PUBLIC STORAGE INC /CA - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2003
-------------

or

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

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

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

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

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

701 Western Avenue, Glendale, California 91201-2349
- ----------------------------------------- ----------------------
(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 the past 90 days.

[X] Yes [ ] No

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

[X] Yes [ ] No

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of July 30, 2003:

Common Stock, $.10 Par Value - 125,979,570 shares
- --------------------------------------------------

Depositary Shares Each Representing 1/1,000 of a Share of Equity Stock, Series
- ------------------------------------------------------------------------------
A, $.01 Par Value - 8,776,102 depositary shares (representing 8,776.102 shares
- ------------------------------------------------------------------------------
of Equity Stock, Series A)
- --------------------------

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

Equity Stock, Series AAA, $.01 Par Value - 4,289,544 shares
- -----------------------------------------------------------

PUBLIC STORAGE, INC.

INDEX

Pages
-----

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

Item 1. Financial Statements

Condensed Consolidated Balance Sheets at
June 30, 2003 and December 31, 2002 1

Condensed Consolidated Statements of Income for the
Three and Six Months Ended June 30, 2003 and 2002 2

Condensed Consolidated Statement of Shareholders' Equity
for the Six Months Ended June 30, 2003 3

Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2003 and 2002 4-5

Notes to Condensed Consolidated Financial Statements 6-36

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 37-62

Item 2A. Risk Factors 62-66

Item 3. Quantitative and Qualitative Disclosures about Market Risk 66-67

Item 4. Controls and Procedures 67

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

Item 1. Legal Proceedings 68-69

Item 4. Submission of Matters to a Vote of Security Holders 69

Item 5. Other Items 69

Item 6. Exhibits and Reports on Form 8-K 69-76

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

June 30, December 31,
2003 2002
---------------- ----------------
(Unaudited)
ASSETS
------

Cash and cash equivalents.................................................... $ 41,363 $ 103,124
Real estate facilities, at cost:
Land...................................................................... 1,312,504 1,304,881
Buildings................................................................. 3,718,502 3,683,645
---------------- ----------------
5,031,006 4,988,526
Accumulated depreciation.................................................. (1,066,390) (987,546)
---------------- ----------------
3,964,616 4,000,980
Construction in process................................................... 90,335 87,516
Land held for development................................................. 14,036 17,807
Real estate facilities held for sale, net of
accumulated depreciation (Note 4)...................................... 14,671 -
---------------- ----------------
4,083,658 4,106,303

Investment in real estate entities........................................... 334,323 329,679
Goodwill..................................................................... 78,204 78,204
Intangible assets, net....................................................... 114,591 117,893
Notes receivable, including amounts due from related parties................. 923 24,324
Other assets................................................................. 87,023 84,135
---------------- ----------------
Total assets................................................... $ 4,740,085 $ 4,843,662
================ ================

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

Line of credit borrowings.................................................... $ 24,000 $ -
Notes payable................................................................ 82,940 115,867
Accrued and other liabilities................................................ 137,386 129,327
---------------- ----------------
Total liabilities................................................... 244,326 245,194
Minority interest:
Preferred partnership interests........................................... 285,000 285,000
Other partnership interests............................................... 145,254 154,499
Commitments and contingencies
Shareholders' equity:
Cumulative Preferred Stock, $0.01 par value, 50,000,000 shares authorized,
5,758,486 shares issued (in series) and outstanding, (9,258,486 at
December 31, 2002) at liquidation preference............................ 1,729,525 1,817,025
Common Stock, $0.10 par value, 200,000,000 shares authorized, 125,114,813
shares issued and outstanding (116,991,455 at December 31, 2002)........ 12,511 11,699
Equity Stock, Series A, $0.01 par value, 200,000,000 shares authorized,
8,776.102 shares issued and outstanding................................. - -
Class B Common Stock, $0.10 par value, no shares are issued and outstanding
(7,000,000 at December 31, 2002)........................................ - 700
Paid-in capital........................................................... 2,399,791 2,371,194
Cumulative net income..................................................... 2,190,943 2,030,007
Cumulative distributions paid............................................. (2,267,265) (2,071,656)
---------------- ----------------
Total shareholders' equity.......................................... 4,065,505 4,158,969
---------------- ----------------
Total liabilities and shareholders' equity..................... $ 4,740,085 $ 4,843,662
================ ================

See accompanying notes.
1

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

(Unaudited)

For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
2003 2002 2003 2002
--------------- --------------- --------------- ---------------
Revenues:

Rental income:
Self-storage facilities.............................. $ 197,075 $ 188,307 $ 386,646 $ 376,832
Commercial properties................................ 2,943 3,067 5,789 6,023
Containerized storage facilities..................... 10,402 8,661 19,638 16,567
Tenant reinsurance premiums.............................. 5,581 5,156 10,796 9,731
Interest and other income................................ 2,879 2,759 4,578 4,467
--------------- --------------- --------------- ---------------
218,880 207,950 427,447 413,620
--------------- --------------- --------------- ---------------
Expenses:
Cost of operations:
Self-storage facilities.............................. 70,437 59,778 135,752 118,217
Commercial properties................................ 1,045 1,106 2,238 2,198
Containerized storage facilities..................... 6,861 6,152 12,997 11,807
Tenant reinsurance................................... 3,015 2,523 5,714 4,816
Depreciation and amortization............................ 46,314 45,463 92,194 88,837
General and administrative............................... 4,429 4,305 8,679 8,305
Interest expense......................................... 372 1,213 825 2,315
--------------- --------------- --------------- ---------------
132,473 120,540 258,399 236,495
--------------- --------------- --------------- ---------------
Income before equity in earnings of real estate entities,
minority interest in income, discontinued operations and gain
(loss) on disposition of real estate investments........... 86,407 87,410 169,048 177,125
Equity in earnings of real estate entities (Note 6)........... 8,999 7,000 13,686 16,256
Minority interest in income:
Preferred partnership interests.......................... (6,727) (6,727) (13,453) (13,453)
Other partnership interests.............................. (4,043) (3,886) (7,985) (8,502)
--------------- --------------- --------------- ---------------
Income before discontinued operations and gain (loss) on
disposition of real estate investments..................... 84,636 83,797 161,296 171,426
Discontinued operations (Note 4).............................. (1,085) (1,240) (1,120) (1,414)
Gain (loss) on disposition of real estate investments......... 746 (1,839) 760 (1,839)
--------------- --------------- --------------- ---------------
Net income.................................................... $ 84,297 $ 80,718 $ 160,936 $ 168,173
=============== =============== =============== ===============
Net income allocation:
- ----------------------
Allocable to preferred shareholders...................... $ 35,699 $ 37,936 $ 72,721 $ 73,776
Allocable to Equity Stock, Series A...................... 5,376 5,376 10,751 10,751
Allocable to common shareholders......................... 43,222 37,406 77,464 83,646
--------------- --------------- --------------- ---------------
$ 84,297 $ 80,718 $ 160,936 $ 168,173
=============== =============== =============== ===============

Per common share:
- -----------------
Net income per share - Basic (Note 14)................... $ 0.35 $ 0.30 $ 0.62 $ 0.68
=============== =============== =============== ===============
Net income per share - Diluted (Note 14)................ $ 0.34 $ 0.30 $ 0.62 $ 0.67
=============== =============== =============== ===============
Net income per depositary share of Equity Stock, Series A -
Basic and Diluted...................................... $ 0.61 $ 0.61 $ 1.23 $ 1.23
=============== =============== =============== ===============
Weighted average common shares - Basic................... 124,599 122,821 124,340 122,386
=============== =============== =============== ===============
Weighted average common shares - Diluted................. 125,854 124,824 125,536 124,417
=============== =============== =============== ===============
Weighted average depositary shares of Equity Stock, Series A
- Basic and Diluted.................................... 8,776 8,776 8,776 8,776
=============== =============== =============== ===============

See accompanying notes.
2

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

(Unaudited)

Cumulative Class B Common
Preferred Stock Common Stock Stock Paid-in Capital
---------------- ---------------- ---------------- ----------------

Balances at December 31, 2002............................. $ 1,817,025 $ 11,699 $ 700 $ 2,371,194

Redemption of cumulative preferred stock, including
redemption costs:
Series B (2,300,000 shares)............................ (57,500) - - (17)
Series C (1,200,000 shares)............................ (30,000) - - (18)

Issuance of common stock:
Exercise of Employee Stock Options (871,499 shares).... - 87 - 21,148
Conversion of Class B shares into Common Stock
(7,000,000 shares)................................... - 700 (700) -
To acquire minority interests (426,859 shares)......... - 43 - 13,467

Repurchase of common stock (175,000 shares)............... - (18) - (5,983)

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

Cash distributions:
Cumulative preferred stock (Note 10)................... - - - -
Equity Stock, Series A ($1.23 per share)............... - - - -
Common Stock ($0.90 per share)......................... - - - -
---------------- ---------------- ---------------- ----------------
Balances at June 30, 2003................................. $ 1,729,525 $ 12,511 $ - $ 2,399,791
================ ================ ================ ================

Total
Cumulative Net Cumulative Shareholders'
Income Distributions Equity
---------------- ---------------- ----------------

Balances at December 31, 2002............................. $ 2,030,007 $ (2,071,656) $ 4,158,969

Redemption of cumulative preferred stock, including
redemption costs:
Series B (2,300,000 shares)............................ - - (57,517)
Series C (1,200,000 shares)............................ - - (30,018)

Issuance of common stock:
Exercise of Employee Stock Options (871,499 shares).... - - 21,235
Conversion of Class B shares into Common Stock
(7,000,000 shares)................................... - - -
To acquire minority interests (426,859 shares)......... - - 13,510

Repurchase of common stock (175,000 shares)............... - - (6,001)

Net income................................................ 160,936 - 160,936

Cash distributions:
Cumulative preferred stock (Note 10)................... - (72,721) (72,721)
Equity Stock, Series A ($1.23 per share)............... - (10,751) (10,751)
Common Stock ($0.90 per share)......................... - (112,137) (112,137)
---------------- ---------------- ----------------
Balances at June 30, 2003................................. $ 2,190,943 $ (2,267,265) $ 4,065,505
================ ================ ================

See accompanying notes.
3

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

(Unaudited)

For the Six Months Ended
June 30,
-------------------------------------
2003 2002
---------------- ----------------
Cash flows from operating activities:

Net income.............................................................. $ 160,936 $ 168,173
Adjustments to reconcile net income to net cash provided by operating
activities:
(Gain) loss on asset sales included in equity in earnings of real estate
investments (Note 6)............................................... (453) (2,241)
(Gain) loss on sale of real estate investments....................... (760) 1,839
Depreciation and amortization........................................ 92,194 88,837
Depreciation included in equity in earnings of real estate entities.. 13,138 12,896
Minority interest in income.......................................... 21,438 21,955
Depreciation associated with discontinued operations (Note 4)...... 282 1,212
Impairment charge included in discontinued operations (Note 4) ...... 750 -
Other................................................................ 6,354 2,696
---------------- ----------------
Total adjustments........................................... 132,943 127,194
---------------- ----------------
Net cash provided by operating activities............... 293,879 295,367
---------------- ----------------

Cash flows from investing activities:
Principal payments received on mortgage notes receivable............. 23,401 35,193
Capital improvements to real estate facilities....................... (9,814) (12,526)
Construction in process and acquisition of land held for development. (47,591) (49,112)
Acquisition of minority interests.................................... (9,867) (13,055)
Proceeds from the disposition of land and real estate facilities..... 11,860 5,322
Proceeds from the disposition of investments in real estate entities. 851 -
Investment in real estate entities................................... (17,864) (14,914)
Business combinations (Note 3)....................................... - (152,327)
Acquisition of real estate facilities................................ - (7,936)
Other investments.................................................... (5,786) (1,054)
---------------- ----------------
Net cash used in investing activities................... (54,810) (210,409)
---------------- ----------------

Cash flows from financing activities:
Borrowings (paydowns) on revolving line of credit.................... 24,000 (25,000)
Principal payments on notes payable.................................. (32,927) (21,153)
Net proceeds from the issuance of common stock....................... 21,235 15,418
Net proceeds from the issuance of preferred stock.................... - 290,150
Repurchase of common stock........................................... (6,001) (381)
Redemption of preferred stock........................................ (87,535) -
Distributions paid to shareholders................................... (195,609) (194,650)
Distributions paid to holders of preferred partnership units......... (13,453) (13,453)
Distributions paid to minority interests............................. (11,218) (13,040)
Investment (divestment) of minority interests........................ 678 (32)
---------------- ----------------
Net cash (used in) provided by financing activities..... (300,830) 37,859
---------------- ----------------

Net (decrease) increase in cash and cash equivalents...................... (61,761) 122,817
Cash and cash equivalents at the beginning of the period.................. 103,124 49,347
---------------- ----------------
Cash and cash equivalents at the end of the period........................ $ 41,363 $ 172,164
================ ================

See accompanying notes.
4

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

(Continued)

(Unaudited)

For the Six Months Ended
June 30,
-------------------------------------
2003 2002
---------------- ----------------

Supplemental schedule of non-cash investing and financing activities:

Acquisition of minority interest for consideration including common stock:
Real estate facilities............................................. $ (16,687) $ (20,640)
Minority Interest.................................................. (6,690) (12,469)
Issuance of common stock to acquire minority interest................ 13,510 20,054

Business combinations (Note 3):
Real estate facilities............................................... - (330,426)
Other assets......................................................... - (2,175)
Accrued and other liabilities........................................ - 5,232
Minority interest.................................................... - 14,806
Reduction in investment in real estate entities...................... - 160,236

Disposition of minority interests in exchange for other assets at a loss of
$1,839 (Note 9):
Other assets...................................................... - (1,450)
Minority interest................................................. - 3,289

Note received in exchange for sale of real estate...................... - (210)
Real estate sold in exchange for note.................................. - 210

See accompanying notes.
5

PUBLIC STORAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003

(Unaudited)

1. Description of the Business

Public Storage, Inc. (the "Company") is a California corporation,
which was organized in 1980. We are a fully integrated, self-administered
and self-managed real estate investment trust ("REIT") whose principal
business activities include the acquisition, development, ownership and
operation of self-storage facilities which offer storage spaces for lease,
usually on a month-to-month basis, for personal and business use. In
addition, to a much lesser extent, we have interests in commercial
properties, containing commercial and industrial rental space, and
interests in facilities that lease storage containers.

We invest in real estate facilities by acquiring wholly owned
facilities or by acquiring interests in real estate entities which own
facilities. At June 30, 2003, we had direct and indirect equity interests
in 1,407 storage facilities located in 37 states and operating under the
"Public Storage" name. We also have direct and indirect equity interests in
approximately 16.5 million net rentable square feet of commercial space
located in 12 states.

2. Summary of Significant Account Policies

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

The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation have been included.
Operating results for the three months ended June 30, 2003 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 2003. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 2002.

The consolidated financial statements include the accounts of the
Company and 33 controlled entities (the "Consolidated Entities").
Collectively, the Company and the Consolidated Entities own a total of
1,380 real estate facilities, consisting of 1,371 self-storage facilities,
six containerized storage facilities and three commercial properties. All
intercompany transactions between the Company and any of the Consolidated
Entities are eliminated in consolidation.

At June 30, 2003, we had equity investments in seven limited
partnerships in which we do not have a controlling interest. These limited
partnerships collectively own 36 self-storage facilities, which are managed
by the Company. In addition, at June 30, 2003, we own approximately 44% of
the common equity of PS Business Parks, Inc. ("PSB"), which owns and
operates approximately 14.9 million net rentable square feet of commercial
space at June 30, 2003. We do not control these entities. Accordingly, our
investment in these limited partnerships and PSB (these entities are
referred to collectively as the "Unconsolidated Entities") are accounted
for using the equity method.

Certain amounts previously reported have been reclassified to
conform to the June 30, 2003 presentation, including Discontinued
Operations (See note 4).

6

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

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

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

For all taxable years subsequent to 1980, the Company qualified
and intends to continue to qualify as a REIT, as defined in Section 856 of
the Internal Revenue Code. As a REIT, we are not taxed on that portion of
our taxable income, which is distributed to our shareholders, provided that
we meet certain tests. We believe we will meet these tests during 2003 and,
accordingly, no provision for income taxes has been made in the
accompanying financial statements.

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

The methods and assumptions used to estimate the fair value of
financial instruments is described below. 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 debt instruments with a maturity of three months or less to
be cash equivalents.

Due to the short period to maturity of our cash and cash
equivalents, accounts receivable, other assets, and accrued and other
liabilities, the carrying values as presented on the consolidated balance
sheets are reasonable estimates of fair value. The carrying amount of
mortgage notes receivable approximates fair value because the aggregate
mortgage notes receivable's applicable interest rates approximate current
market rates for similar loans.

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

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

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

7

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

In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). In June
2001, the FASB issued Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS No. 142"). We adopted both of
these statements effective January 1, 2002.

With respect to goodwill, we evaluate impairment 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 carrying amount is less than the fair value of the reporting
unit, 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. Our evaluation identified no such impairments in our last annual
evaluation at December 31, 2002.

With respect to other long-lived assets, we evaluate such 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 or their
carrying value. Our evaluations identified one such impairment in our
discontinued operations at June 30, 2003, for which we recorded a $750,000
impairment charge in the quarter ended June 30, 2003 (see Note 4).

Accounting for Employee Stock Options
-------------------------------------

We utilize the Fair Value Method (described below) of accounting
for our employee stock options issued after December 31, 2001, and utilize
the APB 25 Method (described below) for employee stock options issued prior
to January 1, 2002. For the three and six months ended June 30, 2003, a
total of $100,000 and $199,000, respectively, in compensation expense
($58,000 for the three and six months ended June 30, 2002) with respect to
stock options was included in general and administrative expense. See Note
12 for a full discussion of our accounting policies with respect to
employee stock options.

8

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

Other assets primarily consist of furniture, fixtures, equipment,
and other such assets associated with the containerized storage operations,
system development and computer software costs, assets associated with the
truck rental business, accounts receivable, and prepaid expenses.
Expenditures with respect to the containerized storage operations, system
development and computer software costs, and truck rental business are
included in "other investments" on the statements of cash flows. Accounts
receivable from customers are net of allowances for doubtful accounts.

Included in other assets with respect to the containerized storage
business is furniture, fixtures, and equipment (net of accumulated
depreciation) of $16,467,000 and $20,275,000 at June 30, 2003 and December
31, 2002, respectively.

Included in depreciation and amortization expense for the three
ended June 30, 2003 and 2002 is $2,397,000 and $1,241,000, respectively,
and $4,563,000 and $2,449,000, for the six months ended June 30, 2003 and
2002, respectively, related to depreciation of other assets. Included in
discontinued operations - containerized storage is depreciation expense of
$373,000 and $778,000 for the three and six months ended June 30, 2002,
($40,000 for the six months ended June 30, 2003, none for the three months
ended June 30, 2003) related to depreciation of furniture, fixtures, and
equipment of the discontinued operations of the containerized storage
business.

We reevaluated the historical results with respect to wear and
functional obsolescence of the containers and other assets used in the
containerized storage business. Based upon the results of this review, we
decreased the estimated useful lives with respect to these assets effective
January 1, 2003. As a result of this change, depreciation with respect to
the continuing containerized storage assets increased $450,000 and $833,000
for the three and six months ended June 30, 2003 as compared to the same
periods in 2002.

Other assets at June 30, 2003 also include $15,619,000
($13,801,000 at December 31, 2002) in held to maturity debt securities
owned by STOR-Re Mutual Insurance Company, Inc. ("STOR-Re") (see Note 3)
stated at amortized cost.

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

Accrued and other liabilities consist primarily of trade payables,
real and personal property tax accruals, accrued interest, and losses and
loss adjustment liabilities, as discussed below.

STOR-Re provides limited property and liability insurance coverage
to the Company and affiliates of the Company. This entity accrues
liabilities for losses and loss adjustment expense, which at June 30, 2003
totaled $23,591,000 ($22,911,000 at December 31, 2002). PS Insurance
Company, Ltd. reinsures policies against claims for losses to goods stored
by tenants in our self-storage facilities. This entity accrues liabilities
for losses and loss adjustment expense, which at June 30, 2003 totaled
$2,285,000 ($2,135,000 at December 31, 2002).

These liabilities for losses and loss adjustment expenses include
an amount determined from loss reports and individual cases and an amount,
based on recommendations from an outside actuary 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 and requires considerable judgment. While we believe that the
amount provided for is adequate, the ultimate liability may be in excess of
or less than the amounts provided.

9

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

Intangible assets consist of property management contracts
($165,000,000) and the excess of acquisition cost over the fair value of
net tangible and identifiable intangible assets or "goodwill" ($94,719,000)
acquired in business combinations.

Our goodwill has an indeterminate life and, accordingly, is not
amortized. Our other intangibles are amortized over a 25 year period.

Goodwill is net of accumulated amortization of $16,515,000 at June
30, 2003 and December 31, 2002. At June 30, 2003, property management
contracts are net of accumulated amortization of $50,409,000 ($47,107,000
at December 31, 2002). Included in depreciation and amortization expense
for each of the three and six months ended June 30, 2003 and 2002 is
$1,651,000 and $3,302,000, respectively, with respect to the amortization
of property management contracts.

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

Rental income, which is generally earned pursuant to
month-to-month leases for storage space, is recognized as earned. Tenant
reinsurance premiums are recognized as premiums are collected. 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 real estate entities.

We accrue for property tax expense based upon estimates and
historical trends. If these estimates are incorrect, our property tax
expense could be misstated.

Cost of operations, general and administrative expense, interest
expense, as well as television, yellow page, and other advertising
expenditures are expensed as incurred. Accordingly, the amounts incurred in
an interim period may not be indicative of the amounts to be incurred
during a full year.

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

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

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

Dividends paid to our preferred shareholders totaling $35,699,000
and $37,936,000 for the three months ended June 30, 2003 and 2002,
respectively, have been deducted from net income to arrive at net income
allocable to our common shareholders. Dividends paid to our preferred
shareholders totaling $72,721,000 and $73,776,000 for the six months ended
June 30, 2003 and 2002, respectively, have been deducted from net income to
arrive at net income allocable to our common shareholders. See Note 14
below regarding clarification of Emerging Issues Task Force Topic D-42.

10

Net income allocated to our common shareholders has been further
allocated among our two classes of common stock; our regular common stock
and our Equity Stock, Series A. The allocation among each class was based
upon the two-class method. Under the two-class method, earnings per share
for each class of common stock is determined according to dividends
declared (or accumulated) and participation rights in undistributed
earnings. Under the two-class method, the Equity Stock, Series A was
allocated net income of approximately $5,376,000 for each of the three
months ended June 30, 2003 and 2002 and $10,751,000 for each of the six
months ended June 30, 2003 and 2002. The remaining $43,222,000 and
$37,406,000 for the three months ended June 30, 2003 and 2002,
respectively, was allocated to the regular common shares. For the six
months ended June 30, 2003 and 2002, $77,464,000 and $83,646,000,
respectively, was allocated to the regular common shares.

Basic net income per share is computed using the weighted average
common shares (prior to the dilutive impact of stock options outstanding).
Diluted net income per common share is computed using the weighted average
common shares outstanding (adjusted for stock options). Weighted average
common shares excludes shares owned by the Consolidated Entities for the
three and six months ended June 30, 2003 and 2002, as these shares of
common stock are eliminated in consolidation (Note 10).

Distributions per share of Class B common stock are equal to 97%
of the per share distribution paid to the Company's regular common
shareholders. As a result of this participation in distribution of
earnings, for purposes of computing net income per common share, the
Company includes 6,790,000 (7,000,000 x 97%) Class B common shares in the
weighted average common equivalent shares for the three months ended March
31, 2002.

As of March 31, 2002, the remaining contingency for the conversion
of the Class B common stock into regular common stock was satisfied (see
Note 10) and the Class B common stock converted into 7,000,000 shares of
common stock on January 1, 2003. As a result, beginning April 1, 2002,
7,000,000 Class B common shares are included in the weighted average common
equivalent shares.

3. Business Combinations

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

On January 16, 2002, we acquired the remaining 70% interest we did
not own in a partnership (the "Development Joint Venture"). The aggregate
cost of this business combination was $268,209,000, consisting of our
pre-existing investment in the Development Joint Venture of $115,131,000
and cash of $153,078,000. This acquisition was completed in order to expand
the Company's real estate investments. The Development Joint Venture was
formed in April 1997 and was funded with equity capital consisting of 30%
from the Company and 70% from an institutional investor and owns 47
self-storage facilities. Prior to January 16, 2002, we accounted for our
investment in the Development Joint Venture using the equity method of
accounting.

STOR-Re Mutual Insurance Company, Inc. ("STOR-Re")
--------------------------------------------------

As a result of obtaining a controlling ownership interest,
effective July 1, 2002 we began consolidating STOR-Re. Accordingly, the
assets and liabilities and operating results subsequent to July 1, 2002 of
STOR-Re are included on our financial statements. Our investment in
STOR-Re, which was previously classified as an Other Asset, was
consolidated and the cash, other assets, and liabilities of STOR-Re are
included in our financial statements.

