limited experience in European operations,  which may adversely
impact  our  ability  to  operate  profitably  in  Europe.  In  addition,  these
operations  have specific  inherent  risks,  including  without  limitation  the
following:

         o  currency risks, including currency fluctuations and risks related to
            foreign currency hedging activities;

         o  unexpected changes in legislative and regulatory requirements;

         o  potentially adverse tax burdens;

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

         o  obstacles to the repatriation of earnings and cash;

         o  regional, national and local political uncertainty;

                                       81


         o  economic slowdown and/or downturn in foreign markets;

         o  difficulties in staffing and managing international operations;

         o  reduced protection for intellectual property in some countries; and

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

WE ARE  SUBJECT TO RISKS  RELATED TO OUR  OWNERSHIP  OF ASSETS IN JOINT  VENTURE
STRUCTURES.

         In connection with our 2006 acquisition of Shurgard and the acquisition
of a 51% interest in Shurgard Europe by an  institutional  investor on March 31,
2008,  we  hold  interests  in  several  joint  ventures.  Joint  ventures  have
additional risks, including without limitation, the following:

         o  Risks related to the financial  strength,  common business goals and
            strategies and cooperation of the venture partner.

         o  The inability to take some actions with respect to the joint venture
            activities  that we may believe are favorable,  if our joint venture
            partner does not agree.

         o  The risk that we could lose our REIT  status  based upon  actions of
            the joint  ventures if we are unable to  effectively  control  these
            indirect  investments.

         o  The risk that we may not control the legal  entity that has title to
            the real estate.

         o  The risk that our  investments  in these  entities may not be easily
            sold or readily  accepted  as  collateral  by our  lenders,  or that
            lenders  may  view  joint  ventured  assets  as  less  favorable  as
            collateral.

         o  The risk that the joint  ventures  could take  actions that we could
            not prevent, which could result in negative rating agency impacts to
            our preferred stock and debt.

         o  The risk that we may be constrained  from certain  activities of our
            own  that we  would  otherwise  deem  favorable,  due to  noncompete
            clauses in our joint venture arrangements.

         o  The risk that we will be unable to resolve  disputes  with our joint
            venture  partners.  We are  currently  engaged in legal  proceedings
            including  arbitration  and  litigation  with certain  joint venture
            partners in the United States and Europe.

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

         At March 31, 2008, B. Wayne  Hughes,  Chairman of the Board of Trustees
and his family (the "Hughes Family") owned  approximately 25.3% of our aggregate
outstanding common shares. Our declaration of trust permits the Hughes Family to
own up to 47.66% of our  outstanding  common  shares.  Consequently,  the Hughes
family may or could  control  matters  submitted to a vote of our  shareholders,
including electing trustees,  amending our organizational documents,  dissolving
and approving other extraordinary transactions, such as a takeover attempt, even
though such actions may not be favorable to other shareholders.

CERTAIN  PROVISIONS OF MARYLAND LAW AND IN OUR  DECLARATION  OF TRUST AND BYLAWS
MAY  PREVENT  CHANGES IN  CONTROL  OR  OTHERWISE  DISCOURAGE  TAKEOVER  ATTEMPTS
BENEFICIAL TO STOCKHOLDERS.

         Maryland  law  limits  certain  business  combinations  and  changes of
control of the Company unless the Board  affirmatively  elects not to be covered
by the statutory provisions. Currently, the Board has opted out of the statutory
limitations of both statutes.  However,  the Board may in the future elect to be
covered  under  the  business  combination  provisions  and  the  control  share
acquisitions  provisions of Maryland law. The business combination provisions of
Maryland  law (in the event our Board opts to make them  applicable  to us), the
control  share  acquisition  provisions  of  Maryland  law  (if  the  applicable
provision in our bylaws is rescinded), limitations on removal of trustees in our

                                       82


declaration  of  trust,  restrictions  on  the  acquisition  of  our  shares  of
beneficial  interest,  the power to issue  additional  common shares,  preferred
shares or equity  shares and the advance  notice  provisions of our bylaws could
have the effect of delaying,  deterring or preventing a transaction  or a change
in control that might  involve a premium  price for holders of the common shares
or might otherwise be in their best interest. Certain provisions of Maryland law
permit our board of trustees,  without  shareholder  approval and  regardless of
what is provided in our  declaration of trust or bylaws,  to implement  takeover
defenses that we may not yet have and to take,  or refrain from taking,  certain
other actions without those  decisions being subject to any heightened  standard
of conduct or  standard  of review as such  decisions  may be subject in certain
other jurisdictions.