11

STOR-Re was formed in 1994 as an association captive insurance
company owned by the Company and its affiliates. STOR-Re provides limited
property and liability insurance to the Company and its affiliates. The
Company also utilizes other insurance carriers to provide property and
liability coverage in excess of STOR-Re's limitations.

Prior to July 1, 2002, the insurance premiums paid to STOR-Re were
included in property operating expenses. After June 30, 2002, the insured
liabilities costs incurred by STOR-Re with respect to the Company and the
Consolidated Entities facilities are presented as property operating
expenses. The insured liability costs incurred by STOR-Re are substantially
equivalent to the premiums paid by the Company and its affiliates;
accordingly, the consolidation of STOR-Re had no material impact upon the
Company's income statement. The net operating results of STOR-Re with
respect to its insurance services provided to the Unconsolidated Entities
are included in "interest and other income."

Each of the transactions indicated above has been accounted for
using the purchase method. Accordingly, allocations of our acquisition cost
(consisting of our preexisting investment and the cost of acquisition of
interests acquired in connection with the transaction) was allocated to the
net assets acquired based upon the fair value of such assets and
liabilities assumed with respect to the transactions. Accordingly,
allocations of the total acquisition cost to the net assets acquired were
made based upon the fair value of such assets and liabilities assumed.

The historical operating results of the above acquisitions prior
to each respective acquisition date have not been included in the Company's
historical operating results. Pro forma data (unaudited) for the six months
ended June 30, 2002 as though the business combinations above had been
effective as of January 1, 2002 are as follows (amounts in thousands):

For the six months
ended June 30, 2002
-------------------
Revenues................................. $ 414,810
Net income............................... $ 167,950
Net income per common share (Basic)...... $ 0.68
Net income per common share (Diluted).... $ 0.67

The pro forma data does not purport to be indicative either of
results of operations that would have occurred had the transactions
occurred at January 1, 2002 or the future results of operations of the
Company. Certain pro forma adjustments were made to the combined historical
amounts to reflect (i) expected reductions in general and administrative
expenses, (ii) estimated increased interest expense from bank borrowings to
finance the cash portion of the acquisition cost and (iii) estimated
increase in depreciation expense.

4. Discontinued Operations

SFAS No. 144, which was adopted by the Company on January 1, 2002,
addresses accounting for discontinued operations. The Statement requires
the segregation of all disposed components of an entity with operations
that (i) can be distinguished from the rest of the entity and (ii) will be
eliminated from the ongoing operations of the entity in a disposal
transaction.

12

During 2002, we adopted a business plan that included the closure
of several non-strategic containerized storage facilities (the "Closed
Facilities"), representing components of our containerized storage
business. The related assets of the Closed Facilities (consisting primarily
of storage containers) were deemed not recoverable from future operations,
and as a result an asset impairment charge for the excess of these assets'
net book value over their fair value was recorded during the third and
fourth quarters of 2002 totaling $6,187,000. In addition, lease termination
costs, representing the expected remaining lease liability following
closure of the facilities, were recorded in the amount of $2,447,000 during
the latter half of 2002. There are no significant assets or liabilities of
the Closed Facilities, other than the remaining lease liabilities.

The Knoxville Facilities were disposed of on July 25, 2003 for
aggregate gross proceeds of $11.0 million. The Company financed a
substantial part of the buyer's consideration in exchange for a note
receivable from the buyer, and in accordance with generally accepted
accounting principles, the Company will defer the sale and the
corresponding gain of approximately $4.5 million. While there can be no
assurance, the Company expects that the note receivable will be collected
in full, and the estimated gain on sale will be recorded for financial
reporting purposes, by the end of 2003.

In addition, during the fourth quarter of 2002, we sold a
commercial facility.

In accordance with SFAS 144, the historical operations of the
Closed Facilities (including the asset impairment and lease termination
costs), the Knoxville Facilities, and the sold commercial facility are
classified as discontinued operations. The rental income, cost of
operations, and depreciation expense with respect to these facilities for
each period presented are included in the line-item "Discontinued
Operations" on the income statement. In addition, the net book value
($14,671,000, which is net of $5,161,000 in accumulated depreciation at
June 30, 2003 and a $750,000 impairment charge recorded in the second
quarter of 2003) of the Closed Facilities and the industrial facility
previously used by our containerized storage operations have been
classified as "Real estate facilities held for sale" on our June 30, 2003
balance sheet.

The following table summarizes the historical operations of the
Knoxville Facilities, the Closed Facilities and the commercial property
sold:

13

Discontinued Operations:
- ------------------------
For the three months ended June 30, For the six months ended June 30,
--------------------------------------- ---------------------------------------
2003 2002 Change 2003 2002 Change
----------- ----------- ----------- ----------- ----------- -----------
(Amounts in thousands)

Rental income (a):
Knoxville Facilities............ $ 399 $ 380 $ 19 $ 787 $ 762 $ 25
Closed Facilities............... 523 4,097 (3,574) 2,301 7,890 (5,589)
Sold commercial facility........ - 114 (114) - 229 (229)
----------- ----------- ----------- ----------- ----------- -----------
Total rental income........ 922 4,591 (3,669) 3,088 8,881 (5,793)
----------- ----------- ----------- ----------- ----------- -----------

Cost of operations (a):
Knoxville Facilities............ 146 127 19 316 283 33
Closed Facilities............... 989 5,091 (4,102) 2,860 8,754 (5,894)
Sold commercial facility........ - 24 (24) - 46 (46)
----------- ----------- ----------- ----------- ----------- -----------
Total cost of operations... 1,135 5,242 (4,107) 3,176 9,083 (5,907)
----------- ----------- ----------- ----------- ----------- -----------

Depreciation expense (a):
Knoxville Facilities............ 122 123 (1) 242 242 -
Closed Facilities............... - 435 (435) 40 910 (870)
Sold commercial facility........ - 31 (31) - 60 (60)
----------- ----------- ----------- ----------- ----------- -----------
Total depreciation ........ 122 589 (467) 282 1,212 (930)
----------- ----------- ----------- ----------- ----------- -----------

Asset impairment charges (b):
Closed Facilities............... 750 - 750 750 - 750
----------- ----------- ----------- ----------- ----------- -----------

Net discontinued operations (c)... $ (1,085) $ (1,240) $ 155 $ (1,120) $ (1,414) $ 294
=========== =========== =========== =========== =========== ===========

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

(b) An impairment charge of $750,000 was recorded in the second quarter of 2003
with respect to a real estate facility held for sale at June 30, 2003,
which was previously used by the discontinued containerized storage
operations.

(c) The net discontinued operations resulted in a reduction in our diluted and
basic earnings per share of approximately $0.01 per share for each of the
three months ended June 30, 2003 and 2002, as well for each of the six
months ended June 30, 2003 and 2002.

14

5. Real Estate Facilities

Activity in real estate facilities during the six months ended
June 30, 2003 is as follows:

In thousands
-----------------
Operating facilities, at cost:
Balance at December 31, 2002........................ $ 4,988,526
Transfer from construction in process............... 44,772
Disposition of real estate facilities............... (8,211)
Transfer to real estate held for sale (Note 4)...... (20,582)
Acquisition of minority interest.................... 16,687
Capital improvements................................ 9,814
-----------------
Balance at June 30, 2003............................ 5,031,006
-----------------

Accumulated depreciation:
Balance at December 31, 2002........................ (987,546)
Additions during the year........................... (84,571)
Transfer to real estate held for sale (Note 4)...... 5,161
Disposition of real estate facilities............... 566
-----------------
Balance at June 30, 2003............................ (1,066,390)
-----------------

Construction in process:
Balance at December 31, 2002........................ 87,516
Current development................................. 47,591
Transfer to operating facilities.................... (44,772)
-----------------
Balance at June 30, 2003............................ 90,335
-----------------

Land held for development:
Balance at December 31, 2002........................ 17,807
Disposition of land................................. (3,771)
-----------------
Balance at June 30, 2003............................ 14,036
-----------------

Real estate facilities held for sale (Note 4):
Balance at December 31, 2002........................ -
Transfer from land and buildings.................... 20,582
Impairment charge................................... (750)
Transfer from accumulated depreciation.............. (5,161)
-----------------
Balance at June 30, 2003............................ 14,671
-----------------

Total real estate facilities........................... $ 4,083,658
=================

During the six months ended June 30, 2003, we opened six newly
developed facilities (420,000 net rentable square feet) with an aggregate
cost of $42,059,000, and incurred additional development costs amounting to
$1,304,000 with respect to existing real estate facilities. In addition, we
completed a conversion of industrial space, previously used by the
discontinued containerized storage operations, into 55,000 net rentable
square feet of self-storage space at an existing self-storage facility for
a total of $1,409,000.

During the six months ended June 30, 2003, we sold two
self-storage facilities for $7,330,000, two parcels of land for $528,000
and two parcels of land held for development for $4,002,000. The two
self-storage facilities had been operated by the buyer pursuant to a lease
arrangement, with the lease income with respect to these facilities
included in "interest and other income." An aggregate gain of $444,000 was
recorded from these sales.

15

Construction in process at June 30, 2003 consists primarily of 16
self-storage facilities (1,129,000 net rentable square feet) and 24
expansion projects to existing self-storage facilities. In addition, we
have seven parcels of land held for development or sale with total costs of
approximately $14,036,000.

Our policy is to capitalize interest incurred on debt during the
course of construction of our self-storage facilities. Interest capitalized
during the three and six months ended June 30, 2003 was $1,450,000 and
$2,975,000, respectively compared to $1,426,000 and $3,272,000,
respectively for the same periods in 2002.

6. Investment in Real Estate Entities

At June 30, 2003, our investment in real estate entities consists
of our ownership interests in seven partnerships, which principally own
self-storage facilities, and our ownership interest in PSB. These interests
are non-controlling interests of less than 50% and are accounted for using
the equity method of accounting. Accordingly, earnings are recognized based
upon our ownership interest in each of the partnerships. The accounting
policies of these entities are similar to the Company's.

For the three and six months ended June 30, 2003, we recognized
earnings from our investments of $8,999,000 and $13,686,000, respectively,
as compared to $7,000,000 and $16,256,000, respectively for the same
periods in 2002. For the six months ended June 30, 2003, we received cash
distributions totaling $8,649,000, as compared to $12,239,000 for the same
periods in 2002. Equity in earnings of real estate entities includes our
pro-rata share of the net impact of gains on sale of real estate assets and
impairment charges relating to the impending sale of real estate assets
recorded by PSB. Our net pro-rata impact of these items totaled $2,583,000
and $453,000 for the three and six months ended June 30, 2003,
respectively, as compared to $2,241,000 for the six months ended June 30,
2002 (none for the three months ended June 30, 2002). See the condensed
financial information with respect to PSB below for further information
regarding these items recorded by PSB.

For the six months ended June 30, 2003, we acquired investments in
the real estate entities totaling $142,000 as compared to $242,000 for the
six months ended June 30, 2002.

The following table sets forth our investments in real estate
entities at June 30, 2003 and December 31, 2002, and our equity in earnings
of real estate entities for the three months ended June 30, 2003 and 2002
(amounts in thousands):

Equity in Earnings of Real Equity in Earnings of Real
Investments in Real Estate Estate Entities for the Estate Entities for the Six
Entities at Three Months Ended June 30, Months Ended June 30,
--------------------------------- ---------------------------- ----------------------------
December 31,
June 30, 2003 2002 2003 2002 2003 2002
---------------- ---------------- -------------- ------------- -------------- -------------

PSB (a).................. $ 277,563 $ 273,790 $ 7,731 $ 5,215 $ 11,150 $ 12,329
Disposed Investments (b). - 525 - 9 10 239
Other investments........ 56,760 55,364 1,268 1,776 2,526 3,688
---------------- ---------------- -------------- ------------- -------------- -------------

Total.................. $ 334,323 $ 329,679 $ 8,999 $ 7,000 $ 13,686 $ 16,256
================ ================ ============== ============= ============== =============

(a) Equity in earnings for the three and six months ended June 30, 2003
includes our pro rata share of PSB's gain on sale of real estate assets
totaling $2,583,000. In addition, equity in earnings for the six months
ended June 30, 2003, is reduced by $2,130,000, representing our pro rata
share of PSB's impairment charge related to the impending sale of real
estate. Equity in earnings for the six months ended June 30, 2002 includes
$2,241,000, representing our pro-rata share of PSB's gain on disposition of
real estate investments.

16

(b) As described in Note 3, in the first quarter of 2002 we began consolidating
the results of the Development Joint Venture and as a result eliminated our
investment in the three months ended March 31, 2002. In addition, in the
second quarter of 2003, we disposed of an investment for cash of $851,000,
recognizing a gain on sale of approximately $316,000.

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

On January 2, 1997, we reorganized our commercial property
operations into an entity now known as PS Business Parks, Inc., a REIT
traded on the American Stock Exchange, and an operating partnership
controlled by PS Business Parks, Inc. (collectively, the REIT and the
operating partnership are referred to as "PSB"). The Company and certain
partnerships in which the Company has a controlling interest have a 44%
common equity interest in PSB as of June 30, 2003. This 44% common equity
interest is comprised of the ownership of 5,418,273 shares of common stock
and 7,305,355 limited partnership units in the operating partnership; these
limited partnership units are convertible at our option, subject to certain
conditions, on a one-for-one basis into PSB common stock. Based upon PSB's
trading price at June 30, 2003 ($35.30), the shares and units had a market
value of approximately $449.1 million as compared to a book value of $277.6
million.

At June 30, 2003, PSB owned and operated approximately 14.9
million net rentable square feet of commercial space. In addition, PSB
manages approximately 1,222,000 net rentable square feet of commercial
space owned by the Company, the Consolidated Entities, and the
Unconsolidated Entities pursuant to property management agreements.

The following table sets forth the condensed statements of
operations for the six months ended June 30, 2003 and for the same period
in 2002, and the condensed balance sheets of PSB at June 30, 2003 and
December 31, 2002. These amounts below represent 100% of PSB's balances and
not our pro-rata share.

For the six months ended June 30,
------------------------------------
2003 2002
----------------- -----------------
(Amounts in thousands)

Total revenue prior to gains on sale................. $ 97,063 $ 96,905
Gain on sale of marketable securities................ 2,043 25
Cost of operations and other expenses................ (30,586) (31,063)
Depreciation and amortization........................ (27,804) (26,972)
Discontinued operations (a).......................... 1,962 7,767
Minority interest.................................... (16,031) (16,488)
----------------- -----------------
Net income......................................... $ 26,647 $ 30,174
================= =================

December 31,
June 30, 2003 2002
----------------- -----------------

(Amounts in thousands)
Total assets (primarily real estate)................. $ 1,157,830 $ 1,156,802
Total debt........................................... 69,992 70,279
Other liabilities.................................... 36,849 36,902
Minority interest.................................... 386,942 385,219
Shareholders' equity................................. $ 664,047 $ 664,402

(a) Includes gains on disposition of real estate totaling $3,484,000 and
$5,366,000 for the six months ended June 30, 2003 and 2002, respectively,
an impairment charge on properties held for sale totaling $5,907,000 for
the six months ended June 30, 2003, and equity in income of discontinued
joint venture totaling $2,296,000 and $249,000 for the six months ended
June 30, 2003 and 2002, respectively.

17

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

The Other Investments consist primarily of an average 41% common
equity ownership, which we owned during each of the three and six months
ended June 30, 2003 and 2002, in seven limited partnerships (collectively,
the "Other Investments") owning an aggregate of 36 storage facilities. For
the six months ended June 30, 2003, we acquired additional equity interests
in these entities from third parties for a total of $142,000, as compared
to $242,000 for the same period in 2002.

In the second quarter of 2003, we disposed of an investment for
net proceeds of $851,000, and recognized a gain of $316,000, representing
the difference between the gross proceeds and the book value of this
investment.

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

For the six months ended June 30,
------------------------------------
2003 2002
----------------- -----------------
(Amounts in thousands)

Total revenue........................................ $ 13,042 $ 13,428
Cost of operations and other expenses................ (4,568) (4,893)
Depreciation and amortization........................ (1,258) (1,267)
----------------- -----------------
Net income......................................... $ 7,216 $ 7,268
================= =================

December 31,
June 30, 2003 2002
----------------- -----------------

(Amounts in thousands)
Total assets (primarily storage facilities).......... $ 55,691 $ 56,731
Total debt........................................... 3,175 5,450
Other liabilities.................................... 8,994 1,121
Partners' equity..................................... $ 43,522 $ 50,160

7. Revolving Line of Credit

We have a $200 million revolving line of credit (the "Credit
Agreement") that has a maturity date of October 31, 2004 and bears an
annual interest rate ranging from the London Interbank Offered Rate
("LIBOR") plus 0.45% to LIBOR plus 1.50% depending on our credit ratings
(currently LIBOR plus 0.45%). In addition, we are required to pay a
quarterly commitment fee ranging from 0.20% per annum to 0.30% per annum
depending on our credit ratings (currently the fee is 0.20% per annum). At
June 30, 2003, we had borrowings on our line of credit totaling
$24,000,000. As of July 15, 2003, there were no outstanding borrowings.

The Credit Agreement includes various covenants, the more
significant of which requires us to (i) maintain a balance sheet leverage
ratio of less than 0.50 to 1.00, (ii) maintain certain quarterly interest
and fixed-charge coverage ratios (as defined) of not less than 2.50 to 1.0
and 1.75 to 1.0, respectively, and (iii) maintain a minimum total
shareholders' equity (as defined). In addition, we are limited in our
ability to incur additional borrowings (we are required to maintain
unencumbered assets with an aggregate book value equal to or greater than
two times our unsecured recourse debt). We were in compliance with all the
covenants of the Credit Agreement at June 30, 2003.

18

8. Notes Payable

Notes payable at June 30, 2003 and December 31, 2002 consist of
the following:

Carrying Amount
---------------------------------
December 31,
June 30, 2003 2002
--------------- ---------------
(Amounts in thousands)

Unsecured senior notes:
7.08% note due November 2003............................ $ 5,000 $ 10,000
7.47% note due January 2004............................. 14,600 29,300
7.66% note due January 2007............................. 44,800 56,000

Mortgage notes payable:
10.55% mortgage notes secured by real estate facilities,
principal and interest payable monthly, due August 2004 16,558 18,167
7.134% to 10.5% mortgage notes secured by real estate
facilities, principal and interest payable monthly, due
at varying dates between May 2004 and September 2028 1,982 2,400
--------------- ---------------
Total notes payable.............................. $ 82,940 $ 115,867
=============== ===============

All of our notes payable are fixed rate. The unsecured senior
notes require interest and principal payments to be paid semi-annually and
have various restrictive covenants, all of which have been met at June 30,
2003 and December 31, 2002. The 10.55% mortgage notes consist of five
notes, which are cross-collateralized by 19 properties and are due to a
life insurance company. Mortgage notes payable are secured by 24 real
estate facilities having an aggregate net book value of approximately $57.3
million at June 30, 2003 and $56.4 million at December 31, 2002.

At June 30, 2003, approximate principal maturities of notes
payable are as follows:

Unsecured
Senior Notes Mortgage Notes Total
-------------- -------------- --------------
(in thousands)

2003 (remainder of).......... $ 5,000 $ 1,857 $ 6,857
2004......................... 25,800 15,063 40,863
2005......................... 11,200 156 11,356
2006......................... 11,200 170 11,370
2007......................... 11,200 185 11,385
Thereafter................... - 1,109 1,109
-------------- -------------- --------------
$ 64,400 $ 18,540 $ 82,940
============== ============== ==============
Weighted average rate........ 7.6% 10.3% 8.2%
============== ============== ==============

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 consolidated financial statements. Minority
interest in income consists of the minority interests' share of the
operating results of the Consolidated Entities.

19

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

During 2000, one of our consolidated operating partnerships issued
preferred partnership units: March 17, 2000 - $240.0 million of 9.5% Series
N Cumulative Redeemable Perpetual Preferred Units and March 29, 2000 -
$75.0 million of 9.125% Series O Cumulative Redeemable Perpetual Preferred.
A portion of the 9.125% Series O Cumulative Redeemable Perpetual Preferred
($30 million) were repurchased by the Company in 2001.

For each of the three and six months ended June 30, 2003 and 2002,
the holders of the preferred units were paid distributions aggregating
approximately $6,727,000 and $13,453,000, respectively, and received an
equivalent allocation of minority interest in earnings.

The following table summarizes the preferred partnership units
outstanding at June 30, 2003 and December 31, 2002:

Earliest Distribution Units Carrying
Series Redemption Date (a) Rate Outstanding Amount
- --------------------- ------------------- ------------ --------------- ---------------
(Amounts in thousands)

Series N............ March 17, 2005 9.500% 9,600 $240,000
Series O............ March 29, 2005 9.125% 1,800 45,000
--------------- ---------------
Total............... 11,400 $285,000
=============== ===============

(a) These preferred units are not redeemable during the first 5 years after
issuance; thereafter, at our option, we can call the units for redemption
at the issuance amount plus any unpaid distributions. The units are not
redeemable by the holder.

Subject to certain conditions, the Series N preferred units are
convertible into shares of 9.5% Series N Cumulative Preferred Stock, and
the Series O preferred units are convertible into shares of 9.125% Series O
Cumulative Preferred Stock of the Company.

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

The following table sets forth the minority interest at June 30,
2003 and December 31, 2002 as well as the distributions paid to minority
interest for the six months ended June 30, 2003 and 2002 with respect to
the other partnership interests (amounts in thousands):

Distributions to minority
interests for the six months
Minority interest at ended June 30,
---------------------------------- -----------------------------
June 30, December 31,
Description 2003 2002 2003 2002
- -------------------------------------------- --------------- --------------- ------------ -------------

Consolidated Development Joint Venture...... $ 72,121 $ 75,432 $ 4,924 $ 4,923
Convertible Partnership Units............... 6,314 6,274 107 213
Other consolidated partnerships............. 66,819 72,793 5,509 7,936
--------------- --------------- ------------ -------------
Total other partnership interests........... $ 145,254 $ 154,499 $ 10,540 $ 13,072
=============== =============== ============ =============

20

Income is allocated to the minority interests based upon their
pro-rata interest in the operating results of the Consolidated Entities.
The following table sets forth the income allocated to minority interest in
income with respect to the Other Partnership interests for the three and
six months ended June 30, 2003 and 2002 (amounts in thousands):

Minority interest in income for Minority interest in income for
the three months ended June 30, the six months ended June 30,
---------------------------------- -----------------------------
Description 2003 2002 2003 2002
- -------------------------------------------- --------------- --------------- ------------ -------------

Consolidated Development Joint Venture...... $ 870 $ 329 $ 1,613 $ 636
Convertible Partnership Units............... 82 73 147 162
Other consolidated partnerships............. 3,091 3,484 6,225 7,704
--------------- --------------- ------------ -------------
Total other partnership interests........... $ 4,043 $ 3,886 $ 7,985 $ 8,502
=============== =============== ============ =============

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

In November 1999, we formed a development joint venture (the
"Consolidated Development Joint Venture") with a joint venture partner
(PSAC Storage Investors, LLC) whose partners include an institutional
investor and B. Wayne Hughes ("Mr. Hughes"), chairman of the Company, to
develop approximately $100 million of self-storage facilities and to
purchase $100 million of the Company's Equity Stock, Series AAA (see Note
10). In consolidation, the Equity Stock Series AAA and the related dividend
income have been eliminated.

At June 30, 2003, the Consolidated Development Joint Venture was
fully committed having completed construction on 22 self-storage facilities
for a total cost of approximately $108 million.

The Consolidated Development Joint Venture is funded solely with
equity capital consisting of 51% from the Company and 49% from PSAC Storage
Investors, LLC. The accounts of the Consolidated Development Joint Venture
are included in the Company's consolidated financial statements. The
accounts of PSAC Storage Investors, LLC are not included in the Company's
consolidated financial statements, as the Company has no ownership interest
in this entity. Minority interests primarily represent the total
contributions received from PSAC Storage Investors combined with the
accumulated net income allocated to PSAC Storage Investors, LLC, net of
cumulative distributions. The amounts included in our financial statements
with respect to the minority interest in the Consolidated Development Joint
Venture are denoted in the tables above.

The term of the Consolidated Development Joint Venture is 15
years; however, during the sixth year PSAC Storage Investors has the right
to cause an early termination of the partnership. If PSAC Storage Investors
exercises this right, we then have the option, but not the obligation, to
acquire their interest for an amount that will allow them to receive an
annual return of 10.75%. If the Company does not exercise its option to
acquire PSAC Storage Investors' interest, the partnership's assets will be
sold to third parties and the proceeds distributed to the Company and PSAC
Storage Investors in accordance with the partnership agreement. If PSAC
Storage Investors does not exercise its right to early termination during
the sixth year, the partnership will be liquidated 15 years after its
formation with the assets sold to third parties and the proceeds
distributed to the Company and PSAC Storage Investors in accordance with
the partnership agreement.

21

PSAC Storage Investors, LLC provides Mr. Hughes with a fixed yield
of approximately 8.0% per annum on his preferred non-voting interest
(representing an investment of approximately $64.1 million at June 30,
2003). In addition, Mr. Hughes receives 1% of the remaining cash flow of
PSAC Storage Investors, LLC (estimated to be less than $50,000 per year).
If PSAC Storage Investors, LLC does not elect to cause an early
termination, Mr. Hughes' 1% interest in residual cash flow can increase to
10%.

In consolidation, the Equity Stock, Series AAA owned by the joint
venture and the related dividend income has been eliminated. Minority
interests primarily represent the total contributions received from PSAC
Storage Investors combined with the accumulated net income allocated to
PSAC Storage Investors, net of cumulative distributions.

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

As of June 30, 2003 and December 31, 2002, one of our Consolidated
Entities had approximately 237,935 convertible partnership units
("Convertible Units") outstanding, representing a limited partnership
interest in the partnership. The Convertible Units are convertible on a
one-for-one basis (subject to certain limitations) into common shares of
the Company at the option of the unitholder. Minority interest in income
with respect to the Convertible Units reflects an allocation of net income
on a per unit basis equal to diluted earnings per common share.

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

At June 30, 2003, the Other Consolidated Partnerships reflect
common equity interests that the Company does not own in 25 entities owning
an aggregate of 172 self-storage facilities.

On April 28, 2003 we acquired through a merger all of the
remaining limited partnership interest not currently owned by the Company
in PS Partners IV, Ltd., a partnership which is consolidated with the
Company. The acquisition cost was approximately $23,377,000, consisting of
the issuance of 426,859 shares of our common stock ($13,510,000) and cash
of approximately $9,867,000; this acquisition had the effect of reducing
minority interest by $6,690,000, with the excess of cost over underlying
book value ($16,687,000) allocated to real estate.

During 2002, we acquired minority interests in the Consolidated
Entities for an aggregate cash cost of $27,544,000 and issued an aggregate
of 1,091,608 shares ($37,904,000) of our common stock; these acquisitions
had the effect of reducing minority interest by $25,668,000, with the
excess of cost over underlying book value ($39,780,000) allocated to real
estate.

In addition, during the three months ended June 30, 2002, we
recorded the pending sale of a partnership interest in the Consolidated
Entities for an aggregate of $1,450,000. We recorded a loss on sale of the
interest in the amount of $1,839,000. As a result of this pending sale,
minority interest increased by $3,289,000. This sale is subject to
litigation; see Note 15.

22

10. Shareholders' Equity

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

At June 30, 2003 and December 31, 2002, we had the following
series of Cumulative Preferred Stock outstanding:

At June 30, 2003 At December 31, 2002
--------------------------- -----------------------------
Earliest
Redemption Dividend Shares Carrying Shares Carrying
Series Date (a) Rate Outstanding Amount Outstanding Amount
- ------------------- -------------------- ----------- -------------- ------------- -------------- --------------
(Dollar amount in thousands)

Series B - 9.200% - $ - 2,300,000 $ 57,500
Series C - Adjustable - - 1,200,000 30,000
Series D September 30, 2004 9.500% 1,200,000 30,000 1,200,000 30,000
Series E January 31, 2005 10.000% 2,195,000 54,875 2,195,000 54,875
Series F April 30, 2005 9.750% 2,300,000 57,500 2,300,000 57,500
Series K January 19, 2004 8.250% 4,600 115,000 4,600 115,000
Series L March 10, 2004 8.250% 4,600 115,000 4,600 115,000
Series M August 17, 2004 8.750% 2,250 56,250 2,250 56,250
Series Q January 19, 2006 8.600% 6,900 172,500 6,900 172,500
Series R September 28, 2006 8.000% 20,400 510,000 20,400 510,000
Series S October 31, 2006 7.875% 5,750 143,750 5,750 143,750
Series T January 18, 2007 7.625% 6,086 152,150 6,086 152,150
Series U February 19, 2007 7.625% 6,000 150,000 6,000 150,000
Series V September 30, 2007 7.500% 6,900 172,500 6,900 172,500
-------------- ------------- -------------- --------------
Total Cumulative
Preferred Stock 5,758,486 $ 1,729,525 9,258,486 $ 1,817,025
============== ============= ============== ==============

(a) Except under certain conditions relating to the Company's qualification as
a REIT, the Senior Preferred Stock outstanding at June 30, 2003 is not
redeemable prior to the dates indicated. On or after the dates indicated,
each of the series of Cumulative Senior Preferred Stock will be redeemable,
at the option of the Company, in whole or in part, at $25 per share (or
depositary share in the case of the Series K through Series V), plus
accrued and unpaid dividends.

On March 31, 2003, we redeemed all outstanding shares of our 9.20%
Cumulative Preferred Stock, Series B at a redemption price of $25 per share
for a total of $57,517,000 (including related redemption costs). On June
30, 2003, we redeemed all outstanding shares of our Cumulative Preferred
Stock, Series C at a redemption price of $25 per share for a total of
$30,018,000 (including related redemption costs).

During 2002, we issued our Series T, Series U and Series V
Cumulative Preferred Stock: Series T - issued on January 18, 2002, net
proceeds of $145,075,000, Series U - issued on February 19, 2002, net
proceeds of $145,075,000 and Series V - issued September 30, 2002, net
proceeds of $166,866,000.

During 2002, we redeemed our Series A and Series J Cumulative
Preferred Stock, at par, at a total cost of $45,643,000 and $150,018,000
(including related redemption costs), respectively.

On August 30, 2002, in a privately negotiated transaction, we
exchanged an aggregate of 86,000 shares (par value of $2,150,000) of our
Preferred Stock, Series B for 86 shares (representing 86,000 depositary
shares with a par value of $2,150,000) of our Preferred Stock, Series T.

23

The Series D through Series V (collectively the "Cumulative Senior
Preferred Stock") have general preference rights with respect to
liquidation and quarterly distributions. Holders of the preferred stock,
except under certain conditions and as noted below, will not be entitled to
vote on most matters. In the event of a cumulative arrearage equal to six
quarterly dividends or failure to maintain a Debt Ratio (as defined) of 50%
or less, holders of all outstanding series of preferred stock (voting as a
single class without regard to series) will have the right to elect two
additional members to serve on the Company's Board of Directors until
events of default have been cured. At June 30, 2003, there were no
dividends in arrears and the Debt Ratio was 1.8%.

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

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

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

At June 30, 2003, we had 8,776,102 depositary shares outstanding,
each representing 1/1,000 of a share of Equity Stock, Series A ("Equity
Stock A"). The Equity Stock A ranks on a parity with common stock and
junior to the Senior Preferred Stock with respect to general preference
rights and has a liquidation amount which cannot exceed $24.50 per share.
Distributions with respect to each depositary share shall be the lesser of:
(i) five times the per share dividend on the Common Stock or (ii) $2.45 per
annum. We have no obligation to pay distributions on the depositary shares
if no distributions are paid to common shareholders.

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

Equity Stock, Series AA
-----------------------

In June 1997, we contributed $22,500,000 (225,000 shares) of
equity stock, now designated as Equity Stock, Series AA ("Equity Stock AA")
to a partnership in which we are the general partner. The Company has a
controlling interest in the partnership and therefore consolidates the
accounts of the partnership. As a result, the Equity Stock AA is eliminated
in consolidation. The Equity Stock AA ranks on a parity with our common
stock and junior to the Cumulative Preferred Stock with respect to general
preference rights and has a liquidation amount of ten times the amount paid
to each common share up to a maximum of $100 per share. Quarterly
distributions per share on the Equity Stock AA are equal to the lesser of
(i) 10 times the amount paid per share of Common Stock or (ii) $2.20. We
have no obligation to pay distributions on these shares if no distributions
are paid to common shareholders.

If the Company determines that it is necessary to maintain its
status as a Real Estate Investment Trust, subject to certain limitations it
may cause the redemption of shares of Equity Stock, Series AA at a price of
$100 per share. The shares are not otherwise redeemable or convertible into
shares of any other class or series of the Company's capital stock. Other
than as required by law, the Equity Stock, Series AA has no voting rights.

24

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

In November 1999, we sold $100,000,000 (4,289,544 shares) of
Equity Stock, Series AAA ("Equity Stock AAA") to a newly formed joint
venture. We control the joint venture and consolidate the accounts of the
joint venture, and accordingly the Equity Stock AAA is eliminated in
consolidation. The Equity Stock AAA ranks on a parity with our common stock
and junior to the Cumulative Preferred Stock (as defined below) with
respect to general preference rights, and has a liquidation amount equal to
120% of the amount distributed to each common share. Annual distributions
per share are equal to the lesser of (i) five times the amount paid per
common share or (ii) $2.1564. We have no obligation to pay distributions on
these shares if no distributions are paid to common stockholders.

Upon liquidation of the Consolidated Development Joint Venture, at
the Company's option either a) each share of Equity Stock, Series AAA shall
convert into 1.2 shares of our common stock or b) the Company can redeem
the Equity Stock, Series AAA at a per share amount equal to 120% of the
market price of our common stock. In addition, if the Company determines
that it is necessary to maintain its status as a Real Estate Investment
Trust, subject to certain limitations it may cause the redemption of shares
of Equity Stock, Series AAA at a per share amount equal to 120% of the
market price of our common stock. The shares are not otherwise redeemable
or convertible into shares of any other class or series of the Company's
capital stock. Other than as required by law, the Equity Stock, Series AAA
has no voting rights.

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

At June 30, 2003, entities consolidated with the Company owned
723,732 common shares of the Company. These shares continue to be legally
issued and outstanding. In the consolidation process, these shares and the
related balance sheet amounts have been eliminated. In addition, these
shares are not included in the computation of weighted average shares
outstanding.

The following chart reconciles the Company's legally issued and
outstanding shares of common stock and the reported outstanding shares of
common stock at June 30, 2003, December 31, 2002, and December 31, 2001:

Reconciliation of Common Shares
- -------------------------------
Outstanding At June 30, At December At December 31,
- ----------- 2003 31, 2002 2001
---------------- ---------------- ----------------

Legally issued and outstanding shares 125,838,545 117,540,187 115,499,647
Less - Shares owned by the
Consolidated Entities that are
eliminated in consolidation..... (723,732) (548,732) (537,732)
---------------- ---------------- ----------------
Reported issued and outstanding shares 125,114,813 116,991,455 114,961,915
================ ================ ================

The Company's Board of Directors authorized the repurchase from
time to time of up to 25,000,000 shares of the Company's common stock on
the open market or in privately negotiated transactions. During the second
quarter of 2003, we repurchased, through one of the Consolidated Entities,
175,000 shares for a total of $6,001,000. From the initial authorization
through June 30, 2003, we have repurchased a total of 21,672,020 shares of
common stock at an aggregate cost of approximately $541.9 million.

25

Class B Common Stock
--------------------

The Class B Common Stock was converted into regular common stock
on January 1, 2003. For 2002, the Class B Common Stock participated in
distributions at the rate of 97% of the per share distributions on the
Common Stock.

Dividends
---------

The following table summarizes dividends declared and paid during
the six months ended June 30, 2003:

Distributions Per
Share or Depositary Total
Share Distributions
------------------- ---------------
Preferred Stock:
- ----------------
Series B.............................. $0.554 $ 1,323,000
Series C.............................. $0.844 1,012,000
Series D.............................. $1.188 1,426,000
Series E.............................. $1.250 2,744,000
Series F.............................. $1.219 2,802,000
Series K.............................. $1.031 4,744,000
Series L ............................. $1.031 4,744,000
Series M.............................. $1.094 2,460,000
Series Q.............................. $1.075 7,418,000
Series R.............................. $1.000 20,400,000
Series S.............................. $0.984 5,660,000
Series T.............................. $0.953 5,800,000
Series U.............................. $0.953 5,720,000
Series V.............................. $0.938 6,468,000
---------------
72,721,000
Common Stock:
- -------------
Equity Stock, Series A................ $1.225 10,751,000
Common ............................... $0.900 112,137,000
---------------
Total dividends.................... $ 195,609,000
===============

The dividend rate on the Series C Preferred Stock for the first
six months of 2003 was equal to 6.75% per annum. The Series B and Series C
were redeemed entirely by the Company on March 31, 2003 and June 30, 2003,
respectively.

11. Segment Information

Description of each reportable segment
--------------------------------------

Our reportable segments reflect significant operating activities
that are evaluated separately by management. We have four reportable
segments: self-storage operations, containerized storage operations,
commercial property operations, and tenant reinsurance operations.

26

The self-storage segment comprises the direct ownership,
development, and operation of traditional storage facilities, and the
ownership of equity interests in entities that own storage properties. The
containerized storage operations represent another segment. The commercial
property segment reflects our interest in the ownership, operation, and
management of commercial properties. The vast majority of the commercial
property operations are conducted through PSB, and to a much lesser extent
the Company and certain of its unconsolidated subsidiaries own commercial
space, managed by PSB, within facilities that combine storage and
commercial space for rent. The tenant reinsurance segment reflects the
operations of PS Insurance Company, Ltd., which reinsures policies against
losses to goods stored by tenants in our self-storage facilities.

Measurement of segment profit or loss
-------------------------------------

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

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

Measurement of segment assets
-----------------------------

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

Presentation of segment information
-----------------------------------

Our income statement provides most of the information required in
order to determine the performance of each of the Company's four segments.
The following tables reconcile the performance of each segment, in terms of
segment revenues and segment income, to our consolidated revenues and net
income. It further provides detail of the segment components of the income
statement item, "Equity in earnings of real estate entities."

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

27

Three months ended Six months ended
June 30, June 30,
----------------------- -----------------------
2003 2002 Change 2003 2002 Change
----------- ----------- ----------- ----------- ----------- -----------
(Dollar amounts in thousands)
Reconciliation of Revenues by Segment:
- --------------------------------------

Self-storage property rentals................ $ 197,075 $ 188,307 $ 8,768 $ 386,646 $ 376,832 $ 9,814
Commercial properties rentals................ 2,943 3,067 (124) 5,789 6,023 (234)
Containerized storage........................ 10,402 8,661 1,741 19,638 16,567 3,071
Tenant re-insurance.......................... 5,581 5,156 425 10,796 9,731 1,065
Other items not allocated to segments:
Interest and other income.................. 2,879 2,759 120 4,578 4,467 111
----------- ----------- ----------- ----------- ----------- -----------
Total revenues......................... $ 218,880 $ 207,950 $ 10,930 $ 427,447 $ 413,620 $ 13,827
=========== =========== =========== =========== =========== ===========

The following table reconciles the performance of each segment to
our consolidated net income. It further provides detail of the segment
components of the income statement item, "Equity in earning of real estate
entities."

28

Three months ended Six months ended
June 30, June 30,
----------------------- -----------------------
2003 2002 Change 2003 2002 Change
----------- ----------- ----------- ----------- ----------- -----------
(Amounts in thousands)
Reconciliation of Net Income by Segment:
----------------------------------------

Self-storage
------------

Self-storage net operating income......... $ 126,638 $ 128,529 $ (1,891) $250,894 $ 258,615 $ (7,721)
Self-storage depreciation................. (43,485) (43,177) (308) (86,759) (84,426) (2,333)
Equity in earnings - storage property
operations............................. 1,447 1,806 (359) 2,875 3,900 (1,025)
Equity in earnings - depreciation
(self-storage) ........................ (564) (279) (285) (829) (549) (280)
Discontinued operations (Note 4) ......... 131 130 1 229 237 (8)
----------- ----------- ----------- ----------- ----------- -----------
Total self-storage segment net income. 84,167 87,009 (2,842) 166,410 177,777 (11,367)
----------- ----------- ----------- ----------- ----------- -----------

Commercial properties
---------- ----------
Commercial properties..................... 1,898 1,961 (63) 3,551 3,825 (274)
Depreciation and amortization - commercial
properties............................. (674) (670) (4) (1,299) (1,369) 70
Equity in earnings - commercial property
operations............................. 15,331 16,135 (804) 30,031 31,558 (1,527)
Equity in earnings - depreciation
(commercial properties) ............... (6,280) (6,246) (34) (12,309) (12,347) 38
Discontinued operations (Note 4) ......... - 59 (59) - 123 (123)
----------- ----------- ----------- ----------- ----------- -----------
Total commercial property segment net
income............................... 10,275 11,239 (964) 19,974 21,790 (1,816)
----------- ----------- ----------- ----------- ----------- -----------

Containerized storage
---------------------
Containerized storage net operating income 3,541 2,509 1,032 6,641 4,760 1,881
Containerized storage depreciation........ (2,155) (1,616) (539) (4,136) (3,042) (1,094)
Discontinued operations (Note 4) ......... (1,216) (1,429) 213 (1,349) (1,774) 425
----------- ----------- ----------- ----------- ----------- -----------
Total containerized storage segment net
income (loss)........................ 170 (536) 706 1,156 (56) 1,212
----------- ----------- ----------- ----------- ----------- -----------
Tenant Reinsurance
------------------
Tenant reinsurance net income............ 2,566 2,633 (67) 5,082 4,915 167
----------- ----------- ----------- ----------- ----------- -----------

Other items not allocated to segments
-------------------------------------
Equity in earnings - general and
administrative and other............... (935) (4,416) 3,481 (6,082) (6,306) 224
Interest and other income................. 2,879 2,759 120 4,578 4,467 111
General and administrative ............... (4,429) (4,305) (124) (8,679) (8,305) (374)
Interest expense.......................... (372) (1,213) 841 (825) (2,315) 1,490
Minority interest in income .............. (10,770) (10,613) (157) (21,438) (21,955) 517
Gain (loss) on disposition of real estate. 746 (1,839) 2,585 760 (1,839) 2,599
----------- ----------- ----------- ----------- ----------- -----------
Total other items not allocated to segments (12,881) (19,627) 6,746 (31,686) (36,253) 4,567
----------- ----------- ----------- ----------- ----------- -----------

Total consolidated net income ....... $ 84,297 $ 80,718 $ 3,579 $160,936 $ 168,173 $ (7,237)
=========== =========== =========== =========== =========== -----------

29

12. Stock Options

The Company has a 1990 Stock Option Plan (the "1990 Plan") which
provides for the grant of non-qualified stock options. The Company has a
1994 Stock Option Plan (the "1994 Plan"), a 1996 Stock Option and Incentive
Plan (the "1996 Plan") and a 2000 Non-Executive/Non-Director Stock Option
and Incentive Plan (the "2000 Plan"), each of which provides for the grant
of non-qualified options and incentive stock options. The 1990 Plan, the
1994 Plan, the 1996 Plan and the 2000 Plan are collectively referred to as
the "PSI Plans." Under the PSI Plans, the Company has granted non-qualified
options to certain directors, officers and key employees to purchase shares
of the Company's common stock at a price equal to the fair market value of
the common stock at the date of grant. Generally, options under the PSI
Plans vest over a three-year period from the date of grant at the rate of
one-third per year and expire (i) under the 1990 Plan, five years after the
date they became exercisable and (ii) under the 1994 Plan, the 1996 Plan
and the 2000 Plan, ten years after the date of grant. The 1996 Plan and the
2000 Plan also provide for the grant of restricted stock to officers, key
employees and service providers on terms determined by an authorized
committee of the Board of Directors; no shares of restricted stock have
been granted.

Accounting principles generally accepted in the United States
permit, but do not require, companies to recognize compensation expense for
stock-based awards based on their fair value at date of grant, which is
then amortized as compensation expense over the vesting period (the "Fair
Value Method"). Companies can also elect to disclose, but not recognize as
an expense, stock option expense when stock options are granted to
employees at an exercise price equal to the market price at the date of
grant (the "APB 25 Method").

In any fiscal year beginning before December 15, 2003, companies
can change their accounting method from the APB 25 Method to the Fair Value
Method, and in doing so can elect between three different methods of
transition. The first is the prospective method, whereby the Company
applies the recognition provisions of the Fair Value Method to all stock
options granted after the beginning of the fiscal year in which the company
adopts the Fair Value Method. The second is the retroactive restatement
method, whereby the company restates all periods presented to reflect
compensation cost utilizing the fair value method for all periods. The
third is the modified prospective method, where the company applies the
Fair Value Method from the beginning of the current fiscal year with
respect to all options that vest during the year regardless of when they
were granted.

For periods prior to December 31, 2001, we utilized the APB 25
Method of accounting for employee stock options. As of January 1, 2002, we
adopted the Fair Value Method, and have elected to use the prospective
method of transition described above. Accordingly, we recognize
compensation expense in our income statement using the Fair Value Method
only with respect to stock options issued after January 1, 2002.

For the three and six months ended June 30, 2003, we recorded
$100,000 and $199,000, respectively, in stock option compensation expense
($58,000 for the three and six months ended June 30, 2002) related to
options granted after January 1, 2002. The fair value of each option grant
is estimated on the date of the grant using the Black-Scholes option
pricing model. The estimated average value of stock options granted in the
first six months of 2003 was based upon an estimated life of 5 years, a
risk-free rate of 4.0%, an expected dividend yield of 7%, and expected
volatility of 0.176.

If we had recorded stock option expense applying the Fair Value
Method to all awards, we would have recognized an additional $1,409,000 and
$2,039,000 in stock option compensation expense for the six months ended
June 30, 2003 and 2002, respectively. Diluted earnings per share would have
been $0.61 and $0.66 for the six months ended June 30, 2003 and 2002,
respectively. Basic earnings per share would have been $0.61 and $0.67 for
the six months ended June 30, 2003 and 2002, respectively.

30

13. Related Party Transactions

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

B. Wayne Hughes, Chairman of the Board, and his family (the
"Hughes Family") have ownership interests in, and operate, approximately 38
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. The Hughes Family owns approximately 37% of our
common stock outstanding at June 30, 2003. We have a right of first refusal
to acquire the stock or assets of the corporation engaged in the operation
of the 38 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, have no right to acquire this 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.

Our personnel have been engaged in the supervision and the
operation of these 38 self-storage facilities and currently provide 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 reimburse us at
cost for these services. There may be conflicts of interest in allocating
the time of our personnel between our properties, the Canadian properties,
and certain other Hughes Family interests. The Company is in the process of
eliminating the sharing of Company personnel with the Canadian entities.

PS Business Parks, Inc.
-----------------------

Ronald L. Havner Jr., our vice-chairman and chief executive
officer, is also chairman of PSB and was CEO until August 12, 2003. Mr.
Havner's compensation is allocated between the Company and PSB. This
allocation was approved by the audit committee of the Company's Board of
Directors.

Pursuant to a cost-sharing and administrative services agreement,
PSB reimburses the Company for certain administrative services. PSB's share
of these costs totaled approximately $85,000 for each of the three month
periods ended June 30, 2003 and 2002 and $170,000 for each of the six
months ended June 30, 2003 and 2002, and were computed in accordance with a
methodology intended to fairly allocate these costs.

PSB manages certain of the commercial facilities owned by the
Company pursuant to management agreements for a management fee equal to 5%
of revenues. The Company paid a total of $103,000 and $243,000, for the
three and six months ended June 30, 2003, respectively, as compared to
$219,000 and $360,000, respectively, for the same periods in 2002, in
management fees with respect to PSB's property management services.

STOR-Re, an entity that is consolidated with the Company and is
partially owned by PSB, provides limited property and liability insurance
to PSB at commercially competitive rates. PSB and the Company utilize
unaffiliated insurance carriers to provide property and liability insurance
in excess of STOR-Re's limitations.

In June 2002, we sold an undeveloped parcel of land at cost to PSB
for an aggregate of $1,100,000 cash.

31

Consolidated Development Joint Venture with a partner including Mr. Hughes
--------------------------------------------------------------------------

In November 1999, we formed the Consolidated Development Joint
Venture with a joint venture partner whose partners include an
institutional investor and Mr. Hughes. This transaction is discussed more
fully in Note 9.

14. Recent Accounting Pronouncements

Clarification of Emerging Issues Task Force Topic D-42 and impact on
--------------------------------------------------------------------
reported earnings per common share
----------------------------------

Emerging Issues Task Force ("EITF") Topic D-42, "The Effect on the
Calculation of Earnings per Share for the Redemption or Induced Conversion
of Preferred Stock" provides, among other things, that any excess of (1)
the fair value of the consideration transferred to the holders of preferred
stock redeemed over (2) the carrying amount of the preferred stock should
be subtracted from net earnings to determine net earnings available to
common stockholders in the calculation of earnings per share.

During 2001, 2002 and for the six months ended June 30, 2003, we
redeemed various series of our perpetual preferred stock. Our
interpretation of EITF Topic D-42 was that the carrying amount of our
preferred stock was equivalent to the liquidation preference as recorded on
our balance sheet. Each of the series of preferred stock that were
redeemed, were redeemed at the liquidation preference. Accordingly, based
upon our interpretation, the fair value of the consideration given at
redemption was equivalent to the carrying amount on our balance resulting
in no impact to net earnings available to common stockholders in the
calculation of earnings per share.