         To preserve  our status as a REIT under the Code,  our  declaration  of
trust  contains  limitations  on the  number  and value of shares of  beneficial
interest that any person may own. These  ownership  limitations  generally limit
the  ability  of a person,  other  than the  Hughes  Family  (as  defined in our
declaration  of trust)  and other  than  "designated  investment  entities"  (as
defined in our  declaration  of trust),  to own more than 3% of our  outstanding
common  shares  or 9.9% of the  outstanding  shares  of any  class or  series of
preferred  or  equity  shares,  in each  case,  in value or  number  of  shares,
whichever  is more  restrictive,  unless an exemption is granted by our board of
trustees.  These limitations  could  discourage,  delay or prevent a transaction
involving  a change in  control  of our  company  not  approved  by our board of
trustees.

IF WE FAILED TO QUALIFY  AS A REIT,  WE WOULD BE TAXED AS A  CORPORATION,  WHICH
WOULD SUBSTANTIALLY REDUCE FUNDS AVAILABLE FOR PAYMENT OF DIVIDENDS.

         Investors  are  subject to the risk that we may not  qualify as a REIT.
REITs  are  subject  to  a  range  of  complex  organizational  and  operational
requirements.  As a REIT, we must  distribute with respect to each year at least
90% of our REIT taxable income to our shareholders  (which may take into account
certain dividends paid in the subsequent year).  Other restrictions apply to our
income  and  assets.  Our  REIT  status  is  also  dependent  upon  the  ongoing
qualification  of our affiliate,  PSB, as a REIT, as a result of our substantial
ownership interest in that company.

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

         We have also assumed, based on public filings, that Shurgard qualified
as a REIT. However, if Shurgard failed to qualify as a REIT, we generally would
have succeeded to or incurred significant tax liabilities (including the
significant tax liability that would have resulted from the deemed sale of
assets by Shurgard pursuant to the merger).

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

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

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

         We have become  increasingly  centralized  and dependent upon automated
information technology processes.  As a result, we could be severely impacted by
a catastrophic occurrence,  such as a natural disaster or a terrorist attack. In

                                       83


addition,  a portion of our business operations are conducted over the Internet,
increasing the risk of viruses that could cause system  failures and disruptions
of operations.  Experienced  computer  programmers  may be able to penetrate our
network security and misappropriate our confidential information,  create system
disruptions or cause shutdowns.

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

         The  Hughes  Family  has  ownership  interests  in,  and  operates,  48
self-storage  facilities in Canada under the name "Public Storage." We currently
do not own any  interests in these  facilities  nor do we own any  facilities in
Canada.  We have a right of first  refusal to acquire the stock or assets of the
corporation engaged in the operation of the self-storage facilities in Canada if
the Hughes family or the corporation  agrees to sell them.  However,  we have no
ownership  interest  in the  operations  of this  corporation,  have no right to
acquire  their stock or assets  unless the Hughes  family  decides to sell,  and
receive no benefit  from the  profits  and  increases  in value of the  Canadian
self-storage facilities.

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

         Through our  subsidiaries,  we continue to reinsure  risks  relating to
loss of goods stored by tenants in the  self-storage  facilities  in Canada.  We
acquired  the tenant  insurance  business  on  December  31,  2001  through  our
acquisition of PS Insurance Company,  or PSICH. For the three months ended March
31, 2008 and 2007,  PSICH  received  $225,000  and  $188,000,  respectively,  in
reinsurance  premiums  attributable  to the Canadian  Facilities.  Since PSICH's
right to provide tenant reinsurance to the Canadian Facilities may be qualified,
there is no assurance that these premiums will continue.

SOME OF OUR BUSINESS IS SUBJECT TO  GOVERNMENTAL  REGULATION  WHICH COULD REDUCE
OUR PROFITABILITY OR LIMIT OUR GROWTH.