At the July 31, 2003 meeting of the EITF, the Securities and
Exchange Commission Observer clarified that for the purposes of applying
EITF Topic D-42, the carrying amount of the preferred stock should be
reduced by the issuance costs of the preferred stock, regardless of where
in the stockholders' equity section those costs were initially classified
on issuance. In our case, issuance costs were recorded as a reduction to
Paid-in Capital on our balance sheet at the time the related securities
were issued and were not considered as a reduction to the carrying value of
the preferred stock at the time of redemption. The clarification and
resulting implementation will result in the following estimated reductions
to our reported basic and diluted earnings per share:

For the three months ended
-----------------------------------------------------------------
March 31, June 30, September 30, December 31, Total
--------------- --------------- --------------- --------------- ---------------

2003............... $0.02 $0.01 - - $0.03
2002............... - - $0.01 $0.04 $0.05
2001............... - - $0.05 $0.07 $0.12

The reported diluted earnings per common share for the three and
six months ended June 30, 2003 have not been adjusted to reflect the
implementation of this clarification. The Company will implement this
clarification commencing in the quarter ending September 30, 2003 and such
implementation will be reflected retroactively in the financial statements
of prior periods.

32

Accounting for Certain Financial Instruments with Characteristics of both
-------------------------------------------------------------------------
Liabilities and Equity
----------------------

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." 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. This statement is applicable at the
beginning of the Company's quarter ended September 30, 2003. We are in the
process of evaluating the impact of this Statement.

FASB Interpretation No. 46 - Consolidation of Variable Interest Entities
------------------------------------------------------------------------

In January 2003, the Financial Accounting Standards Board issued
FASB Interpretation No. 46 - "Consolidation of Variable Interest Entities,
an interpretation of Accounting Research Bulletin No. 51." This
interpretation explains how to identify variable interest entities and how
an enterprise assesses its interests in a variable interest entity to
decide whether to consolidate that entity. In general, a variable interest
entity is a corporation, partnership, trust, or any other legal structure
used for business purposes that either (a) does not have equity investors
with voting rights, or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities.
This statement is applicable at the beginning of the Company's quarter
ended September 30, 2003. We are in the process of evaluating the impact of
the adoption of this Interpretation but do not believe it will have a
significant impact on our financial statements.

15. Commitments and Contingencies

LEGAL MATTERS

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

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

The claim in this case is substantially similar to those in
Henriquez v. Public Storage, Inc., which was disclosed in prior reports. In
January 2003, the plaintiff caused the Henriquez action to be dismissed.
Based upon the uncertainty inherent in any putative class action, the
Company cannot presently determine the potential damages, if any, or the
ultimate outcome of this litigation. The Company is vigorously contesting
the claims upon which this lawsuit is based.

33

Salaam, et. Al V. Public Storage, Inc. (filed February 2000)
------------------------------------------------------------
(Superior Court - Los Angeles County)
-------------------------------------

The plaintiffs in this case are suing the Company on behalf of a
purported class of California resident property managers who claim that
they were not compensated for all the hours they worked. The named
plaintiffs have indicated that their claims total less than $20,000 in
aggregate. This maximum potential liability cannot be estimated, but can
only be increased if a class is certified or if claims are permitted to be
brought on behalf of the others under the California Unfair Business
Practices Act. The plaintiffs' motion for class certification was denied in
August 2002; the plaintiffs have appealed this denial. This denial does not
deal with the claim under the California Unfair Business Practices Act.

The Company is continuing to vigorously contest the claims in this
case and intends to resist any expansion beyond the named plaintiffs on the
grounds of lack of commonality of claims. The Company's resistance will
include opposing the plaintiffs' appeal of the court's denial of class
certification and opposing the claim on behalf of others under the
California Unfair Business Practices Act. The Company cannot presently
determine the potential damages, if any, or the ultimate outcome of this
litigation.

Gustavson et al. v. Public Storage, Inc. (Filed June 2003)
----------------------------------------------------------
(Superior Court-Los Angeles County)
----------------------------------

In November 2002, a shareholder of the Company made a demand on
the Board of Directors that challenged the fairness of the Company's
acquisition of PS Insurance Company, Ltd. ("PSIC") and demanded that the
Board recover the profits earned by PSIC from November 1995 through
December 2001 and that the entire purchase price paid by the Company for
PSIC in excess of PSIC's net assets be returned to the Company.

The contract to acquire PSIC was approved by the independent
directors of the Company in March 2001, and the transaction was closed in
December 2001. PSIC was formerly owned by B. Wayne Hughes, currently the
Chairman of the Board (and in 2001 also the Chief Executive Officer) of the
Company, B. Wayne Hughes, Jr., currently a director (and in 2001 also an
officer) of the Company and Tamara H. Gustavson, who in 2001 was an officer
of the Company. In exchange for the Hughes family's shares in PSIC, the
Company issued to them 1,439,765 shares of common stock (or a net of
1,138,733 shares, after taking into account 301,032 shares held by PSIC).

The shareholder has threatened litigation against the Hughes
family and the directors of the Company arising out of this transaction and
alleged a pattern of deceptive disclosures with respect to PSIC since 1995.
In December 2002, the Board held a special meeting to authorize an inquiry
by its independent directors to review the fairness to the Company's
shareholders of its acquisition of PSIC and the ability of the Company to
have started its own tenant reinsurance business in 1995. The Company
believes that, prior to the effectiveness in 2001 of the federal REIT
Modernization Act and corresponding California legislation that authorized
the creation and ownership of "taxable REIT subsidiaries," the ownership by
the Company of a reinsurance business relating to its tenants would have
jeopardized the Company's status as a REIT and that other REITs faced
similar concerns about tenant insurance programs.

34

In June 2003, the Hughes family filed a complaint for declaratory
relief relating to the Company's acquisition of PSIC naming the Company as
defendant. The Hughes family is seeking that the court make (i) a binding
declaration that the Company either is not entitled to recover profits or
other moneys earned by PSIC from November 1995 through December 2001; or
alternatively the amounts that the Hughes family should be ordered to
surrender to the Company if the court determines that the Company is
entitled to recover any such profits or moneys; and (ii) a binding
declaration either that the Company cannot establish that the acquisition
agreement was not just and reasonable as to the Company at the time it was
authorized, approved or ratified; or alternatively the amounts that the
Hughes family should surrender to the Company, if the court determines that
the agreement was not just and reasonable to the Company at that time. The
Hughes family is not seeking any payments from the Company. In the event of
a determination that the Hughes family is obligated to pay certain amounts
to the Company, the complaint states that they have agreed to be bound by
that determination to pay such amounts to the Company.

In July 2003 the Company filed an answer to the Hughes family's
complaint requesting a final judicial determination of the Company's rights
of recovery against the Hughes family in respect of PSIC. The Company
believes that the lawsuit by the Hughes family will ultimately resolve
matters relating to PSIC and will not have any financially adverse effect
on the Company (other than the costs and other expenses relating to the
lawsuit).

Sale of Partnership Units
-------------------------

In February 2000, the Company entered into a settlement of
litigation arising out of a 1997 tender offer for limited partnership units
in two affiliated partnerships. Under the settlement agreement, the Company
agreed to sell to the plaintiff units representing a 4% interest in each of
the partnerships for a total payment of approximately $1,523,000. The
plaintiff failed to tender the full purchase price at the scheduled
closing, and the settlement collapsed.

In September 2000, the plaintiff amended its complaint to add a
claim for breach of the settlement agreement seeking specific enforcement
and a claim seeking damages for unfair and deceptive trade practices in
connection with the alleged breach. By amending the complaint the Company
believes the plaintiff elected to abandon its underlying claims in the
litigation. The Company asserted affirmative defenses including the
material breach by the plaintiff. Cross motions for summary judgment were
filed by the parties. In July 2002, the court granted plaintiff's motion
for summary judgment as to its claim for breach of the settlement agreement
and granted the Company's motion for summary judgment to dismiss
plaintiff's claim for unfair and deceptive trade practices.

In March 2003, the court granted plaintiff's motion to compel the
sale of the units to the plaintiff. The Company is appealing the court's
decision. If the Company is compelled to sell the units to plaintiff, the
Company would incur a loss of approximately $1,839,000, which has been
accrued as a loss on sale of real estate investments in the Company's
income statement for the three and six months ended June 30, 2002.

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

The Company is 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, in the aggregate,
will have a material adverse effect upon the operations or financial
position of the Company.

35

Insurance and Loss Exposure
---------------------------

Our facilities have historically carried comprehensive insurance,
including fire, earthquake, liability and extended coverage through
STOR-Re, one of the Consolidated Entities, and insures portions of these
risks through nationally recognized insurance carriers. STOR-Re also
insures affiliates of the Company.

We believe that the Company, STOR-Re, and its affiliates' maximum
aggregate annual exposure for losses that are below the deductibles set
forth in the third-party insurance contracts, assuming multiple significant
events occur, is approximately $30,000,000. In addition, if losses exhaust
the third-party insurers' limit of coverage of $125,000,000 for property
coverage and $101,000,000 for general liability, our exposure could be
greater. These limits are higher than estimates of maximum probable losses
that could occur from individual catastrophic events (i.e., earthquake and
wind damage) determined in recent engineering and actuarial studies.

PSIC reinsures policies against claims for losses to goods stored
by tenants at our self-storage facilities. PSIC reinsures its risks with
third-party insures from any individual event that exceeds a loss of
$500,000 up to the policy limit of $10,000,000. Losses that are not covered
by the third-party insurers are accrued as cost of operations of the tenant
reinsurance operations.

Development of Real Estate Facilities
-------------------------------------

We currently have 40 projects in our development pipeline,
including 16 newly developed self-storage facilities and expansions to 24
existing self-storage facilities, with total estimated development costs of
$187,419,000, of which $90,335,000 has been spent at June 30, 2003.
Development of these facilities is subject to contingencies.

16. Subsequent Events

The Knoxville Facilities were disposed of on July 25, 2003 for
aggregate gross proceeds of $11.0 million. The Company financed a
substantial part of the buyer's consideration in exchange for a note
receivable from the buyer, and in accordance with generally accepted
accounting principles, the Company will defer the sale and the
corresponding gain of approximately $4.5 million. While there can be no
assurance, the Company expects that the note receivable will be collected
in full, and the estimated gain on sale will be recorded for financial
reporting purposes, by the end of 2003.

36

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 consolidated financial statements and notes thereto.

FORWARD LOOKING STATEMENTS: When used within this document, the words
"expects," "believes," "anticipates," "should," "estimates," and similar
expressions are intended to identify "forward-looking statements" within the
meaning of that term in Section 27A of the Securities Exchange Act of 1933, as
amended, and in Section 21F of the Securities Exchange Act of 1934, as amended.
Such forward-looking statements involve known and unknown risks, uncertainties,
and other factors, which may cause the actual results and performance of the
Company to be materially different from those expressed or implied in the
forward looking statements. Such factors are described in Item 2A, "Risk
Factors" and include changes in general economic conditions and in the markets
in which the Company operates and the impact of competition from new and
existing storage and commercial facilities and other storage alternatives, which
could impact rents and occupancy levels at the Company's facilities;
difficulties in the Company's ability to evaluate, finance and integrate
acquired and developed properties into the Company's existing operations and to
fill up those properties, which could adversely affect the Company's
profitability; the impact of the regulatory environment as well as national,
state, and local laws and regulations including, without limitation, those
governing Real Estate Investment Trusts, which could increase the Company's
expense and reduce the Company's cash available for distribution; consumers'
failure to accept the containerized storage concept which would reduce the
Company's profitability; difficulties in raising capital at reasonable rates,
which would impede the Company's ability to grow; delays in the development
process, which could adversely affect the Company's profitability; and economic
uncertainty due to the impact of war or terrorism could adversely affect our
business plan. We disclaim any obligation to publicly release the results of any
revisions to these forward-looking statements reflecting new estimates, events
or circumstances after the date of this report.

CRITICAL ACCOUNTING POLICIES

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 Internal Revenue Code and applicable state laws. A
qualifying REIT generally does not pay corporate level income taxes on its
taxable income that is distributed to its shareholders, and accordingly, we do
not pay or record as an expense income tax on the share of our taxable income
that is distributed to shareholders.

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

37

IMPAIRMENT OF LONG LIVED ASSETS: Substantially all of our assets
consist of long-lived assets, including real estate, assets associated with the
containerized storage business, goodwill, and other intangible assets. We
evaluate our goodwill for impairment on an annual basis, and on a quarterly
basis evaluate our other long-lived assets for impairment. As described in Note
2 to the consolidated financial statements, the evaluation of goodwill for
impairment entails valuation of the reporting unit to which goodwill is
allocated, which involves significant judgment in the area of projecting
earnings, determining appropriate price-earnings multiples, and discount rates.
In addition, the evaluation of other long-lived assets for impairment requires
determining whether indicators of impairment exist, which is a subjective
process. When any indicators of impairment are found, the evaluation of such
long-lived assets then entails projections of future operating cashflows, which
also involves significant judgment. We have identified one such impairment as of
June 30, 2003, see Note 4 to the consolidated financial statements. Future
events, or facts and circumstances that currently exist, that we have not yet
identified, could cause us to conclude in the future that other long lived
assets are impaired. Any resulting impairment loss could have a material adverse
impact on our financial condition and results of operations.

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

ESTIMATED LEVEL OF RETAINED RISK LIABILITIES: As described in Notes 2
and 15 to the consolidated financial statements, we retain certain risks with
respect to property perils, legal liability, and other such risks. In connection
with our retention of these risks, we accrue losses based upon our estimated
level of losses incurred using certain actuarial assumptions followed in the
insurance industry and based upon our experience. While we believe that the
amounts of the accrued losses are adequate, the ultimate liability may be in
excess of or less than the amounts provided.

ACCRUALS FOR CONTINGENCIES: We are exposed to business and legal
liability risks with respect to events that have occurred, but in accordance
with accounting principles generally accepted in the United States, we have not
accrued for such potential liabilities because the loss is either not probable
or not estimable or because we are not aware of the event. Future events and the
result of pending litigation could result in such potential losses becoming
probable and estimable, which could have a material adverse impact on our
financial condition or results of operations. Some of these potential losses,
which we are aware of, are described in Note 15 to the consolidated financial
statements.

ACCRUALS FOR OPERATING EXPENSES: We accrue for property tax expense and
other operating expenses based upon estimates and historical trends and current
and anticipated local and state government rules and regulations. If these
estimates and assumptions are incorrect, our expenses could be misstated. Cost
of operations, interest expense, general and administrative expense, as well as
television, yellow page, and other advertising expenditures are expensed as
incurred. Accordingly, the amounts incurred in an interim period may not be
indicative of the amounts to be incurred in a full year.

38

Results of Operations
- --------------------------------------------------------------------------------

FOR THE THREE MONTHS ENDED JUNE 30, 2003

Net income for the three months ended June 30, 2003 was $84,297,000
compared to $80,718,000 for the same period in 2002, representing an increase of
$3,579,000 or 4.4%. This increase in net income is primarily due to improved
results from our containerized storage operations, an increase in equity in
earnings of real estate entities (as discussed below), and the absence of a loss
on sale of real estate assets in the amount of $1,839,000 recorded in the three
months ended June 30, 2002. These effects were partially offset by a reduction
in the operating results of our Consistent Group of self-storage facilities (as
discussed below) and increased depreciation expense resulting primarily from new
property additions. The increase in equity in earnings of real estate entities
is primarily due to a net gain on sale of real estate assets recorded by PS
Business Parks, Inc., ("PSB"), an unconsolidated affiliate in which we own
approximately a 44% interest at June 30, 2003. Our net pro rata share of this
gain for the quarter ended June 30, 2003 totaled approximately $2,583,000; there
was no such gain recorded in the same period in 2002.

Net income allocable to our regular common shareholders (after
allocating net income to our preferred and equity shareholders) was $43,222,000
or $0.34 per common share on a diluted basis (based on 125,854,000 weighted
average diluted common equivalent shares) for the three months ended June 30,
2003 compared to $37,406,000 or $0.30 per common share on a diluted basis (based
on 124,824,000 weighted average diluted common equivalent shares) for the same
period in 2002, representing an increase of 15.5% in the aggregate or 13.3% on a
per share basis. The increase in net income allocable to common shareholders and
earnings per common diluted share is due to the impact of the factors described
above with respect to net income, combined with a reduction in income allocated
to preferred shareholders, as described below. Please see "Clarification of
Emerging Issues Task Force Topic D-42 and impact on reported earnings per common
share" in Note 14 to the consolidated financial statements for more information.

Weighted average diluted shares increased from 124,824,000 for the
three months ended June 30, 2002 to 125,854,000 for the three months ended June
30, 2003. This increase was due primarily to the net issuance of 1,518,467
shares during 2002 and 2003 in connection with the acquisition of the remaining
partnership interests in three entities in which the Company held a partial
equity interest, as well as the issuance of an aggregate of 1,820,431 shares
during 2002 and 2003 in connection with the exercise of employee stock options.
This increase was offset partially by the impact of a 748,000 share reduction in
the dilutive impact of stock options outstanding due to the exercise of employee
stock options as well as a decrease in our average stock price, which impacts
the weighted average calculation using the treasury stock method.

During the three months ended June 30, 2003 and 2002, we allocated
$35,699,000 and $37,936,000 of our net income (based on distributions paid),
respectively, to our preferred shareholders, representing a decrease of 5.9%.
This decrease is due to the redemption of several series of our higher coupon
preferred stock in 2002 and 2003, offset partially by the issuance of additional
preferred securities throughout 2002. In addition, during each of the three
months ended June 30, 2003 and 2002, we allocated $5,376,000 of our net income
to our Equity Stock, Series A shareholders.

39

FOR THE SIX MONTHS ENDED JUNE 30, 2003

Net income for the six months ended June 30, 2003 was $160,936,000
compared to $168,173,000 for the same period in 2002, representing a decrease of
$7,237,000 or 4.3%. This decrease in net income is primarily a result of a
reduction in the operating results of our Consistent Group of self-storage
facilities (as discussed below), increased depreciation expense resulting
primarily from new property additions, and a decrease in equity in earnings of
real estate entities. The decrease in equity in earnings of real estate entities
is primarily due to a reduction in earnings for PSB, caused primarily by the net
impact of a gain on sale offset by an asset impairment charge with respect to
impending real estate sales recorded by PSB in the six months ended June 30,
2003, as compared to a gain on sale recorded by PSB in the six months ended June
30, 2002. Our net pro rata share of such items recorded by PSB for the six
months ended June 30, 2003 was $453,000 as compared to $2,241,000 in the same
period in 2002, representing a decrease of $1,788,000. These decreases were
offset partially by improved results of our containerized storage operations and
the impact of a loss on sale of real estate assets recorded in the six months
ended June 30, 2002.

Net income allocable to our regular common shareholders (after
allocating net income to our preferred and equity shareholders) was $77,464,000
or $0.62 per common share on a diluted basis (based on 125,536,000 weighted
average diluted common equivalent shares) for the six months ended June 30, 2003
compared to $83,646,000 or $0.67 per common share on a diluted basis (based on
124,417,000 weighted average diluted common equivalent shares) for the same
period in 2002, representing a decrease of 7.4% in the aggregate or 7.5% on a
per share basis. The decrease in net income allocable to common shareholders and
diluted earnings per share is primarily attributable to the same factors denoted
above with respect to net income, offset partially by the impact of a reduction
in income allocated to our preferred shareholders, as described below. Please
see "Clarification of Emerging Issues Task Force Topic D-42 and impact on
reported earnings per common" in Note 14 to the consolidated financial
statements for more information.

Weighted average diluted shares increased from 124,417,000 for the six
months ended June 30, 2002 to 125,536,000 for the six months ended June 30,
2003. This increase was due primarily to the net issuance of 1,518,467 shares
during 2002 and 2003 in connection with the acquisition of the remaining
partnership interests in three entities in which the Company held a partial
equity interest, as well as the issuance of an aggregate of 1,820,431 shares
during 2002 and 2003 in connection with the exercise of employee stock options.
This increase was offset partially by the impact of a 835,000 share reduction in
the dilutive impact of stock options outstanding due to the exercise of employee
stock options as well as a decrease in our average stock price, which impacts
the weighted average calculation using the treasury stock method.

During the six months ended June 30, 2003 and 2002, we allocated
$72,721,000 and $73,776,000 of our net income (based on distributions paid),
respectively, to our preferred shareholders, representing a decrease of 1.4%.
This decrease is due to the redemption of several series of our higher coupon
preferred stock in 2002 and 2003, offset partially by the issuance of additional
preferred securities throughout 2002. In addition, during each of the six months
ended June 30, 2003 and 2002, we allocated $10,751,000 of our net income to our
Equity Stock, Series A shareholders.

Real Estate Operations
- --------------------------------------------------------------------------------

SELF-STORAGE OPERATIONS: Our self-storage operations are by far the
largest component of our operations, representing approximately 90% of our total
revenues generated for the six months ended June 30, 2003. As a result of
acquisitions and development of self-storage facilities, year over year
comparisons as presented on the consolidated statements of income with respect
to our self-storage operations are not meaningful.

To enhance year over year comparisons, the following table summarizes,
and the ensuing discussion describes, the operating results of (i) 1,165
self-storage facilities that are reflected in the financial statements on a
stabilized basis since January 1, 2001 (the "Consistent Group"), (ii) 95
facilities that were acquired since January 1, 2000 ( the "Acquired
Facilities"), (iii) 35 facilities that were owned prior to January 1, 2001 but
were not stabilized due primarily to expansions in their net rentable square
footage (the "Expansion Facilities") and (iv) 72 newly-developed facilities that
were opened after January 1, 1999 (the "Developed Facilities"):

40

Self - storage operations summary: Three months ended June 30, Six months ended June 30,
- ---------------------------------- --------------------------------------- ---------------------------------------
Percentage Percentage
2003 2002 Change 2003 2002 Change
------------ ------------ ------------ ------------ ------------ ------------
(Dollar amounts in thousands)

Rental income (a):
- ------------------
Consistent Group (b)................ $ 166,665 $ 163,358 2.0% $ 327,874 $ 328,802 (0.3)%
Acquired Facilities (c)............. 16,104 14,514 11.0% 31,606 27,329 15.7%
Expansion Facilities (d)............ 5,182 4,742 9.3% 10,264 9,820 4.5%
Developed Facilities (e)............ 9,124 5,693 60.3% 16,902 10,881 55.3%
------------ ------------ ------------ ------------ ------------ ------------
Total rental income............... 197,075 188,307 4.7% 386,646 376,832 2.6%
------------ ------------ ------------ ------------ ------------ ------------

Cost of operations:
- -------------------
Consistent Group.................... 58,055 50,447 15.1% 112,329 100,531 11.7%
Acquired Facilities................. 5,409 4,330 24.9% 10,204 7,924 28.8%
Expansion Facilities................ 2,318 1,701 36.3% 4,325 3,567 21.3%
Developed Facilities................ 4,655 3,300 41.1% 8,894 6,195 43.6%
------------ ------------ ------------ ------------ ------------ ------------
Total cost of operations............ 70,437 59,778 17.8% 135,752 118,217 14.8%
------------ ------------ ------------ ------------ ------------ ------------

Net operating income (before depreciation):
- -------------------------------------------
Consistent Group.................... 108,610 112,911 (3.8)% 215,545 228,271 (5.6)%
Acquired Facilities................. 10,695 10,184 5.0% 21,402 19,405 10.3%
Expansion Facilities................ 2,864 3,041 (5.8)% 5,939 6,253 (5.0)%
Developed Facilities................ 4,469 2,393 86.8% 8,008 4,686 70.9%
------------ ------------ ------------ ------------ ------------ ------------
Total net operating income.......... 126,638 128,529 (1.5)% 250,894 258,615 (3.0)%

Depreciation.......................... (43,485) (43,177) 0.7% (86,759) (84,426) 2.8%
------------ ------------ ------------ ------------ ------------ ------------
Operating Income.................... $ 83,153 $ 85,352 (2.6%) $ 164,135 $ 174,189 (5.8%)
============ ============ ============ ============ ============ ============

Number of self-storage facilities (at end
of period):............................ 1,367 1,351 1.2% 1,367 1,351 1.2%
Net rentable square feet (at end of period
- - in thousands):....................... 82,516 81,344 1.4% 82,516 81,344 1.4%

(a) Rental income includes late charges and administrative fees and is net of
promotional discounts given. Rental income does not include retail sales or
truck rental income generated at the facilities.

(b) The Consistent Group includes 1,165 facilities containing 67,729,000 net
rentable square feet that have been owned prior to January 1, 2001, and
operated at a mature, stabilized occupancy level since December 31, 2000.

(c) The Acquired Facilities includes 95 facilities containing 5,642,000 net
rentable square feet that were acquired after January 1, 2000, that were
substantially all mature, stabilized facilities at the time of their
acquisition.

(d) The Expansion Facilities includes 35 facilities containing 3,805,000 net
rentable square feet (of which 817,000 square feet is industrial space
developed for containerized storage activities). These facilities were
owned since January 1, 2002, however, operating results are not comparable
throughout the periods presented due primarily to expansions in their net
rentable square feet or their conversion into Combination Facilities. Such
construction activities can cause a drop in revenue levels, as existing
capacity is made unavailable in order to accommodate construction
activities. During the three years ended December 31, 2002 and the six
months ended June 30, 2003, we completed construction on expansion projects
to these facilities with a total cost of $121.5 million.

(e) The Developed Facilities includes 72 facilities containing 5,340,000 net
rentable square feet (of which 840,000 square feet is industrial space
initially developed for use in containerized storage activities, see
"Containerized Storage" and "Discontinued Operations"). These facilities
were developed and opened since January 1, 1999 at a total cost of $466.0
million.

41

For the six months ended June 30, 2003, we have increased the number of
facilities included in the Consistent Group pool of facilities from 1,152 at
December 31, 2002 to 1,165 facilities. The increase in the Consistent Group's
pool of facilities is due to (i) the inclusion of 18 facilities that were in the
Acquired Facilities pool at December 31, 2002, offset by (ii) the reduction of
the four Knoxville facilities that are in discontinued operations (see Note 4 to
the consolidated financial statements for more information on discontinued
operations) and (iii) one facility that was removed from the Consistent Group
because its operations were being expanded.

As a result of the change in the Consistent Group pool, the relative
weighting of markets has changed. Accordingly, comparisons should not be made
between information presented in 2002 for the Consistent Group pool of 1,152
facilities and this current pool of 1,165 facilities in order to identify trends
in occupancies, realized rents per square foot, or operating results.

The Consistent Group consists of facilities that have operated at a
stabilized level of operations since January 1, 2001. This group of facilities
contains approximately 67,729,000 net rentable square feet, representing
approximately 82% of the aggregate net rentable square feet of our 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, "Consistent Group." The following table sets forth additional operating
data with respect to the Consistent Group of facilities:

CONSISTENT GROUP Three Months Ended June 30, Six Months Ended June 30,
- ---------------- --------------------------------------- ---------------------------------------
Percentage Percentage
2003 2002 Change 2003 2002 Change
------------ ------------ ------------ ------------ ------------ ------------
(Dollar amounts in thousands, except rents per square foot)

Base rental income......................... $ 172,911 $ 163,497 5.8% $ 337,691 $ 324,821 4.0%
Promotional discounts...................... (12,974) (5,380) 141.2% (22,949) (6,404) 258.4%
------------ ------------ ------------ ------------ ------------ ------------
Adjusted base rental income............. 159,937 158,117 1.2% 314,742 318,417 (1.2)%
Late charges and administrative fees
collected.................................. 6,728 5,241 28.4% 13,132 10,385 26.5%
------------ ------------ ------------ ------------ ------------ ------------
Total rental income..................... 166,665 163,358 2.0% 327,874 328,802 (0.3)%

Cost of operations:
Property taxes........................ 14,947 14,189 5.3% 31,478 29,965 5.0%
Direct property payroll............... 14,823 12,486 18.7% 28,699 24,906 15.2%
Cost of managing facilities........... 4,977 4,600 8.2% 10,024 9,648 3.9%
Advertising and promotion............. 5,830 4,160 40.1% 9,333 6,823 36.8%
Utilities............................. 3,895 3,621 7.6% 7,717 7,416 4.1%
Repairs and maintenance............... 4,488 3,792 18.4% 8,209 6,981 17.6%
Telephone reservation center.......... 2,424 2,373 2.1% 4,644 4,466 4.0%
Property insurance.................... 2,452 1,652 48.4% 3,852 2,952 30.5%
Other................................. 4,219 3,574 18.0% 8,373 7,374 13.5%
------------ ------------ ------------ ------------ ------------ ------------
Total cost of operations................ 58,055 50,447 15.1% 112,329 100,531 11.7%
------------ ------------ ------------ ------------ ------------ ------------

Net operating income before depreciation... 108,610 112,911 (3.8)% 215,545 228,271 (5.6)%
Depreciation............................... (36,218) (36,811) (1.6)% (71,961) (71,875) 0.1%
------------ ------------ ------------ ------------ ------------ ------------
Operating income........................... $ 72,392 $ 76,100 (4.9)% $ 143,584 $ 156,396 (8.2)%
============ ============ ============ ============ ============ ============

Gross margin (before depreciation)......... 65.2% 69.1% (5.6)% 65.7% 69.4% (5.3)%

Weighted average for the period:
Square foot occupancy (a)............... 89.1% 86.3% 3.2% 86.9% 84.9% 2.4%
Realized annual rent per occupied
square foot (b)....................... $ 10.60 $ 10.82 (2.0)% $ 10.70 $ 11.08 (3.4)%
REVPAR (c).............................. $ 9.45 $ 9.34 1.2% $ 9.29 $ 9.40 (1.2)%

Weighted average at June 30:
Square foot occupancy................... 91.2% 86.5% 5.4%
In place annual rent per occupied $ 11.64 $ 11.71 (0.6%)
square foot (d)......................
Posted annual rent per square foot (e).. $ 11.28 $ 11.73 (3.8)%
Total net rentable square feet (in
thousands)................................. 67,729 67,729 0.0%

42

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

(b) Realized annual rent per occupied square foot is computed by annualizing
the result of dividing adjusted base rental income by the weighted average
occupied square footage for the period. Realized rents per square foot take
into consideration promotional discounts, bad debt costs, credit card fees
and other costs which reduce rental income from the contractual amounts
due.

(c) Annualized revenue per available square foot ("REVPAR") represents
annualized adjusted base rental income divided by total available net
rentable square feet.

(d) In place annual rent per occupied square foot represents contractual rents
per occupied square foot without reductions for promotional discounts.

(e) Posted annual rent per square foot represents the rents charged to new
tenants prior to any promotional discounts.

During the three and six months ended June 30, 2003, net operating
income (prior to depreciation) for the Consistent Group facilities decreased
3.8% and 5.6%, respectively, as compared to the same periods in 2002. These
decreases are primarily attributable to increased promotional discounts combined
with increased cost of operations.

During fiscal 2002, we struggled to regain occupancy levels that were
below the levels that were experienced in the prior year. The reduction in our
occupancy levels resulted in a reduction in our rental income that negatively
impacted property net operating income and the overall net income of the
Company.

At the end of July 2002, the average occupancy level for the Consistent
Group of facilities was 85.7% as compared to 91.2% at the end of July 2001,
representing a reduction of 6.0%. Beginning in mid-August 2002 and through the
remainder of 2002, we reinstated a promotional discount program and advertised
on television in selected markets in an effort to enhance move-in activity and
improve occupancy levels. This program had a positive impact on move-in activity
throughout the third and fourth quarters of 2002 and stabilized our occupancy
levels. By the end of December 2002, the average occupancy level for the
Consistent Group of facilities was 84.3% as compared to 85.3% at the end of
December 2001, representing a reduction of 1.2% and improvement in the negative
spread from July 2002.

During the first quarter of 2003, we continued advertising on
television and offering promotional discounts to new incoming tenants. These
activities continued to have a positive impact on our occupancies. At the end of
March 2003, the average occupancy level for the Consistent Group of facilities
was 85.3% as compared to 83.4% at the end of March 2002, representing an
increase of 2.3%. Although our average occupancy level was now higher than 2002,
the level at March 31, 2003 was still well below levels we had experienced in
years prior to 2002. In order to maintain the positive occupancy spread over
2002 and to regain to higher levels experienced in years prior to 2002, we
continued to enhance move-in activity by advertising on television and offering
promotional discounts to new incoming tenants throughout the second quarter of
2003. At the end of June 2003, the average occupancy level for the Consistent
Group of facilities was 91.2% as compared to 86.5% at the end of June 2002,
representing an increase of 5.4%.

The increase in occupancy levels has come at a significant cost.
Television advertising expense for the second quarter of 2003 was $2,719,000 as
compared to $1,403,000 in the second quarter of 2002. In addition, promotional
discounts totaled $12,974,000 for the second quarter of 2003 as compared to
$5,380,000 for the second quarter of 2002. Therefore, despite the increase in
physical occupancy, net operating income (before depreciation) for our
Consistent Group of facilities was lower in the second quarter of 2003 as
compared to the same period of 2002. This reduction was due primarily to higher
levels of advertising expense and reduced rental income caused by increased
promotional discounting.

43

Total operating expenses increased 15.1% for the three months ended
June 30, 2003 as compared to the same period in 2002. This increase was due
primarily to increases in payroll, advertising and promotion, property tax, and
repairs and maintenance costs. Direct property payroll increased 18.7% in the
three months ended June 30, 2003 as compared to the same period in 2002 due
primarily to increased incentives paid to and hours worked by property operating
personnel. Advertising and promotion increased 40.1% in the three months ended
June 30, 2003 as compared to the same period in 2002 primarily due to an
increase in television advertising expense from $1,403,000 in the three months
ended June 30, 2002 to $2,719,000 for the same period in 2003. Repairs and
maintenance cost have increased 18.4% for the three months ended June 30, 2003,
as compared to the same period in 2002, as a result of costs to remedy mold
issues at several facilities in Southern states combined with a general increase
in cost that we expect will continue at least over the next 12 months to address
deferred maintenance at our facilities.

Total operating expenses increased 11.7% for the six months ended June
30, 2003 as compared to the same period in 2002. This increase was due to
increases in payroll, advertising and promotion, property tax, and repairs and
maintenance costs. Direct property payroll increased 15.2% due primarily to
increased incentives paid to and hours worked by property operating personnel.
Advertising and promotion increased 36.8% primarily due to an increase in
television advertising from $1,943,000 in the six months ended June 30, 2002 to
$4,222,000 for the same period in 2003. Repairs and maintenance have increased
17.6% in the six months ended June 30, 2003 as compared to the same period in
2002 due to costs to remedy mold issues in several facilities in Southern
states, increased snow removal expenses, as well as a general increase in costs
that we expect will continue at least over the next 12 months to address
deferred maintenance at our facilities.

The following table summarizes additional selected financial data with
respect to the Consistent Group of Facilities:

For the three months ended
------------------------------------------------------------------------
March 31, June 30, September 30, December 31, Full Year
------------- ------------- ------------- ------------- -------------
(Amounts in thousands, except for per square foot amounts)

Total rental income:
2003............ $ 161,209 $ 166,665
2002............ $ 165,444 $ 163,358 $ 168,257 $ 161,388 $ 658,447

Promotional discounts given:
2003............ $ 9,975 $ 12,974
2002............ $ 1,024 $ 5,380 $ 4,721 $ 7,301 $ 18,426

Total cost of operations:
2003............ $ 54,274 $ 58,055
2002............ $ 50,084 $ 50,447 $ 52,375 $ 57,759 $ 210,665

Television advertising expense:
2003............ $ 1,503 $ 2,719
2002............ $ 540 $ 1,403 $ 1,934 $ 3,913 $ 7,790

REVPAR:
2003............ $ 9.14 $ 9.45
2002............ $ 9.46 $ 9.34 $ 9.60 $ 9.18 $ 9.40

Weighted average realized annual rent per occupied
square foot for the period:
2003............ $ 10.78 $ 10.60
2002............ $ 11.33 $ 10.82 $ 11.20 $ 10.81 $ 11.04

Weighted average occupancy levels for the period:
2003............ 84.8% 89.1%
2002............ 83.5% 86.3% 85.7% 85.0% 85.1%

Weighted average occupancy at July 31,
2003............ 91.7%
2002............ 85.7%

44

We are pleased with the occupancy gains that we have achieved thus far
this year, however, our experience has been that on average approximately 25% to
30% of our new customers will move out within the first 60 to 90 days. Our
current occupancy levels have been achieved in large part on the move-in
activity over the past four months. Accordingly, we expect that our move-out
activity will continue at a higher level putting pressure on our occupancy
levels. Compounding the pressure on our occupancies will be the normal seasonal
increase in move-out activity that we have historically experienced in the third
and fourth quarters. In order to achieve a sustainable high level of occupancy,
we expect to continue promotional discounting and television advertising during
at least the remainder of 2003, though the level of such activities cannot be
estimated at this time. The up front costs of these marketing activities, and
the increases in discounts, are expected to continue to adversely impact our
operating income during 2003. We believe, however, that these activities have
and will continue to have a positive impact on our occupancy levels. Ultimately,
we believe higher occupancy levels will result in higher rental income.

As indicated on the above table, the weighted average occupancy of the
Consistent Group facilities was 91.7% at July 31, 2003 as compared to 85.7% at
July 31, 2002, representing an increase of 7.0%. This increase, however, has
come at a significant cost, as promotional discounts and television advertising
costs are expected to be higher in the quarter ended September 30, 2003 than in
the same period in 2002.

We are continuously evaluating our call volume, reservation activity,
and move-in/move-out rates for each of our markets relative to our marketing
activities and rental rates. In addition, we are evaluating market supply and
demand factors and based upon these analyses we are continuing to adjust our
marketing activities in an effort to increase our occupancy levels and
ultimately our rental income.

Analysis of Regional Trends
---------------------------

The following table sets forth regional trends in our consistent group
of facilities:

Consistent Group Operating Trends by Region:
- --------------------------------------------
Three months ended June 30, Six months ended June 30,
-------------------------------------- ----------------------------------------
Percentage Percentage
2003 2002 Change 2003 2002 Change
------------ ------------ ------------ ------------ ------------ ------------
(Dollar amounts in thousands)

Rental income:
Southern California (120 facilities) $ 28,161 $ 26,106 7.9% $ 55,291 $ 52,448 5.4%
Northern California (108 facilities) 19,540 19,055 2.5% 38,601 38,507 0.2%
Texas (140 facilities).......... 15,473 15,542 (0.4)% 30,518 31,373 (2.7)%
Florida (108 facilities)........ 13,910 13,500 3.0% 27,542 27,437 0.4%
Illinois (82 facilities)........ 12,504 13,113 (4.6)% 24,800 26,417 (6.1)%
Georgia (56 facilities)......... 5,866 5,805 1.1% 11,567 11,708 (1.2)%
All other states (551 facilities) 71,211 70,237 1.4% 139,555 140,912 (1.0)%
------------ ------------ ------------ ------------ ------------ ------------
Total rental income................. 166,665 163,358 2.0% 327,874 328,802 (0.3)%
------------ ------------ ------------ ------------ ------------ ------------

Cost of operations:
Southern California.............. 6,846 5,825 17.5% 13,439 11,586 16.0%
Northern California.............. 5,213 4,646 12.2% 10,284 8,994 14.3%
Texas............................ 7,153 6,102 17.2% 13,462 12,094 11.3%
Florida.......................... 5,734 4,855 18.1% 10,796 9,234 16.9%
Illinois......................... 5,483 5,133 6.8% 11,014 10,357 6.3%
Georgia.......................... 2,299 1,906 20.6% 4,275 3,660 16.8%
All other states................. 25,327 21,980 15.2% 49,059 44,606 10.0%
------------ ------------ ------------ ------------ ------------ ------------
Total cost of operations............ 58,055 50,447 15.1% 112,329 100,531 11.7%
------------ ------------ ------------ ------------ ------------ ------------

45

Consistent Group Operating Trends by Region: (Continued)
- --------------------------------------------------------
Three months ended June 30, Six months ended June 30,
-------------------------------------- ----------------------------------------
Percentage Percentage
2003 2002 Change 2003 2002 Change
------------ ------------ ------------ ------------ ------------ ------------
(Dollar amounts in thousands)

Net operating income (before depreciation):
Southern California.............. 21,315 20,281 5.1% 41,852 40,862 2.4%
Northern California.............. 14,327 14,409 (0.6)% 28,317 29,513 (4.1)%
Texas............................ 8,320 9,440 (11.9)% 17,056 19,279 (11.5)%
Florida.......................... 8,176 8,645 (5.4)% 16,746 18,203 (8.0)%
Illinois......................... 7,021 7,980 (12.0)% 13,786 16,060 (14.2)%
Georgia.......................... 3,567 3,899 (8.5)% 7,292 8,048 (9.4)%
All other states................. 45,884 48,257 (4.9)% 90,496 96,306 (6.0)%
------------ ------------ ------------ ------------ ------------ ------------
Total net operating income.......... $ 108,610 $ 112,911 (3.8)% $ 215,545 $ 228,271 (5.6)%
------------ ------------ ------------ ------------ ------------ ------------

Weighted average occupancy:
Southern California.............. 90.5% 87.3% 3.7% 89.5% 86.7% 3.2%
Northern California.............. 89.9% 86.3% 4.2% 87.7% 85.3% 2.8%
Texas............................ 89.7% 85.8% 4.5% 87.1% 84.7% 2.8%
Florida.......................... 90.9% 86.0% 5.7% 88.7% 85.2% 4.1%
Illinois......................... 86.6% 83.8% 3.3% 84.0% 82.3% 2.1%
Georgia.......................... 91.2% 85.1% 7.2% 88.2% 83.7% 5.4%
All other states................. 88.1% 86.6% 1.7% 85.8% 84.8% 1.3%
------------ ------------ ------------ ------------ ------------ ------------
Total weighted average occupancy.... 89.1% 86.3% 3.2% 86.9% 84.9% 2.4%
------------ ------------ ------------ ------------ ------------ ------------

REVPAR:
Southern California.............. $14.47 $13.50 7.2% $14.20 $13.57 4.6%
Northern California.............. 12.89 12.65 1.9% 12.73 12.79 (0.5)%
Texas............................ 6.87 6.94 (1.0)% 6.77 7.01 (3.4)%
Florida.......................... 8.08 8.01 0.9% 8.21 8.32 (1.3)%
Illinois......................... 9.43 10.02 (5.9)% 9.53 10.24 (6.9)%
Georgia.......................... 6.90 7.00 (1.4)% 6.79 7.07 (4.0)%
All other states................. 8.83 8.77 0.7% 8.60 8.75 (1.7)%
------------ ------------ ------------ ------------ ------------ ------------
Total REVPAR:....................... $9.45 $9.34 1.2% $9.29 $9.40 (1.2)%
------------ ------------ ------------ ------------ ------------ ------------

Realized annual rent per occupied square foot:
Southern California.............. $15.99 $15.47 3.4% $15.86 $15.65 1.3%
Northern California.............. 14.34 14.66 (2.2)% 14.52 14.99 (3.1)%
Texas............................ 7.66 8.09 (5.3)% 7.77 8.28 (6.2)%
Florida.......................... 8.89 9.31 (4.5)% 9.25 9.77 (5.3)%
Illinois......................... 10.89 11.95 (8.9)% 11.34 12.44 (8.8)%
Georgia.......................... 7.56 8.22 (8.0)% 7.70 8.44 (8.8)%
All other states................. 10.02 10.13 (1.1)% 10.01 10.32 (3.0)%
------------ ------------ ------------ ------------ ------------ ------------
Total realized annual rent per occupied
square foot:...................... $10.60 $10.82 (2.0)% $10.70 $11.08 (3.4)%
------------ ------------ ------------ ------------ ------------ ------------

Self-Storage Operations - Acquired Facilities

The "Acquired Facilities," at June 30, 2003, are comprised of 95
self-storage facilities containing 5,642,000 net rentable square feet that were
acquired in 2000, 2001, and 2002. These facilities were substantially all
mature, stabilized facilities at the time of their acquisition. The following
table summarizes operating data with respect to these 95 facilities:

46

ACQUIRED FACILITIES
- -------------------
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------- ------------------------------------
2003 2002 Change 2003 2002 Change
------------ ------------ ------------ ---------- ---------- ------------

(Dollar amounts in thousands)
Rental income (a):

Self-storage facilities acquired in 2002 (a) $ 14,844 $ 13,400 $ 1,444 $ 29,161 $ 25,110 $ 4,051
Self-storage facility acquired in 2001 (b).. 138 105 33 269 201 68
Self-storage facilities acquired in 2000 (c) 1,122 1,009 113 2,176 2,018 158
------------ ------------ ------------ ---------- ---------- ------------
Total rental income....................... 16,104 14,514 1,590 31,606 27,329 4,277
------------ ------------ ------------ ---------- ---------- ------------
Cost of operations:
Self-storage facilities acquired in 2002 (a) 4,795 3,836 959 9,072 6,967 2,105
Self-storage facility acquired in 2001 (b).. 44 41 3 83 79 4
Self-storage facilities acquired in 2000 (c) 570 453 117 1,049 878 171
------------ ------------ ------------ ---------- ---------- ------------
Total cost of operations.................. 5,409 4,330 1,079 10,204 7,924 2,280
------------ ------------ ------------ ---------- ---------- ------------
Net operating income before depreciation:
- ----------------------------------------
Self-storage facilities acquired in 2002 (a) 10,049 9,564 485 20,089 18,143 1,946
Self-storage facility acquired in 2001 (b).. 94 64 30 186 122 64
Self-storage facilities acquired in 2000 (c) 552 556 (4) 1,127 1,140 (13)
------------ ------------ ------------ ---------- ---------- ------------
Net operating income...................... 10,695 10,184 511 21,402 19,405 1,997
Depreciation.................................. (2,564) (2,745) 181 (5,455) (5,149) (306)
------------ ------------ ------------ ---------- ---------- ------------
Operating Income............................ $ 8,131 $ 7,439 $ 692 $ 15,947 $ 14,256 $ 1,691
============ ============ ============ ========== ========== ============

Weighted average square foot occupancy during the
period:
Self-storage facilities acquired in 2002 (a) 89.9% 80.0% 12.4% 87.8% 78.5% 11.8%
Self-storage facility acquired in 2001 (b).. 93.0% 61.3% 51.7% 88.8% 56.2% 58.0%
Self-storage facilities acquired in 2000 (c) 83.0% 68.6% 21.0% 78.2% 66.1% 18.3%
------------ ------------ ------------ ---------- ---------- ------------
89.3% 78.7% 13.5% 87.0% 77.1% 12.8%
============ ============ ============ ========== ========== ============

Number of self-storage facilities (at end of 95 89 6 95 89 6
period)........................................
Net rentable square feet (in thousands, at end of
period)..................................... 5,642 5,295 347 5,642 5,295 347
Cumulative acquisition cost (at end of period). $ 405,684 $ 383,599 $ 22,085 $ 405,684 $ 383,599 $ 22,085

(a) The 2002 acquisitions includes 47 properties acquired on January 16, 2002
from an affiliated development joint venture at a total cost of
$269,898,000, 31 properties acquired on January 1, 2002 in connection with
business combinations with two affiliated partnerships at a total cost of
$60,528,000, and 9 facilities acquired from third parties at a total cost
of $30,117,000.

(b) The 2001 acquisition was acquired from a third party at a cost of
$3,503,000.

(c) The 2000 acquisitions are comprised of seven facilities acquired from third
parties at a total cost of $41,638,000.

Rental income and cost of operations for the Acquired Facilities have
increased significantly in the three months ended June 30, 2003 as compared to
2002, due primarily to the acquisition of new facilities in 2002.

Similar to our Consistent Group of facilities, the Acquired Facilities
have experienced operating difficulties over the past year. Marketing and
promotional strategies, as described above with respect to our Consistent Group,
will continue to be employed in 2003 to enhance the occupancy levels and rental
income of the Acquired Facilities.

47

Self-Storage Operations - Expansion Facilities

Since January 1, 2000, we expanded 35 self-storage facilities or
converted them to Combination Facilities (defined below). These activities
caused a drop in revenue levels, as existing capacity was made unavailable in
order to accommodate construction activities and, as a result, the operating
results are not comparable. At June 30, 2003, the weighted average occupancy
level was approximately 86% as compared to 70% one year earlier. The operating
results for these facilities are presented in the Self-Storage Operations table
above under the caption, "Expansion Facilities."

Depreciation expense with respect to the expansion facilities was
$1,550,000 and $3,041,000 for the three and six months ended June 30, 2003,
respectively, as compared to $1,431,000 and $3,050,000, respectively, for the
same periods in 2002. These 35 facilities contain approximately 3,805,000 net
rentable square feet at June 30, 2003 (which includes the expanded space, and
817,000 square feet of industrial space developed for containerized storage
activities - see "Containerized Storage" and "Discontinued Operations"). The
aggregate construction costs to complete these expansions totaled approximately
$121,510,000.

A portion of the 817,000 net rentable square feet of industrial space
included in these facilities was previously used by the discontinued
containerized storage operations. As described under "Liquidity and Capital
Resources," we are converting a portion of this industrial space into
traditional self-storage units.

Self-Storage Operations -Developed Facilities

Since January 1, 1999, we have opened 55 newly developed self-storage
facilities and 17 facilities that were developed to contain both self-storage
and portable self-storage at the same location ("Combination Facilities"). These
newly developed facilities have an aggregate of 5,324,000 net rentable square
feet (of which 840,000 net rentable square feet is industrial space initially
developed for containerized storage activities - see "Containerized Storage" and
"Discontinued Operations"). Aggregate development cost for these 72 facilities
was approximately $465,953,000. The operating results of the self-storage
facilities and Combination Facilities are reflected in the Self-Storage
Operations table under the caption, "Developed Facilities."