         We hold Limited  Lines Self Storage  Insurance  Agent  licenses  from a
number of  individual  state  Departments  of Insurance and are subject to state
governmental  regulation and supervision.  This state  governmental  supervision
could reduce our  profitability  or limit our growth by increasing  the costs of
regulatory  compliance,  limiting  or  restricting  the  products or services we
provide or the methods by which we provide products and services,  or subjecting
our businesses to the  possibility  of regulatory  actions or  proceedings.  Our
continued  ability to maintain these Limited Lines Self Storage  Insurance Agent
licenses in the jurisdictions in which we are licensed depends on our compliance
with the rules and regulations  promulgated  from time to time by the regulatory
authorities  in  each  of  these  jurisdictions.  Furthermore,  state  insurance
departments  conduct periodic  examinations,  audits and  investigations  of the
affairs of insurance agents.

         In all  jurisdictions,  the applicable laws and regulations are subject
to  amendment or  interpretation  by  regulatory  authorities.  Generally,  such
authorities  are vested with  relatively  broad  discretion to grant,  renew and
revoke licenses and approvals and to implement regulations.  Accordingly, we may
be  precluded  or  temporarily  suspended  from  carrying  on some or all of our
activities  or  otherwise  fined  or  penalized  in  a  given  jurisdiction.  No
assurances  can be given that our businesses can continue to be conducted in any
given  jurisdiction  as it has been  conducted  in the past.  For the year ended
December 31, 2007,  revenues from our tenant  reinsurance  business  represented
approximately  3% of our 2007  revenues and 3% of revenues for the quarter ended
March 31, 2008.

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

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

                                       84


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

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

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

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

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

         On 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,  and on May 8, 2008,  the Board  increased  the total  repurchase
authorization by 10,000,000  common shares to 35,000,000  common shares.  During
2008 (through May 8, 2008), we repurchased  1,520,196  shares for  approximately
$111.9  million.  From the inception of the  repurchase  program  through May 8,
2008, we have  repurchased  a total of 23,721,916  common shares at an aggregate
cost of approximately $679.1 million.

         The following table presents monthly information related to repurchases
of our common  shares during the three months ended March 31, 2008 in connection
with the repurchase program:



                                                                         Total Number
                                                                           of Shares
                                                                         Purchased as     Maximum Number of
                                              Total                         Part of      Shares that May Yet
                                            Number of                      Publicly       Be Purchased Under
                                             Shares     Average Price      Announced        the Repurchase
Period Covered                              Purchased   Paid per Share      Program            Program
-------------------------------------    ------------- ---------------  --------------  --------------------
                                                                                 
January 1, 2008  - January 31, 2008          338,196       $72.52           338,196          2,460,084
February 1, 2008 - February 29, 2008       1,182,000       $73.92         1,182,000          1,278,084
March 1, 2008 - March 31, 2008                     -            -                 -          1,278,084
                                         ------------- ---------------  --------------
   Total                                   1,520,196       $73.61         1,520,196
                                         ============= ===============  ==============


                                       85


         Our share repurchase  program does not have an expiration date.  During
the three months ended March 31, 2008, we did not  repurchase  any of our common
shares outside our publicly announced repurchase program, except shares withheld
for payment of tax  withholding  in  connection  with our various  stock  option
plans.  Due  to  the  Board's  authorized   increase  in  the  total  repurchase
authorization on May 8, 2008, there are 11,278,084 common shares that may yet be
repurchased under our repurchase program as of that date.

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.


                                       86



                                                    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: May 12, 2008

                                     PUBLIC STORAGE

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







                                       87



                                 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.

                                       88


3.17     rticles  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     rticles  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     rticles  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.

                                       89


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.

                                       90


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

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

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

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

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

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

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

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

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

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

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

10.33*   Form of Indemnity Agreement. Filed with Registrant's Amendment No. 1 to
         Registration  Statement  on Form S-4  (SEC  File  No.  333-141448)  and
         incorporated herein by reference.

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

12       Statement  Re:  Computation  of Ratio of Earnings to Fixed  Charges and
         Preferred Stock Dividends. Filed herewith.

31.1     Rule 13a - 14(a) Certification. Filed herewith.

31.2     Rule 13a - 14(a) Certification. Filed herewith.

32       Section 1350 Certifications. Filed herewith.


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

                                       91