48

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

DEVELOPED FACILITIES
- --------------------
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------- -------------------------------------
2003 2002 Change 2003 2002 Change
----------- ----------- ----------- ----------- ----------- -----------
(Dollar amounts in thousands)

Rental income:
Self-storage facilities............ $ 6,635 $ 4,200 $ 2,435 $ 12,271 $ 8,019 $ 4,252
Combination Facilities............. 2,489 1,493 996 4,631 2,862 1,769
----------- ----------- ----------- ----------- ----------- -----------
Total rental income.............. 9,124 5,693 3,431 16,902 10,881 6,021
----------- ----------- ----------- ----------- ----------- -----------

Cost of operations:
Self-storage facilities............ 3,265 2,165 1,100 6,322 4,062 2,260
Combination Facilities............. 1,390 1,135 255 2,572 2,133 439
----------- ----------- ----------- ----------- ----------- -----------
Total cost of operations......... 4,655 3,300 1,355 8,894 6,195 2,699
----------- ----------- ----------- ----------- ----------- -----------

Net operating income before depreciation:
Self-storage facilities............ 3,370 2,035 1,335 5,949 3,957 1,992
Combination Facilities............. 1,099 358 741 2,059 729 1,330
----------- ----------- ----------- ----------- ----------- -----------
Net operating income............. 4,469 2,393 2,076 8,008 4,686 3,322
Depreciation......................... (3,153) (2,190) (963) (6,302) (4,352) (1,950)
----------- ----------- ----------- ----------- ----------- -----------
Operating income................... $ 1,316 $ 203 $ 1,113 $ 1,706 $ 334 $ 1,372
=========== =========== =========== =========== =========== ===========

Weighted average square foot occupancies
for the period:
Self-storage facilities............ 66.8% 55.5% 20.4% 61.8% 52.4% 17.9%
Combination Facilities............. 73.0% 42.4% 72.2% 67.1% 38.2% 75.7%
----------- ----------- ----------- ----------- ----------- -----------
Total............................ 68.2% 51.7% 31.9% 63.0% 48.3% 30.4%
=========== =========== =========== =========== =========== ===========
Self-storage facilities, at end of
period:
Number of facilities............... 55 42 13
Net rentable square feet........... 3,479 2,623 856
Total development cost............. $310,367 $ 218,610 $91,757
Combination Facilities, at end of period:
Number of facilities............... 17 17 -
Net rentable square feet (a)....... 1,861 1,844 17
Total development cost (a)......... $155,586 $ 154,177 $ 1,409

(a) During the three months ended June 30, 2003, we completed the conversion of
a PUD container facility to a self-storage facility, at an aggregate cost
of $1,409,000. As a result of this conversion, the Company converted a
total of 38,000 net rentable square feet of industrial space into 55,000
net rentable square feet of traditional miniwarehouse space.

The following table summarizes operating data for the 55 newly
developed self-storage facilities that opened since January 1, 1999:

49

DEVELOPED SELF-STORAGE FACILITIES
- ---------------------------------
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------- -----------------------------------
2003 2002 Change 2003 2002 Change
----------- ----------- ---------- ----------- ----------- ----------
(Dollar Amounts in thousands)

Rental income:
Self-storage facilities opened in 2003...... $ 189 $ - $ 189 $ 193 $ - $ 193
Self-storage facilities opened in 2002...... 1,524 138 1,386 2,651 145 2,506
Self-storage facilities opened in 2001...... 1,500 1,060 440 2,796 1,996 800
Self-storage facilities opened in 2000...... 2,593 2,251 342 5,020 4,395 625
Self-storage facilities opened in 1999...... 829 751 78 1,611 1,483 128
----------- ----------- ---------- ----------- ----------- ----------
Total rental income....................... 6,635 4,200 2,435 12,271 8,019 4,252
----------- ----------- ---------- ----------- ----------- ----------
Cost of operations:
Self-storage facilities opened in 2003...... 235 - 235 310 - 310
Self-storage facilities opened in 2002...... 861 247 614 1,676 283 1,393
Self-storage facilities opened in 2001...... 893 707 186 1,714 1,380 334
Self-storage facilities opened in 2000...... 1,009 949 60 2,056 1,886 170
Self-storage facilities opened in 1999...... 267 262 5 566 513 53
----------- ----------- ---------- ----------- ----------- ----------
Total cost of operations.................. 3,265 2,165 1,100 6,322 4,062 2,260
----------- ----------- ---------- ----------- ----------- ----------
Net operating income before depreciation:
Self-storage facilities opened in 2003...... (46) - (46) (117) - (117)
Self-storage facilities opened in 2002...... 663 (109) 772 975 (138) 1,113
Self-storage facilities opened in 2001...... 607 353 254 1,082 616 466
Self-storage facilities opened in 2000...... 1,584 1,302 282 2,964 2,509 455
Self-storage facilities opened in 1999...... 562 489 73 1,045 970 75
----------- ----------- ---------- ----------- ----------- ----------
Net operating income........................ 3,370 2,035 1,335 5,949 3,957 1,992
Depreciation.................................. (2,049) (1,287) (762) (4,102) (2,555) (1,547)
----------- ----------- ---------- ----------- ----------- ----------
Operating income............................ $ 1,321 $ 748 $ 573 $ 1,847 $ 1,402 $ 445
=========== =========== ========== =========== =========== ==========

Weighted average square foot occupancy during the
period:
Self-storage facilities opened in 2003...... 23.2% - - 17.4% - -
Self-storage facilities opened in 2002...... 54.8% 14.4% 280.6% 47.3% 11.8% 300.8%
Self-storage facilities opened in 2001...... 66.7% 42.6% 56.6% 60.5% 39.1% 57.7%
Self-storage facilities opened in 2000...... 87.3% 74.8% 16.7% 84.6% 71.4% 18.5%
Self-storage facilities opened in 1999...... 91.3% 87.6% 4.2% 90.6% 85.4% 6.1%
----------- ----------- ---------- ----------- ----------- ----------
66.8% 55.5% 20.4% 61.8% 52.4% 17.9%
=========== =========== ========== =========== =========== ==========
Number of facilities:
Self-storage facilities opened in 2003...... 6 - 6
Self-storage facilities opened in 2002...... 14 7 7
Self-storage facilities opened in 2001...... 12 12 -
Self-storage facilities opened in 2000...... 18 18 -
Self-storage facilities opened in 1999...... 5 5 -
----------- ----------- ----------
55 42 13
=========== =========== ==========

Cumulative Development Cost:
Self-storage facilities opened in 2003...... $ 42,059 $ - $ 42,059
Self-storage facilities opened in 2002...... 93,413 43,715 49,698
Self-storage facilities opened in 2001...... 66,905 66,905 -
Self-storage facilities opened in 2000...... 82,819 82,819 -
Self-storage facilities opened in 1999...... 25,171 25,171 -
----------- ----------- ----------
$ 310,367 $ 218,610 $ 91,757
=========== =========== ==========

50

Unlike many other forms of real estate, we are unable to pre-lease our
newly developed facilities due to the nature of our tenants. Accordingly, at the
time a newly developed facility first opens for operations, the facility is
entirely vacant, generating no rental income. Historically, we estimated that on
average it took approximately 24 months for a newly developed facility to fill
up and reach a targeted occupancy level of approximately 90%. We believe that
the current economic environment has extended the fill-up period beyond 24
months notwithstanding our marketing efforts to enhance the fill-up process.

Similar to our Consistent Group of facilities, the newly developed
self-storage facilities participated in promotional discounting and advertising
activities to enhance occupancy levels. During the three months ended June 30,
2003, the newly developed self-storage facilities had a weighted average
occupancy level of approximately 66.8%.

Property operating expenses are substantially fixed, consisting
primarily of payroll, property taxes, utilities, and marketing costs. The rental
revenue of a newly developed facility will generally not cover its property
operating expenses (excluding depreciation) until the facility has reach an
occupancy level of approximately 30% to 34%. However, at that occupancy level,
the rental revenues from the facility are still not sufficient to cover the
related depreciation expense and cost of capital with respect to the facility's
development cost. During construction of the self-storage facility, we
capitalize interest costs and include such cost as part of the overall
development cost of the facility. Once the facility is opened for operations,
interest is no longer capitalized.

Due to the relationship between the generation of rental income and
immediate recognition of expenses upon opening of a facility, our development
activities have had a negative impact on our net income. We estimate that our
net income has been negatively impacted by approximately $15,757,000 and
$13,383,000, in the six months ended June 30, 2003 and 2002, respectively, as a
result of the difference between the revenues generated by the Developed
Facilities and the operating expenses, depreciation, and cost of capital with
respect to these facilities as described above. These amounts include
approximately $6,302,000 and $4,352,000, in the six months ended June 30, 2003
and 2002, respectively, in depreciation expense.

We continue to develop facilities, despite the short-term earnings
dilution experienced during the fill-up period, because we believe that the
ultimate returns on developed facilities are favorable. In addition, we believe
that it is advantageous for us to continue to expand our asset base and benefit
from the resultant increased critical mass with facilities that will improve our
portfolio's overall average construction and location quality.

We expect that over at least the next 24 months, the Developed
Facilities will continue to have a negative impact to our earnings, however, to
a much lesser degree than experienced in 2002. Furthermore, the 40 expansion and
newly developed facilities in our development pipeline described in "Liquidity
and Capital Resources - Acquisition and Development of Facilities" that we
expect to be opened for operation over approximately the next 24 months will
also negatively impact our earnings until they reach a stabilized occupancy
level.

COMMERCIAL PROPERTY OPERATIONS: Commercial property operations included
in our consolidated financial statements include commercial space owned by the
Company and entities consolidated by the Company. We have a much larger interest
in commercial properties through our ownership interest in PSB. Our investment
in PSB is accounted for on the equity method of accounting, and accordingly our
share of PSB's earnings is reflected as "Equity in earnings of real estate
entities", see below.

Our commercial operations are comprised of 992,000 net rentable square
feet of commercial space operated at certain of the self-storage facilities, and
three stand-alone commercial facilities having a total of 195,000 net rentable
square feet. In addition, we own an industrial building with 67,000 net rentable
square feet that was opened in 2001. This facility was previously used by the
containerized storage operations, and is now classified as "real estate
facilities held for sale" on our June 30, 2003 balance sheet.

51

The following table sets forth the historical commercial property
amounts included in the financial statements:

COMMERCIAL PROPERTY OPERATIONS
(EXCLUDING DISCONTINUED OPERATIONS):
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------- -----------------------------------
2003 2002 Change 2003 2002 Change
---------- ---------- ---------- ---------- ---------- ----------

Rental income $ 2,943 $ 3,067 $ (124) $ 5,789 $ 6,023 $ (234)
Cost of operations................... (1,045) (1,106) 61 (2,238) (2,198) (40)
---------- ---------- ---------- ---------- ---------- ----------
Net operating income............... 1,898 1,961 (63) 3,551 3,825 (274)

Depreciation......................... (674) (670) (4) (1,299) (1,369) 70
---------- ---------- ---------- ---------- ---------- ----------
Operating income................... $ 1,224 $ 1,291 $ (67) $ 2,252 $ 2,456 $ (204)
========== ========== ========== ========== ========== ==========

The decrease in rental income for June 30, 2003 as compared to the same
period in 2002 is due primarily to a vacancy in one of the three stand-alone
commercial facilities, which caused a reduction in rental income of
approximately $198,000.

During 2002, we sold one of our commercial facilities to a third party
for an aggregate $3.9 million in cash. The historical operations with respect to
this facility are classified as "Discontinued Operations" in our income
statement and are not included in the above table.

CONTAINERIZED STORAGE OPERATIONS: In August 1996, Public Storage Pickup
& Delivery ("PSPUD"), a subsidiary of the Company, made its initial entry into
the containerized storage business through its acquisition of a single facility
operator located in Irvine, California. At June 30, 2003, PSPUD operated 32
facilities in 11 states, which are located in major markets in which we have
significant market presence with respect to our traditional self-storage
facilities. During 2002, we reevaluated our operational strategy and decided to
closed 22 of the 55 containerized storage facilities that were open at January
1, 2002. As of June 30, 2003, 21 of the 22 facilities have been closed and the
remaining facility is expected to be closed by December 31, 2003. In addition,
during the second quarter of 2003, we closed one additional facility that was
not included in the original 22 facilities targeted for closure. These 23
facilities are herein referred to as the "Closed Facilities". The operations
with respect to the Closed Facilities, including historical operating results
for previous periods, are not included in the table below and instead are
included in Discontinued Operations. PSPUD's operations, which exclude the
Closed Facilities, are reflected on the table below:

CONTAINERIZED STORAGE
(EXCLUDING DISCONTINUED OPERATIONS)
For the three months ended June 30, For the six months ended June 30,
----------------------------------- ----------------------------------
2003 2002 Change 2003 2002 Change
---------- ---------- -------- ---------- --------- ----------

(Amounts in thousands)

Rental and other income ............ $10,402 $8,661 $1,741 $19,638 $16,567 $3,071
---------- ---------- -------- ---------- --------- ----------
Cost of operations:
Direct operating costs.......... 6,306 5,586 720 11,883 10,634 1,249
Facility lease expense.......... 555 566 (11) 1,114 1,173 (59)
---------- ---------- -------- ---------- --------- ----------
Total cost of operations..... 6,861 6,152 709 12,997 11,807 1,190
---------- ---------- -------- ---------- --------- ----------
Operating income prior to
depreciation.................. 3,541 2,509 1,032 6,641 4,760 1,881
Depreciation expense (a)............ (2,155) (1,616) (539) (4,136) (3,042) (1,094)
---------- ---------- -------- ---------- --------- ----------
Operating income.................... $1,386 $893 $493 $2,505 $1,718 $787
========== ========== ======== ========== ========= ==========

(a) Depreciation expense principally relates to the depreciation related to the
containers; however, depreciation expense for the three and six months
ended June 30, 2003 includes $464,000 and $854,000, respectively, with
respect to real estate facilities. Depreciation expense for the three
months ended June 30, 2002 includes $375,000 and $593,000, respectively,
with respect to real estate facilities

52

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. Rental income increased to $10,402,000 and
$19,638,000 for the three and six months ended June 30, 2003, respectively, from
$8,661,000 and $16,567,000, respectively, for the same periods in 2002 primarily
as a result of higher per container rents and an increase in the number of
occupied containers. At June 30, 2003, there were approximately 50,000 occupied
containers in the 32 facilities that are reflected in these "ongoing"
operations.

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

Depreciation expense with respect to the containers and other non-real
estate assets of the containerized storage operations increased $833,000 for the
six months ended June 30, 2003 as compared to the same period in 2002 due
primarily to reduced estimated useful lives of the containers and other assets
of the containerized storage operations. We reevaluated the historical results
with respect to wear and functional obsolescence of these assets. Based upon the
results of this review, we decreased the estimated useful lives with respect to
these assets effective January 1, 2003.

At June 30, 2003, eight of the 32 containerized storage facilities are
leased from third parties. The remaining 24 facilities were operated in
facilities owned by the Company, comprised of 19 Combination Facilities with an
aggregate of 994,000 square feet of industrial space (this square footage is a
component of the total net rentable square footage of the Expansion Facilities
and the Developed Facilities in the table above) and five industrial facilities
having an aggregate of 420,000 net rentable square feet.

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

See "Discontinued Operations" below for a discussion of operating
results of the Closed Facilities.

TENANT REINSURANCE OPERATIONS: On December 31, 2001, we acquired PS
Insurance Company, Ltd. ("PS Insurance") from a related party. PS Insurance
reinsures policies against losses to goods stored by tenants in our self-storage
facilities. The operations of PS Insurance are included in the income statement
under "Revenues - tenant reinsurance premiums" and "Cost of operations - tenant
reinsurance."

TENANT REINSURANCE OPERATIONS
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------- ------------------------------------
2003 2002 Change 2003 2002 Change
----------- ----------- ----------- ----------- ----------- -----------
(Amounts in thousands)

Tenant reinsurance revenues........... $ 5,581 $ 5,156 $ 425 $ 10,796 $ 9,731 $ 1,065
Cost of operations................... (3,015) (2,523) (492) (5,714) (4,816) (898)
----------- ----------- ----------- ----------- ----------- -----------
Operating income................... $ 2,566 $ 2,633 $ (67) $ 5,082 $ 4,915 $ 167
=========== =========== =========== =========== =========== ===========

The level of tenant reinsurance revenues is largely dependent upon our
occupancy level and move-in activity. As of June 30, 2003, approximately 38% of
our self-storage tenant base has such policies. New insurance business comes
from tenants who sign up for insurance as they move into our self-storage
facilities.

We have outside third-party insurance coverage for losses from any
individual event that exceeds a loss of $500,000, to a limit of $10,000,000.
Losses below these amounts are recorded as cost of operations for the tenant
reinsurance operations.

53

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 seven limited partnerships at June 30, 2003 (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 and six months
ended June 30, 2003 and 2002 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:

For the three months ended June 30, For the six months ended June 30,
------------------------------------ -------------------------------------
2003 2002 Change 2003 2002 Change
---------- ---------- ---------- ---------- ---------- ----------
(Amounts in thousands)
Property operations:

PSB $15,331 $16,135 $(804) $30,031 $31,558 $(1,527)
Disposed investments (1)............... - 9 (9) 10 304 (294)
Other investments (2).................. 1,447 1,797 (350) 2,865 3,596 (731)
---------- ---------- ---------- ---------- ---------- ----------
16,778 17,941 (1,163) 32,906 35,458 (2,552)
---------- ---------- ---------- ---------- ---------- ----------
Depreciation:
PSB.................................... (6,280) (6,246) (34) (12,309) (12,347) 38
Disposed investments (1)............... - - - - (65) 65
Other investments (2).................. (564) (279) (285) (829) (484) (345)
---------- ---------- ---------- ---------- ---------- ----------
(6,844) (6,525) (319) (13,138) (12,896) (242)
---------- ---------- ---------- ---------- ---------- ----------
Other: (3)
PSB (4)................................ (1,320) (4,674) 3,354 (6,572) (6,882) 310
Disposed investments (1)............... - - - - - -
Other investments (2).................. 385 258 127 490 576 (86)
---------- ---------- ---------- ---------- ---------- ----------
(935) (4,416) 3,481 (6,082) (6,306) 224
---------- ---------- ---------- ---------- ---------- ----------

Total equity in earnings of real estate
entities.................................. $8,999 $7,000 $1,999 $13,686 $16,256 $(2,570)
========== ========== ========== ========== ========== ==========

(1) Amounts include our pro rata share of the earnings for the Development
Joint Venture. On January 16, 2002, we acquired a controlling interest in
this partnership and began to consolidate the operations of this
partnership, and no longer account for our interest in this partnership
using the equity method (see Note 3 to the consolidated financial
statements). Amounts also include income with respect to an investment that
was disposed of in the second quarter of 2003.

(2) Amounts include equity in earnings recorded for investments that have been
held consistently throughout each of the three and six months ended June
30, 2003 and 2002.

(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 the net impact of PSB's gains on
sales of assets recorded in the first and second quarters of 2003 and in
the second quarter of 2002, as well as the impact of an impairment charge
recorded by PSB in the first quarter of 2003 with respect to an impending
sale of real estate assets. Our net pro rata share of these items for the
three months ended June 30, 2003 was $2,583,000 compared to none for the
same period in 2002. Our net pro rata share of these items for the six
months ended June 30, 2003 and 2002 was $453,000 and $2,241,000,
respectively.

The increase in equity in earnings of real estate entities for the
three months ended June 30, 2003 as compared to 2002 is primarily due to a net
gain on sale of real estate assets recorded by PSB. Our net pro rata share of
this gain for the quarter ended June 30, 2003 totaled approximately $2,583,000;
there was no such gain recorded in the same period in 2002. The decrease in
equity in earnings of real estate entities for the six months ended June 30,
2003 as compared to 2002, is primarily due to a reduction in earnings for PSB,
caused primarily by the net impact of a gain on sale offset by an asset
impairment charge with respect to impending real estate sales recorded by PSB in
the six months ended June 30, 2003, as compared to a gain on sale recorded by
PSB in the six months ended June 30, 2002. Our net pro rata share of such items
recorded by PSB for the six months ended June 30, 2003 was $453,000 as compared
to $2,241,000 in the same period in 2002, representing a decrease of $1,788,000.

54

Equity in earnings of PSB represents our pro rata share (an average of
approximately 44% for the quarter ended June 30, 2003 and 2002) of the earnings
of PSB. As of June 30, 2003, we owned 5,418,273 common shares and 7,305,355
operating partnership units (units which are convertible into common shares on a
one-for-one basis) in PSB. At June 30, 2003, PSB owned and operated 14.9 million
net rentable square feet of commercial space located in nine states. PSB also
manages approximately 1,222,000 net rentable square feet of commercial space
owned by the Company, the Consolidated Entities, and the Unconsolidated Entities
at June 30, 2003 pursuant to property management agreements.

Accordingly, our future equity income from PSB will be dependent
entirely upon PSB's operating results. PSB's filings and selected financial
information can be accessed through the Securities and Exchange Commission, and
on its website, www.psbusinessparks.com.
------------------------

On January 16, 2002, we acquired the remaining 70% ownership interest
in the Development Joint Venture for cash totaling approximately $153,078,000.
As a result, we began consolidating the operating results of the Development
Joint Venture and no further equity in earnings will be recorded with respect to
this entity for periods after January 16, 2002. Our earnings with respect to
this entity is included in the table above in the line-item "Disposed
Investments."

The "Other Investments" includes our equity in earnings with respect to
our pro-rata share of earnings with respect to seven limited partnerships, for
which we held an approximately consistent level of equity interest during each
of the six months ended June 30, 2003 and 2002. These limited partnerships were
formed by the Company during the 1980's. The Company is the general partner in
each limited partnership, and manages each of these facilities for a management
fee that is included in "interest and other income." The limited partners
consist of numerous individual investors, including the Company, which
throughout the 1990's acquired units of limited partnership interests in these
limited partnerships in various transactions.

Our future earnings with respect to the "Other investments" will be
dependent upon the operating results of the 36 self-storage facilities
(2,186,000 net rentable square feet) 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
Consistent Group of self-storage facilities as discussed above. See Note 6 to
the consolidated financial statements for the operating results of these
entities for the six months ended June 30, 2003 and 2002.

Other Income and Expense Items
- --------------------------------------------------------------------------------

INTEREST AND OTHER INCOME: Interest in other income includes (i) the
net operating results from our property management operations, (ii) merchandise
sales and consumer truck rentals and (iii) interest income.

Interest and other income has increased to $2,879,000 and $4,578,000
for the three and six months ended June 30, 2003, respectively, from $2,759,000
and $4,467,000, respectively, for the same periods in 2002. This increase
reflects improved operating results on our merchandise and truck rental
operations, offset partially by reduced interest on notes receivable due to
principal payments and a reduction in average interest rates on outstanding cash
balances. In addition, interest and other income for the six months ended June
30, 2003 reflects a reduction from the same period in 2002 due to a reduction in
property management operations due to the consolidation of the Development Joint
Venture, as described in Note 3 to the consolidated financial statements.

55

DEPRECIATION AND AMORTIZATION: Depreciation and amortization expense
was $46,314,000 and $92,194,000 for the three and six months ended June 30,
2003, respectively, as compared to $45,463,000 and $88,837,000, respectively for
the same periods in 2002. Included in depreciation expense with respect to our
real estate facilities was $42,266,000 and $84,329,000 for the three and six
months ended June 30, 2003, respectively, as compared to $42,571,000 and
$83,086,000 for the same periods in 2002, respectively. The increase in such
depreciation is principally the result of property acquisitions and newly
developed facilities opened for operation. Included in depreciation and
amortization expense for the three and six months ended June 30, 2003 is
$2,397,000 and $4,563,000, respectively, as compared to $1,241,000 and
$2,449,000 for the same periods in 2002, respectively, with respect to other
assets, principally depreciation of equipment and containers associated with the
containerized storage operations, which have increased as discussed in
Containerized Storage Operations above. Included in depreciation and
amortization expense for each of the three and six month periods ended June 30,
2003 and 2002 is $1,651,000 and $3,302,000, respectively, with respect to the
amortization of property management contracts.

GENERAL AND ADMINISTRATIVE: General and administrative expense for the
three months ended June 30, 2003 increased 2.9% to $4,429,000 as compared to
$4,305,000 for the same period in 2002. General and administrative expense for
the six months ended June 30, 2003 increased 4.5% to $8,679,000 as compared to
$8,305,000 for the same period in 2002. General and administrative expense
principally consists of state income taxes, investor relation expenses, certain
overhead associated with the acquisition and development of real estate
facilities, corporate payroll, and overhead associated with the containerized
storage business.

Beginning January 1, 2002, we began to expense the fair value of stock
options in accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"). As indicated by FAS 123,
the estimated fair value of stock options issued after January 1, 2002 will be
expensed over their vesting period. The total of such expense included in
general and administrative expense was approximately $100,000 and $199,000 for
the three and six months ended June 30, 2003 ($58,000 for the three and six
months ended June 30, 2002). Based upon stock options granted between January 1,
2002 and June 30, 2003, the total expected annual expense for 2003 is
approximately $400,000. In addition, pro-forma disclosures of the impact of
stock options issued prior to January 1, 2002 (which are not expensed per the
transition provisions of FAS 123) are presented in Note 12 to the financial
statements. The impact of stock option expense will continue to increase in the
future to the extent that additional stock options are granted.

INTEREST EXPENSE: Interest expense was $372,000 and $1,213,000 for the
three months ended June 30, 2003 and 2002, respectively. Interest expense was
$825,000 and $2,315,000 for the six months ended June 30, 2003 and 2002,
respectively. Interest capitalized during the three and six months ended June
30, 2003 was $1,450,000 and $2,975,000, respectively, compared to $1,426,000 and
$3,272,000, respectively, for the same periods in 2002. The decrease in interest
expense in 2003 compared to 2002 is principally the result of lower interest
expense on notes payable due to scheduled principal repayments.

MINORITY INTEREST IN INCOME: Minority interest in income represents the
income allocable to equity interests in the Consolidated Entities, which are not
owned by the Company. The following table summarizes minority interest in income
for the three and six months ended June 30, 2003 and 2002 (amounts in
thousands):

For the three months ended June 30, For the six months ended June 30,
---------------------------------------- ----------------------------------------
Description 2003 2002 Change 2003 2002 Change
------------ ------------ ------------ ------------ ------------ ------------

Preferred partnership interests......... $ 6,727 $ 6,727 $ - $ 13,453 $ 13,453 $ -
Consolidated Development Joint Venture (a) 870 329 541 1,613 636 977
Convertible Partnership Units (b)....... 82 73 9 147 162 (15)
Acquired minority interests (c) ........ 56 684 (628) 415 1,978 (1,563)
Other minority interests (d)............ 3,035 2,800 235 5,810 5,726 84
------------ ------------ ------------ ------------ ------------ ------------
Total minority interests in income.. $ 10,770 $ 10,613 $ 157 $ 21,438 $ 21,955 $ (517)
============ ============ ============ ============ ============ ============

(a) These amounts reflect income allocated to the minority interests in the
Consolidated Development Joint Venture. Included in minority interest in
income is $814,000 and $1,665,000 in depreciation expense for the three and
six months ended June 30, 2003, respectively, as compared to $804,000 and
$1,550,000, respectively, for the same periods in 2002.

56

(b) These amounts reflect the minority interests represented by the Convertible
Partnership Units (see Note 9 to the consolidated financial statements).
Included in minority interest in income is $90,000 and $187,000 in
depreciation expense for the three and six months ended June 30, 2003,
respectively, as compared to $94,000 and $179,000, respectively, for the
same periods in 2002.

(c) These amounts reflect income allocated to minority interests that the
Company acquired since December 31, 2001 and are no longer outstanding at
June 30, 2003. Included in minority interest in income is $73,000 and
$216,000 in depreciation expense for the three and six months ended June
30, 2003, respectively, as compared to $598,000 and $1,378,000,
respectively, for the same periods in 2002.

(d) These amounts reflect income allocated to minority interests that were
outstanding consistently throughout the three months ended June 30, 2003
and 2002. Included in minority interest in income is $610,000 and
$1,165,000 in depreciation expense for the three and six months ended June
30, 2003, respectively, as compared to $787,000 and $1,431,000 for the same
periods in 2002.

Minority interest in income - preferred partnership interests
represents the income allocable to holders of our preferred partnership units.
Throughout the periods ending June 30, 2003 and 2002, we had outstanding
$240,000,000 of our 9.5% Series N Cumulative Redeemable Perpetual Preferred
Units which were issued on March 17, 2000, and $45,000,000 of our 9.125% Series
O Cumulative Redeemable Perpetual Preferred Units which were issued on March 29,
2000. For each of the three months ended June 30, 2003 and 2002, the holders of
these preferred units were paid aggregate distributions of approximately
$6,727,000 and received a corresponding allocation of minority interest in
earnings. We estimate that during the year ended December 31, 2003 the preferred
units will be allocated $26,906,000 in income. These preferred units are not
redeemable during the first 5 years; thereafter, at our option, we can call the
units for redemption at the issuance amount plus any unpaid distributions.

The increase in minority interest in income with respect to the
Consolidated Development Joint Venture is due to an increase in income with
respect to the properties owned by this entity. We expect that minority interest
in income with respect to the Consolidated Development Joint Venture will
continue to increase as the properties owned by this entity, substantially all
of which are newly developed facilities in the fill-up stage, continue to
increase their occupancy to a stabilized occupancy level and increase the
earnings of this entity.

The acquired minority interests reflects interests in the consolidated
entities that the Company acquired since January 1, 2002 and are therefore no
longer outstanding. There will be no further income allocated to these
interests.

Other minority interests reflect income allocated to minority interests
that have maintained a consistent level of interest throughout the three and six
months ended June 30, 2003 and 2002, comprised of investments in the
Consolidated Entities and the Convertible Partnership Units described in Note 9
to the Company's financial statements. The level of income allocated to these
interests in the future is dependent upon the operating results of the storage
facilities that these entities own, as well as any minority interests that the
Company acquires in the future.

On April 28, 2003, we acquired all of the remaining limited partnership
interest not currently owned by the Company in PS Partners IV, Ltd., a
partnership which is consolidated with the Company, for an aggregate of
$23,377,000. Included in minority interest in income for the three months ended
June 30, 2003 and 2002, with respect to these interests was approximately
$56,000 and $333,000, respectively, including $73,000 and $196,000,
respectively, in depreciation expense. Included in minority interest in income
for the six months ended June 30, 2003 and 2002, with respect to these interests
was approximately $415,000 and $726,000, respectively, including $216,000 and
$370,000, respectively, in depreciation expense. Following our acquisition of
these interests, no further income will be allocated to these interests.

DISCONTINUED OPERATIONS: During the first quarter of 2003, we entered
into a business plan to exit the Knoxville, Tennessee market, and listed our
four self-storage facilities (the "Knoxville Facilities") in this market for
sale. Accordingly, the operations of these four facilities for current and prior
periods has been reclassified into the line-item "Discontinued Operations" on
our income statement. These facilities were disposed of on July 25, 2003, see
Note 16 to the consolidated financial statements.

57

During 2002, we adopted a business plan that included the closure of
several non-strategic containerized storage facilities (the "Closed
Facilities"), representing components of our containerized storage business. The
related assets of the Closed Facilities (consisting primarily of storage
containers) were deemed not recoverable from future operations, and as a result
an asset impairment charge for the excess of these assets' net book value over
their fair value was recorded in the latter half of 2002 totaling $6,187,000. In
addition, lease termination costs, representing the expected remaining lease
liability following closure of the facilities, were recorded in the amount of
$2,447,000 during the latter half of 2002. Also, during 2002, we sold one of our
commercial facilities to a third party.

The following table summarizes the historical operations of the
Knoxville Facilities, the Closed Facilities, and the sold commercial facility:

DISCONTINUED OPERATIONS:
- ------------------------
For the three months ended June 30, For the six months ended June 30,
--------------------------------------- -----------------------------------------
2003 2002 Change 2003 2002 Change
------------ ---------- ------------ ------------ ------------ ------------
(Amounts in thousands)
Rental income (a):

Knoxville Facilities............ $ 399 $ 380 $ 19 $ 787 $ 762 $ 25
Closed Facilities............... 523 4,097 (3,574) 2,301 7,890 (5,589)
Sold commercial facility........ - 114 (114) - 229 (229)
------------ ---------- ------------ ------------ ------------ ------------
Total rental income........ 922 4,591 (3,669) 3,088 8,881 (5,793)
------------ ---------- ------------ ------------ ------------ ------------

Cost of operations (a):
Knoxville Facilities............ 146 127 19 316 283 33
Closed Facilities............... 989 5,091 (4,102) 2,860 8,754 (5,894)
Sold commercial facility........ - 24 (24) - 46 (46)
------------ ---------- ------------ ------------ ------------ ------------
Total cost of operations... 1,135 5,242 (4,107) 3,176 9,083 (5,907)
------------ ---------- ------------ ------------ ------------ ------------

Depreciation expense (a):
Knoxville Facilities............ 122 123 (1) 242 242 -
Closed Facilities............... - 435 (435) 40 910 (870)
Sold commercial facility........ - 31 (31) - 60 (60)
------------ ---------- ------------ ------------ ------------ ------------
Total depreciation ........ 122 589 (467) 282 1,212 (930)
------------ ---------- ------------ ------------ ------------ ------------

Asset impairment charges (b):
Closed Facilities............... 750 - 750 750 - 750
------------ ---------- ------------ ------------ ------------ ------------

Net discontinued operations....... $ (1,085) $ (1,240) $ 155 $ (1,120) $ (1,414) $ 294
============ ========== ============ ============ ============ ============

(a) These amounts represent the historical operations of the Knoxville
Facilities, the Closed Containerized Operations and the sold commercial
facility, and include amounts previously classified as rental income, cost
of operations, and depreciation expense in the financial statements in
prior periods.

(b) An impairment charge of $750,000 was recorded in the second quarter of 2003
with respect to a real estate facility held for sale at June 30, 2003,
which was previously used by the discontinued containerized storage
operations.

As of June 30, 2003, 22 of the 23 Closed Facilities were closed. We
expect that the remaining facility will be closed by the December 31, 2003 and
will continue to generate operating losses until final closure.

GAIN (LOSS) IN DISPOSITION OF REAL ESTATE: During the first quarter of
2003, we disposed of two self-storage facilities and a parcel of land for an
aggregate of $7,713,000 in cash, and recognized a gain on disposition of
$14,000. During the quarter ended June 30, 2003, we disposed of two additional
parcels of land for an aggregate of $4,147,000, recognizing a gain on
disposition of $430,000, and disposed of an investment in real estate entities
for an aggregate of $851,000, for a gain of approximately $316,000. During the
second quarter ended June 30, 2002, we recorded a loss of $1,839,000 on the
pending sale of minority interests.

58

The Knoxville Facilities were disposed of on July 25, 2003 for
aggregate gross proceeds of $11.0 million. The Company financed a substantial
part of the buyer's consideration in exchange for a note receivable from the
buyer, and in accordance with generally accepted accounting principles, the
Company will defer the sale and the corresponding gain of approximately $4.5
million. While there can be no assurance, the Company expects that the note
receivable will be collected in full, and the estimated gain on sale will be
recorded for financial reporting purposes, by the end of 2003.

Liquidity and Capital Resources
- --------------------------------------------------------------------------------

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

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

For the six months ended
June 30,
-----------------------------------
2003 2002
---------------- ----------------
(amounts in thousands)

Net cash provided by operating activities.................. $ 293,879 $ 295,367

Allocable to minority interest (Preferred Units)........... (13,453) (13,453)
Allocable to minority interest (common equity)............. (11,218) (13,040)
---------------- ----------------
Cash from operations allocable to our shareholders......... 269,208 268,874

Capital improvements to maintain our facilities............ (9,814) (12,526)
Add back: minority interest share of capital improvements
to maintain facilities................................. 244 478
---------------- ----------------
Remaining operating cash flow available for distributions to
our shareholders....................................... 259,638 256,826

Distributions paid:
Preferred stock dividends................................ (72,721) (73,776)
Equity Stock, Series A dividends......................... (10,751) (10,751)
Distributions to Common and Class B shareholders (a)..... (112,137) (110,123)
---------------- ----------------

Cash available for principal payments on debt and reinvestment $ 64,029 $ 62,176
================ ================

(a) The 7,000,000 shares of Class B common stock converted into 7,000,000
regular common shares on January 1, 2003.

Our financial profile is characterized by a low level of debt to total
capitalization and a conservative dividend payout ratio with respect to the
common stock. We expect to fund our growth strategies with internally generated
retained cash flows and proceeds from issuing equity securities. In general, our
current strategy is to continue to finance our growth with permanent capital;
either common or preferred equity. We have in the past used our $200 million
line of credit as temporary "bridge" financing and repaid borrowings with
internally generated cash flows and proceeds from the placement of permanent
capital. At June 30, 2003, we had borrowings on our line of credit totaling
$24,000,000. As of July 15, 2003, outstanding borrowings had been repaid.

59

Over the past three years, we have funded substantially all of our
acquisitions with permanent capital (both common and preferred securities). We
have elected to use preferred securities as a form of leverage despite the fact
that the dividend rates of our preferred securities exceed the prevailing market
interest rates on conventional debt. We have chosen this method of financing for
the following reasons: (i) under the REIT structure, a significant amount of
operating cash flow needs to be distributed to our shareholders, making it
difficult to repay debt with operating cash flow alone, (ii) our perpetual
preferred stock has no sinking fund requirement or maturity date and does not
require redemption, all of which eliminate any future refinancing risks, (iii)
after the end of a non-call period, we have the option to redeem the preferred
stock at any time, which in 2002 and 2001 enabled us to effectively refinance
higher coupon preferred stock with new preferred stock at lower rates, (iv)
preferred stock does not contain onerous covenants, thus allowing us to maintain
significant financial flexibility, and (v) dividends on the preferred stock can
be applied to our REIT distribution requirements.

Our credit ratings on each of our series of Cumulative Preferred Stock
by each of the three major credit agencies are "Baa2" by Moody's and BBB+ by
both Standard & Poor's and Fitch IBCA.

Our portfolio of real estate facilities remains substantially
unencumbered. At June 30, 2003, we had mortgage debt outstanding of $18.5
million and unsecured long-term debt in the amount of $64.4 million, and had
unencumbered real estate facilities with a book value of approximately $4.0
billion.

We believe that our size and financial flexibility enables us to access
capital when appropriate.

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

During the six months ended June 30, 2003 and 2002, we paid cash
dividends totaling $72,721,000 and $73,776,000, respectively, to the holders of
our Cumulative Preferred Stock. We estimate that the distribution requirements
with respect to our Preferred Stock outstanding at June 30, 2003 for the
remainder of 2003 (after redemption of the Series C Senior Preferred Stock on
that date) to be approximately $70.4 million.

During each of the six months ended June 30, 2003 and 2002, we paid
cash dividends totaling $13,453,000 to the holders of our preferred partnership
units. We estimate that the remaining distribution requirement for 2003 with
respect to the preferred partnership units outstanding at June 30, 2003 to be
approximately $13.5 million.

During each of the six months ended June 30, 2003 and 2002, we paid
cash dividends totaling $10,751,000, to the holders of our Equity Stock, Series
A. With respect to the depositary shares of Equity Stock, Series A, we have no
obligation to pay distributions if no distributions are paid to the common
shareholders. To the extent that we do pay common distributions in any year, the
holders of the depositary shares receive annual distributions equal to the
lesser of (i) five times the per share dividend on the common stock or (ii)
$2.45. The depositary shares are noncumulative, and have no preference over our
common stock either as to dividends or in liquidation. With respect to the
Equity Stock, Series A outstanding at June 30, 2003, we estimate the total
regular distribution for the remainder of 2003 to be approximately $10.8 million
assuming that dividends of at least $0.49 per share per year are paid to the
common shareholders.

During the six months ended June 30, 2003, we paid dividends totaling
$112,137,000 ($0.90 per common share) to the holders of our common stock. Based
upon shares outstanding at June 30, 2003 and a quarterly distribution of $0.45
per share, which was declared by the Board of Directors on August 5, 2003 and
payable on September 30, 2003, we estimate dividend payments with respect to our
common stock of approximately $56.3 million for the third quarter of 2003.

60

We anticipate that quarterly distributions per common share will remain
at $0.45 per common share during 2003. We have, in the past, paid special
distributions which were necessary to meet our distribution requirements in
order to maintain our REIT tax status. It is unlikely that any special
distribution will be required to enable the Company to meet its distribution
requirements in 2003.

CAPITAL IMPROVEMENT REQUIREMENTS: For 2003, we have budgeted
approximately $30 million for capital improvements. During the six months ended
June 30, 2003, we incurred capital improvements of approximately $9.8 million.

DEBT SERVICE REQUIREMENTS: We do not believe we have any significant
refinancing risks with respect to our notes payable, all of which are fixed
rate. At June 30, 2003, we had total outstanding notes payable of approximately
$82.9 million. See Note 8 to the consolidated financial statements for
approximate principal maturities of such borrowings. We anticipate that our
retained operating cash flow will continue to be sufficient to enable us to make
schedule principal payments. It is our current intention to fully amortize our
debt as opposed to refinance debt maturities with additional debt.

ACQUISITION OF INTERESTS IN SELF-STORAGE FACILITIES: On January 16,
2002, we acquired the remaining 70% interest in the Development Joint Venture
for approximately $153,078,000 in cash. The Development Joint Venture was formed
in April 1997 with equity capital consisting of 30% from the Company and 70%
from an institutional investor, which owns 47 storage facilities opened since
1997. This transaction was principally financed with the capital raised through
the issuance of our 7.625% Cumulative Preferred Stock, Series T.

On April 28, 2003 we acquired, through a merger, all of the remaining
limited partnership interest not currently owned by the Company in PS Partners
IV, Ltd., a partnership which is consolidated with the Company. The acquisition
cost was approximately $23,377,000, consisting of the issuance of 426,859 shares
of our common stock ($13,510,000) and cash of approximately $9,867,000 million.

DEVELOPMENT OF SELF-STORAGE FACILITIES: We anticipate that the cost of
development of self-storage facilities for the year ended December 31, 2003 and
beyond will be approximately $75 million per year. We have utilized two
development joint ventures in the past 5 years; we acquired our partner's
interest in January 2002 for one of the development joint ventures, and the
other joint venture is fully committed. However, we believe that it is unlikely
that we will form a development joint venture to fund our current pipeline
described below.

We currently have a development "pipeline" of 40 self-storage
facilities, combination facilities, and expansions to existing self-storage
facilities with an aggregate estimated cost of approximately $187.4 million.
Approximately $90.3 million of development cost has been incurred as of June 30,
2003. We have acquired the land for 37 of these projects, which have an
aggregate estimated cost of approximately $168.3 million, and costs incurred as
of June 30, 2003 of approximately $89.7 million. The remaining three facilities
represent identified sites where we have an agreement in place to acquire the
land, generally within one year. We anticipate that the development of these
projects will be funded solely by the Company.

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 of approximately $97.1 million
will be incurred over the next 24 months. The following table sets forth certain
information with respect to our development pipeline.

61

DEVELOPMENT PIPELINE SUMMARY
Total
Number Net estimated Costs incurred
of rentable development through Costs to
projects sq. ft. costs 6/30/03 complete
-------- --------- ------------- --------------- --------------
(Amounts in thousands)
FACILITIES CURRENTLY UNDER CONSTRUCTION:

Self-storage facilities 13 943 $ 104,782 $ 74,457 $ 30,325
Expansions to existing self-storage
facilities 9 539 35,183 13,960 21,223
-------- --------- ------------- --------------- --------------
22 1,482 139,965 88,417 51,458
Expansions of existing self-storage
facilities awaiting construction 15 827 28,302 1,302 27,000

Self storage facilities awaiting
construction and land has not yet been
acquired 3 186 19,152 616 18,536
-------- --------- ------------- --------------- --------------

Total Development Pipeline 40 2,495 $ 187,419 $ 90,335 $ 97,084
======== ========= ============= =============== ==============

Included in the 24 "expansions of existing self-storage facilities" are
15 projects associated with the conversion of industrial space, previously used
by the discontinued containerized facility operations, into self-storage space.
The total amount of self-storage space to come on line from these 15 conversions
is approximately 873,000 net rentable square feet of traditional self-storage
space.

In addition to the above projects, we have seven parcels of land held
for development with total costs of approximately $14,036,000 at June 30, 2003.
These parcels will either be developed or sold.

REPURCHASES OF THE COMPANY'S COMMON STOCK: The Company's Board of
Directors authorized the repurchase from time to time of up to 25,000,000 shares
of our common stock on the open market or in privately negotiated transactions.
From the initial authorization through June 30, 2003, we have repurchased a
total of 21,672,020 shares of common stock at an aggregate cost of approximately
$541.9 million.

Item 2A. Risk Factors
- -----------------------

In addition to the other information in our Form 10-Q and our Form 10-K
for the year ended December 31, 2002, you should consider the following factors
in evaluating the Company:

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

At June 30, 2003, the Hughes family owned approximately 37% of our
outstanding shares of common stock. Consequently, the Hughes family could
control matters submitted to a vote of our shareholders, including electing
directors, amending our organizational documents, dissolving and approving other
extraordinary transactions, such as a takeover attempt, even though such actions
may be favorable to the other common shareholders.

62

PROVISIONS IN OUR ORGANIZATIONAL DOCUMENTS MAY PREVENT CHANGES IN CONTROL.

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

WE WOULD INCUR ADVERSE TAX CONSEQUENCES IF WE FAIL TO QUALIFY AS A REIT.

You will be subject to the risk that we may not qualify as a REIT. As a
REIT, we must distribute at least 90% of our REIT taxable income to our
shareholders, including not only holders of our common stock and equity stock
but also holders of our preferred stock. Failure to pay full dividends on the
preferred stock would prevent us from paying dividends on our common stock and
could jeopardize our qualification as a REIT.

For any taxable year that we fail to qualify as a REIT and the relief
provisions do not apply, we would be taxed 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. 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 MAY PAY SOME TAXES, REDUCING CASH AVAILABLE FOR SHAREHOLDERS.

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

WE WOULD INCUR A CORPORATE LEVEL TAX IF WE SELL CERTAIN ASSETS.

We will generally be subject to a corporate level tax on any net
built-in gain if before November 2005 we sell any of the assets we acquired in
the November 1995 reorganization.

WE AND OUR SHAREHOLDERS ARE SUBJECT TO FINANCING RISKS.

Debt increases the risk of loss. In making real estate investments, we
may borrow money, which increases the risk of loss. At June 30, 2003, our debt
of $106.9 million was approximately 2.3% of our total assets.

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

63

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

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

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

o changes in general economic or local conditions;

o potential terrorist attacks;

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

o the impact of environmental protection laws;

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

o changes in tax, real estate and zoning laws.

There is significant competition among self-storage facilities and from
other storage alternatives. Most of our properties are self-storage facilities,
which generated 90% of our revenue for the six months ended June 30, 2003. Local
market conditions will play a significant part in how competition will affect
us. Competition in the market areas in which many of our properties are located
from other self-storage facilities and other storage alternatives is significant
and has affected the occupancy levels, rental rates and operating expenses of
some of our properties. Any increase in availability of funds for investment in
real estate may accelerate competition. Further development of self-storage
facilities may intensify competition among operators of self-storage facilities
in the market areas in which we operate. As discussed in Management's Discussion
and Analysis of Financial Condition and Results of Operations - Self-Storage
Operations, the revenues of the Consistent Group of facilities declined 0.3% in
the six months ended June 30, 2003 as compared to 2002. Such competition could
have been a factor in this decline.

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, also may
adversely affect the owner's or operator's ability to sell, lease or operate its
property or to borrow using its property as collateral.

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

64

to cover any liability from environmental contamination or potential
contamination and we are not aware of any environmental contamination of our
facilities material to our overall business, financial condition or results of
operation.

Delays in development and fill-up of our properties would reduce our
profitability: Since January 1, 1999, we have opened 55 newly developed self
storage facilities and 17 facilities that combine self-storage and containerized
storage space at the same location, with aggregate development costs of $466.0.
In addition, at June 30, 2003 the Company had 40 projects in development that
are expected to begin construction generally by December 31, 2003. These 40
projects have total estimated costs of $187,419,000. Construction delays due to
weather, unforeseen site conditions, personnel problems, and other factors, as
well as cost overruns, would adversely affect the Company's profitability.
Delays in the rent-up of newly developed facilities as a result of competition
or other factors would also adversely impact the Company's 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 the Company's profitability.

We must comply with the Americans with Disabilities Act and fire and
safety regulations, which can require significant expenditures: All our
properties must comply with the Americans with Disabilities Act and with related
regulations (the "ADA"). The ADA has separate compliance requirements for
"public accomodations" 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 the award of 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 HAVE NO INTEREST IN CANADIAN SELF-STORAGE FACILITIES OWNED BY THE HUGHES
FAMILY AND HAVE POTENTIAL CONFLICTS OF INTEREST WITH RESPECT TO SERVICES
PROVIDED TO THE HUGHES FAMILY

B. Wayne Hughes, Chairman of the Board, and his family (the "Hughes
Family") have ownership interests in, and operate, approximately 38 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. The
Hughes Family owns approximately 37% of our common stock outstanding at June 30,
2003. We have a right of first refusal to acquire the stock or assets of the
corporation engaged in the operation of the 38 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, have no right to acquire this
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.

Our personnel are engaged in the supervision and the operation of these
38 self-storage facilities and in providing 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 reimburse us at cost for these services. There may be conflicts
of interest in allocating the time of our personnel between our properties, the
Canadian properties, and certain other Hughes Family interests. The Company is
in the process of eliminating the sharing of Company personnel with the Canadian
entities.

65

OUR PORTABLE SELF-STORAGE BUSINESS HAS INCURRED OPERATING LOSSES.

Public Storage Pickup & Delivery ("PSPUD") was organized in 1996 to
operate a portable self-storage business. We own all of the economic interest of
PSPUD. Since PSPUD will operate profitably only if it can succeed in the
relatively new field of portable self-storage, we cannot provide any assurance
as to its profitability. PSPUD incurred operating losses of $10,058,000 in 2002
and generated a profit of $1,097,000 for the six months ended June 30, 2003.
PSPUD closed 22 facilities that were deemed not strategic to the Company's
business plan during 2002.

The operating loss for 2002 includes a write-down for impaired assets
totaling $6,937,000 ($750,000 of which relates to continuing operations) and
lease termination charges of $2,447,000. The operating profit for the six months
ended June 30, 2003, includes a write-down for impaired real estate assets
totaling $750,000.

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

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

RECENTLY ENACTED TAX LEGISLATION COULD ADVERSELY AFFECT THE PRICE OF OUR STOCK.

Recently enacted tax legislation generally reduces the maximum tax rate
for dividends payable to individuals to 15% through 2008. Dividends payable by
REITs, however, generally continue to be taxed at the normal rate applicable to
the individual recipient, rather than the preferential rates applicable to other
dividends. Although this legislation does not adversely affect the taxation of
REITs or dividends paid by REITs, the more favorable rates applicable to regular
corporate dividends could cause investors who are individuals to perceive
investments in REITs to be relatively less attractive than investments in the
stocks of non-REIT corporations that pay dividends, which could adversely affect
the value of the stock of REITs, including our common stock .

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

To limit our exposure to market risk, we principally finance our
operations and growth with permanent equity capital, consisting of either common
or preferred stock. At June 30, 2003, our debt as a percentage of total
shareholders' equity (based on book values) was 2.6%.

Our preferred stock is not redeemable by the holders. Except under
certain conditions relating to our qualification as a REIT, we may not redeem
the Senior Preferred Stock prior to the following dates: Series D - June 30,
2004, Series E - January 31, 2005, Series F - April 30, 2005, Series K - January
19, 2004, Series L - March 10, 2004, Series M - August 17, 2004, Series Q -
January 19, 2006, Series R - September 28, 2006, Series S - October 31, 2006,
Series T - January 18, 2007, Series U - February 19, 2007 and Series V - June
30, 2007. On or after the respective dates, each of the series of Senior
Preferred Stock will be redeemable at our option, in whole or in part, at $25
per share (or depositary share in the case of the Series K through Series V),
plus accrued and unpaid dividends.

66

Our market risk sensitive instruments include notes payable, which
totaled $106.9 million at June 30, 2003. Substantially all of the Company's
notes payable bear interest at fixed rates. See Note 8 to the consolidated
financial statements at June 30, 2003 for approximate principal maturities of
the notes payable at June 30, 2003.

Item 4. Controls and Procedures
- --------------------------------

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

As of the end of the fiscal quarter covered by this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
the Company's Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based upon this
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 fiscal quarter to which this report relates that has
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

67

PART II. OTHER INFORMATION

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

Gustavson et al. v. Public Storage, Inc. (Filed June 2003)
----------------------------------------------------------
(Superior Court-Los Angeles County)
-----------------------------------

In November 2002, a shareholder of the Company made a demand on
the Board of Directors that challenged the fairness of the Company's
acquisition of PS Insurance Company, Ltd. ("PSIC") and demanded that the
Board recover the profits earned by PSIC from November 1995 through
December 2001 and that the entire purchase price paid by the Company for
PSIC in excess of PSIC's net assets be returned to the Company. The
shareholder estimates these profits at $40 million and this excess at
$27.5 million.

The contract to acquire PSIC was approved by the independent
directors of the Company in March 2001 and the transaction closed in
December 2001. PSIC was formerly owned by B. Wayne Hughes, currently the
Chairman of the Board (and in 2001 also the Chief Executive Officer) of
the Company, B. Wayne Hughes, Jr., currently a director (and in 2001
also an officer) of the Company and Tamara H. Gustavson, who in 2001 was
an officer of the Company. In exchange for the Hughes family's shares in
PSIC, the Company issued to them 1,439,765 shares of common stock (or a
net of 1,138,733 shares, after taking into account 301,032 shares held
by PSIC).

The shareholder has threatened litigation against the Hughes
family and the directors of the Company arising out of this transaction
and an alleged pattern of deceptive disclosures with respect to PSIC
since 1995. In December 2002, the Board held a special meeting to
authorize an inquiry by its independent directors to review the fairness
to the Company's shareholders of its acquisition of PSIC and the ability
of the Company to have started its own tenant reinsurance business in
1995. The Company believes that, prior to the effectiveness in 2001 of
the federal REIT Modernization Act and corresponding California
legislation that authorized the creation and ownership of "taxable REIT
subsidiaries," the ownership by the Company of a reinsurance business
relating to its tenants would have jeopardized the Company's status as a
REIT and that other REITs faced similar concerns about tenant insurance
programs.

In June 2003, the Hughes family filed a complaint for
declaratory relief relating to the Company's acquisition of PSIC naming
the Company as defendant. The Hughes family is seeking that the court
make (i) a binding declaration that the Company either is not entitled
to recover profits or other moneys earned by PSIC from November 1995
through December 2001; or alternatively the amounts that the Hughes
family should be ordered to surrender to the Company if the court
determines that the Company is entitled to recover any such profits or
moneys; and (ii) a binding declaration either that the Company cannot
establish that the acquisition agreement was not just and reasonable as
to the Company at the time it was authorized, approved or ratified; or
alternatively the amounts that the Hughes family should surrender to the
Company, if the court determines that the agreement was not just and
reasonable to the Company at that time. The Hughes family is not seeking
any payments from the Company. In the event of a determination that the
Hughes family is obligated to pay certain amounts to the Company, the
complaint states that they have agreed to be bound by that determination
to pay such amounts to the Company.

In July 2003 the Company filed an answer to the Hughes family's
complaint requesting a final judicial determination of the Company's
rights of recovery against the Hughes family in respect of PSIC. The
Company believes that the lawsuit by the Hughes family will ultimately
resolve matters relating to PSIC and will not have any financially
adverse effect on the Company (other than the costs and other expenses
relating to the lawsuit).

The Company is also a party to the actions described under "Item 3.
Legal Proceedings" in the Company's 2002 annual report on Form 10-K and Part II
- - Item 1 to the Form 10-Q for the quarter ended March 31, 2003. Except as
described above, there have been no material developments in the actions
described in the Company's 2002 annual report on Form 10-K and Part II - Item 1
to the Form 10-Q for the quarter ended March 31, 2003.

68

The Company is a party to various claims, complaints, and other legal
actions that have arisen in the normal course of business from time to time. The
Company believes that the outcome of these other pending legal proceedings, in
the aggregate, will not have a material adverse effect upon the operations or
financial portion of the Company.

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

The Company held an annual meeting of shareholders on May 8, 2003.
Proxies for the annual meeting were solicited pursuant to Regulation 14 under
the Securities Exchange Act of 1934. The annual meeting involved the following
two matters:

A. Election of Directors:

Total Common Stock Total Equity Stock, Series A
------------------------------------------ ---------------------------------------------
Name Total Votes For Total Votes Withheld Total Votes For Total Votes Withheld
- ----------------------- ------------------ --------------------- ------------------- ----------------------

B. Wayne Hughes 104,518,958 6,016,753 728,583 10,539
Ronald L. Havner, Jr. 106,454,152 4,081,560 735,685 3,437
Harvey Lenkin 105,804,028 4,731,683 734,847 4,275
Marvin M. Lotz 105,811,579 4,724,133 735,067 4,055
Robert J. Abernethy 95,080,206 15,455,505 735,282 3,841
Dann V. Angeloff 105,884,672 4,651,039 735,028 4,094
William C. Baker 95,108,276 15,427,435 735,053 4,070
Uri P. Harkham 106,267,426 4,268,286 735,663 3,459
B. Wayne Hughes, Jr. 84,041,452 26,494,259 712,389 26,734
Daniel C. Staton 97,897,720 12,637,991 735,678 3,445

There was no solicitation in opposition to the management's nominees to
the Board of Directors listed in the proxy statement.

B. Ratification of selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ended December 31, 2003:

For Against Abstain No Vote
--------------- ---------------- -------------- ---------

Common Stock 96,947,061 13,360,760 228,071 0
Equity Stock, Series A 734,239 3,465 1,419 0
--------------- ---------------- -------------- ---------
Total Common Stock and Equity
Stock, Series A 97,681,300 13,364,225 229,490 0
=============== ================ ============== =========

Item 5. Other Items
- ----------------------

On August 5, 2003, the board of directors of the Company (1) amended
the Company's Bylaws to increase the authorized number of directors from 10 to
11 and (2) elected John T. Evans as a director of the Company. Mr. Evans is a
senior partner of Osler, Hoskin & Harcourt, one of the largest law firms in
Canada, and specializes in business law matters.

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

(a) Exhibits:

3.1 Restated Articles of Incorporation. Filed with Registrant's
Registration Statement No. 33-54557 and incorporated herein by
reference.

3.2 Certificate of Determination for the 10% Cumulative Preferred Stock,
Series A. Filed with Registrant's Registration Statement No. 33-54557
and incorporated herein by reference.

69

3.3 Certificate of Determination for the 9.20% Cumulative Preferred Stock,
Series B. Filed with Registrant's Registration Statement No. 33-54557
and incorporated herein by reference.

3.4 Amendment to Certificate of Determination for the 9.20% Cumulative
Preferred Stock, Series B. Filed with Registrant's Registration
Statement No. 33-56925 and incorporated herein by reference.

3.5 Certificate of Determination for the 8.25% Convertible Preferred Stock.
Filed with Registrant's Registration Statement No. 33-54557 and
incorporated herein by reference.

3.6 Certificate of Determination for the Adjustable Rate Cumulative
Preferred Stock, Series C. Filed with Registrant's Registration
Statement No. 33-54557 and incorporated herein by reference.

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

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

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

3.10 Certificate of Determination for the Convertible Participating
Preferred Stock. Filed with Registrant's Registration Statement No.
33-63947 and incorporated herein by reference.

3.11 Certificate of Amendment of Articles of Incorporation. Filed with
Registrant's Registration Statement No. 33-63947 and incorporated
herein by reference.

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

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

3.14 Certificate of Determination for the Convertible Preferred Stock,
Series CC. Filed with Registrant's Registration Statement No. 333-03749
and incorporated herein by reference.

3.15 Certificate of Correction of Certificate of Determination for the
Convertible Participating Preferred Stock. Filed with Registrant's
Registration Statement No. 333-08791 and incorporated herein by
reference.

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

3.17 Certificate of Amendment of Articles of Incorporation. Filed with
Registrant's Registration Statement No. 333-18395 and incorporated
herein by reference.

3.18 Certificate of Determination for Equity Stock, Series A. Filed with
Registrant's Form 10-Q for the quarterly period ended June 30, 1997 and
incorporated herein by reference.

70

3.19 Certificate of Determination for Equity Stock, Series AA. Filed with
Registrant's Form 10-Q for the quarterly period ended September 30,
1999 and incorporated herein by reference.

3.20 Certificate Decreasing Shares Constituting Equity Stock, Series A.
Filed with Registrant's Form 10-Q for the quarterly period ended
September 30, 1999 and incorporated herein by reference.

3.21 Certificate of Determination for Equity Stock, Series A. Filed with
Registrant's Form 10-Q for the quarterly period ended September 30,
1999 and incorporated herein by reference.

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

3.23 Certificate of Correction of Certificate of Determination for the 8.25%
Convertible Preferred Stock. Filed with Registrant's Registration
Statement No. 333-61045 and incorporated herein by reference.

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

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

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

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

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

3.29 Certificate of Determination for 9.125% Cumulative Preferred Stock,
Series O. Filed with Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2000 and incorporated herein by
reference.

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

3.31 Certificate of Determination for 8.600% Cumulative Preferred Stock,
Series, Q. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1,000 of a Share
of 8.600% Cumulative Preferred Stock, Series Q and incorporated herein
by reference.

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

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

71

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

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

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

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

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

3.39 Bylaws, as amended. Filed with Registrant's Registration Statement No.
33-64971 and incorporated herein by reference.

3.40 Amendment to Bylaws adopted on May 9, 1996. Filed with Registrant's
Registration Statement No. 333-03749 and incorporated herein by
reference.

3.41 Amendment to Bylaws adopted on June 26, 1997. Filed with Registrant's
Registration Statement No. 333-41123 and incorporated herein by
reference.

3.42 Amendment to Bylaws adopted on January 6, 1998. Filed with Registrant's
Registration Statement No. 333-41123 and incorporated herein by
reference.

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

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

3.45 Amendment to Bylaws adopted on May 6, 1999. Filed with Registrants'
Form 10-Q for the quarterly period ended June 30, 1999 and incorporated
herein by reference.

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

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

3.48 Amendment to Bylaws adopted on August 5, 2003. Filed herewith.

10.1 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 and incorporated herein by reference.

72

10.2 Amended Management Agreement between Registrant and Public Storage
Commercial Properties Group, Inc. dated as of February 21, 1995. Filed
with Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference.

10.3 Loan Agreement between Registrant and Aetna Life Insurance Company
dated as of July 11, 1988. Filed with Registrant's Current Report on
Form 8-K dated July 14, 1988 and incorporated herein by reference.

10.4 Amendment to Loan Agreement between Registrant and Aetna Life Insurance
Company dated as of September 1, 1993. Filed with Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference.

10.5 Second Amended and Restated Credit Agreement by and among Registrant,
Wells Fargo Bank, National Association, as agent, and the financial
institutions party thereto dated as of February 25, 1997. Filed with
Registrant's Registration Statement No. 333-22665 and incorporated
herein by reference.

10.6 Note Assumption and Exchange Agreement by and among Public Storage
Management, Inc., Public Storage, Inc., Registrant and the holders of
the notes dated as of November 13, 1995. Filed with Registrant's
Registration Statement No. 33-64971 and incorporated herein by
reference.

10.7 Registrant's 1990 Stock Option Plan. Filed with Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference.

10.8* Registrant's 1994 Stock Option Plan. Filed with Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997 and
incorporated herein by reference.

10.9* Registrant's 1996 Stock Option and Incentive Plan. Filed with
Registrant's Annual Report on Form 10-K for the year ended December 31,
2000 and incorporated herein by reference.

10.10 Deposit Agreement dated as of December 13, 1995, among Registrant, The
First National Bank of Boston, and the holders of the depositary
receipts evidencing the Depositary Shares Each Representing 1/1,000 of
a Share of 8-7/8% Cumulative Preferred Stock, Series G. Filed with
Registrant's Form 8-A/A Registration Statement relating to the
Depositary Shares Each Representing 1/1,000 of a Share of 8-7/8%
Cumulative Preferred Stock, Series G and incorporated herein by
reference.

10.11 Deposit Agreement dated as of January 25, 1996, among Registrant, The
First national Bank of Boston, and the holders of the depositary
receipts evidencing the Depositary Shares Each Representing 1/1,000 of
a Share of 8.45% Cumulative Preferred Stock, Series H. Filed with
Registrant's Form 8-A/A Registration Statement relating to the
Depositary Shares Each Representing 1/1,000 of a Share of 8.45%
Cumulative Preferred Stock, Series H and incorporated herein by
reference.

10.12** Employment Agreement between Registrant and B. Wayne Hughes dated as of
November 16, 1995. Filed with Registrant's Annual Report on Form 10-K
for the year ended December 31,1995 and incorporated herein by
reference.

10.13 Deposit Agreement dated as of November 1, 1996, among Registrant, The
First National Bank of Boston, and the holders of the depositary
receipts evidencing the Depositary Shares Each Representing 1/1,000 of
a Share of 8-5/8% Cumulative Preferred Stock, Series I. Filed with
Registrant's Form 8-A/A Registration Statement relating to the
Depositary Shares Each Representing 1/1,000 of a Share of 8-5/8%
Cumulative Preferred Stock, Series I and incorporated herein by
reference.

10.14 Limited Partnership Agreement of PSAF Development Partners, L.P.
between PSAF Development, Inc. and the Limited Partner dated as of
April 10, 1997. Filed with Registrant's Form 10-Q for the quarterly
period ended June 30, 1997 and incorporated herein by reference.

73

10.15 Deposit Agreement dated as of August 28, 1997 among Registrant, The
First National Bank of Boston, and the holders of the depositary
receipts evidencing the Depositary Shares Each Representing 1/1,000 of
a Share of 8% Cumulative Preferred Stock, Series J. Filed with
Registrant's Form 8-A/A Registration Statement relating to the
Depositary Shares Each Representing 1/1,000 of a Share of 8% Cumulative
Preferred Stock, Series J and incorporated herein by reference.

10.16 Agreement of Limited Partnership of PS Business Parks, L.P. dated as of
March 17, 1998. Filed with PS Business Parks, Inc.'s Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1998 and
incorporated herein by reference.

10.17 Deposit Agreement dated as of January 19, 1999 among Registrant,
BankBoston, N.A. and the holders of the depositary receipts evidencing
the Depositary Shares Each Representing 1/1,000 of a Share of 8-1/4%
Cumulative Preferred Stock, Series K. Filed with Registrant's Form
8-A/A Registration Statement relating to the Depositary Shares Each
Representing 1/1,000 of a Share of 8-1/4% Cumulative Preferred Stock,
Series K and incorporated herein by reference.

10.18 Agreement and Plan of Merger among Storage Trust Realty, Registrant and
Newco Merger Subsidiary, Inc. dated as of November 12, 1998. Filed with
Registrant's Registration Statement No. 333-68543 and incorporated
herein by reference.

10.19 Amendment No. 1 to Agreement and Plan of Merger among Storage Trust
Realty, Registrant, Newco Merger Subsidiary, Inc. and STR Merger
Subsidiary, Inc. dated as of January 19, 1999. Filed with registrant's
Registration Statement No. 333-68543 and incorporated herein by
reference.

10.20 Amended and Restated Agreement of Limited Partnership of Storage Trust
Properties, L.P., dated as of March 12, 1999. Filed with Registrant's
Form 10-Q for the quarterly period ended June 30, 1999 and incorporated
herein by reference.

10.21* Storage Trust Realty 1994 Share Incentive Plan. Filed with Storage
Trust Realty's Annual Report on Form 10-K for the year ended December
31, 1997 and incorporated herein by reference.

10.22 Amended and Restated Storage Trust Realty Retention Bonus Plan
effective as of November 12, 1998. Filed with Registrant's Registration
Statement No. 333-68543 and incorporated herein by reference.

10.23 Deposit Agreement dated as of March 10, 1999 among Registrant,
BankBoston, N.A. and the holders of the depositary receipts evidencing
the Depositary Shares Each Representing 1/1,000 of a Share of 8-1/4%
Cumulative Preferred Stock, Series L. Filed with Registrant's Form
8-A/A Registration Statement relating to the Depositary Shares Each
Representing 1/1,000 of a Share of 8-1/4% Cumulative Preferred Stock,
Series L and incorporated herein by reference.

10.24 Note Purchase Agreement and Guaranty Agreement with respect to
$100,000,000 of Senior Notes of Storage Trust Properties, L.P. Filed
with Storage Trust Realty's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference.

10.25 Deposit Agreement dated as of August 17, 1999 among Registrant,
BankBoston, N.A. and the holders of the depositary receipts evidencing
the Depositary Shares Each Representing 1/1,000 of a Share of 8.75%
Cumulative Preferred Stock, Series M. Filed with Registrant's Form
8-A/A Registration Statement relating to the Depositary Shares Each
Representing 1/1,000 of a Share of 8.75% Cumulative Preferred Stock,
Series M and incorporated herein by reference.

10.26 Limited Partnership Agreement of PSAC Development Partners, L.P. among
PS Texas Holdings, Ltd., PS Pennsylvania Trust and PSAC Storage
Investors, L.L.C. dated as November 15, 1999. Filed with Registrant's
Current Report on Form 8-K dated November 15, 1999 and incorporated
herein by reference.

74

10.27 Agreement of Limited Liability Company of PSAC Storage Investors,
L.L.C. dated as of November 15, 1999. Filed with Registrant's Current
Report on Form 8-K dated November 15, 1999 and incorporated herein by
reference.

10.28 Deposit Agreement dated as of January 14, 2000 among Registrant,
BankBoston, N.A. and the holders of the depositary receipts evidencing
the Depositary Shares Each Representing 1/1,000 of a Share of Equity
Stock, Series A. Filed with Registrant's Form 8-A/A Registration
Statement relating to the Depositary Shares Each Representing 1/1,000
of a Share of Equity Stock, Series A and incorporated herein by
reference.

10.29 Amended and Restated Agreement of Limited Partnership of PSA
Institutional Partners, L.P. among PS Texas Holdings, Ltd. and the
Limited Partners dated as of March 29, 2000. Filed with Registrant's
Annual Report on Form 10-K for the year ended December 31, 1999 and
incorporated herein by reference.

10.30 Amended and Restated Agreement of Limited Partnership of PSA
Institutional Partners, L.P. among PS Texas Holdings, Ltd. and the
Limited Partners dated as of August 11, 2000. Filed with Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2000 and incorporated herein by reference.

10.31* Registrant's 2000 Non-Executive/Non-Director Stock Option and Incentive
Plan. Filed with Registrant's Registration Statement No, 333-52400 and
incorporated herein by reference.

10.32 Deposit Agreement dated as of January 19, 2001 among Registrant, Fleet
National Bank and the holders of the depositary receipts evidencing the
Depositary Shares Each Representing 1/1,000 of a Share of 8.600%
Cumulative Preferred Stock, Series Q. Filed with Registrant's Form
8-A/A Registration Statement relating to the Depositary Shares Each
Representing 1/1,000 of a Share of 8.600% Cumulative Preferred Stock,
Series Q and incorporated herein by reference.

10.33* Registrant's 2001 Non-Executive/Non-Director Stock Option and Incentive
Plan. Filed with Registrant's Registration Statement No. 333-59218 and
incorporated herein by reference.

10.34* Registrant's 2001 Stock Option and Incentive Plan. Filed with
Registrant's Registration Statement No. 333-59218 and incorporated
herein by reference.

10.35 Deposit Agreement dated as of September 28, 2001 among Registrant,
Fleet National Bank and the holders of the depositary receipts
evidencing the Depositary Shares Each Representing 1/1,000 of a Share
of 8.000% Cumulative Preferred Stock, Series R. Filed with Registrant's
Form 8-A Registration Statement relating to the Depositary Shares Each
Representing 1/1,000 of a Share of 8.000% Cumulative Preferred Stock,
Series R and incorporated herein by reference.

10.36 Deposit Agreement dated as of October 31, 2001 among Registrant, Fleet
National Bank and the holder of the depositary receipts evidencing the
Depositary Shares Each Representing 1/1,000 of a Share of 7.875%
Cumulative Preferred Stock, Series S. Filed with Registrant's Form 8-A
Registration Statement relating to the Depositary Shares Each
Representing 1/1,000 of a Share of 7.875% Cumulative Preferred Stock,
Series S and incorporated herein by reference.

10.37 Credit Agreement by and among Registrant, Wells Fargo Bank, National
Association, as agent, and the financial institutions party thereto
dated as of November 1, 2001. Filed with Registrant's Quarterly Report
on Form 10-Q for the quarterly period ended September 30, 2001 and
incorporated herein by reference.

75

10.38 Deposit Agreement dated as of January 18, 2002 among Registrant, Fleet
National Bank and the holders of the depositary receipts evidencing the
Depositary Shares Each Representing 1/1,000 of a Share of 7.625%
Cumulative Preferred Stock, Series T. Filed with Registrant's Form 8-A
Registration Statement relating to the Depositary Shares Each
Representing 1/1,000 of a Share of 7.625% Cumulative Preferred Stock,
Series T and incorporated herein by reference.

10.39 Deposit Agreement dated as of February 19, 2002 among Registrant, Fleet
National Bank and the holders of the depositary receipts evidencing the
Depositary Shares Each Representing 1/1,000 of a Share of 7.625%
Cumulative Preferred Stock, Series U. Filed with Registrant's Form 8-A
Registration Statement relating to the Depositary Shares Each
Representing 1/1,000 of a Share of 7.625% Cumulative Preferred Stock,
Series U and incorporated herein by reference.

10.40 Deposit Agreement dated as of September 30, 2002 among Registrant,
Fleet National Bank and the holders of the depositary receipts
evidencing the Depositary Shares Each Representing 1/1,000 of a Share
of 7.500% Cumulative Preferred Stock, Series V. Filed with Registrant's
Form 8-A Registration Statement relating to the Depositary Shares Each
Representing 1/1,000 of a Share of 7.500% Cumulative Preferred Stock,
Series V and incorporated herein by reference.

10.41 Employment agreement between Registrant and Harvey Lenkin dated as of
August 5, 2003. Filed herewith.

11 Statement Re: Computation of Ratio of Earnings Per Share. Filed
herewith.

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

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

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

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

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

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

* Compensatory benefit plan.

** Management contract.

(b) Reports on Form 8-K

The Company furnished a Current Report on from 8-K dated May 8, 2003
(filed May 9, 2003), pursuant to Item 7 with its press release
announcing its results for the quarter ended March 31, 2003.

The Company filed a Current Report on from 8-K dated June 16, 2003
(filed June 19, 2003), pursuant to Item 5.

The Company furnished a Current Report on from 8-K dated and filed June
30, 2003, pursuant to Item 7.

76

SIGNATURES

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

DATED: August 14, 2003

PUBLIC STORAGE, INC.

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

77