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, 2008

                                       or

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

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

Commission File Number:  001-33519

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

                Maryland                                  95-3551121
- -----------------------------------------            ----------------------
     (State or other jurisdiction of                 (I.R.S. Employer
     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 at least the past 90 days.

                                 [X] Yes [ ] No

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

                                 [ ] Yes [X] No

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

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

Indicate the number of the registrant's  outstanding common shares of beneficial
interest, as of August 7, 2008:

Common  Shares of  beneficial  interest,  $.10 par value per share - 169,231,072
shares





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

                                      INDEX


                                                                         Pages

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

Item 1.   Financial Statements (Unaudited)

          Condensed Consolidated Balance Sheets at
             June 30, 2008 and December 31, 2007                             1

          Condensed Consolidated Statements of Income for the
             Three and Six Months Ended June 30, 2008 and 2007               2

          Condensed Consolidated Statement of Shareholders' Equity
             for the Six Months Ended June 30, 2008                          3

          Condensed Consolidated Statements of Cash Flows
             for the Six Months Ended June 30, 2008 and 2007             4 - 5

          Notes to Condensed Consolidated Financial Statements          6 - 44

Item 2.   Management's Discussion and Analysis of
             Financial Condition and Results of Operations             45 - 75

Item 3.   Quantitative and Qualitative Disclosures about Market Risk   75 - 76

Item 4.   Controls and Procedures                                           77

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

Item 1.   Legal Proceedings                                                 78

Item 1A.  Risk Factors                                                      78

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

Item 4.   Submission of Matters to a Vote of Security Holders               78

Item 6.   Exhibits                                                          78







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




                                                                                       June 30,           December 31,
                                                                                         2008                 2007
                                                                                   -----------------    ---------------
                                                                                     (Unaudited)
                                       ASSETS
                                       ------

                                                                                                  
Cash and cash equivalents....................................................      $     775,002        $     245,444
Real estate facilities, at cost:
   Land......................................................................          2,714,069            3,021,309
   Buildings.................................................................          7,391,127            8,637,498
                                                                                   -----------------    ---------------
                                                                                      10,105,196           11,658,807
   Accumulated depreciation..................................................         (2,234,359)          (2,128,225)
                                                                                   -----------------    ---------------
                                                                                       7,870,837            9,530,582
   Construction in process...................................................             38,614               60,324
                                                                                   -----------------    ---------------
                                                                                       7,909,451            9,590,906

Investment in real estate entities...........................................            616,257              306,743
Goodwill.....................................................................            174,634              174,634
Intangible assets, net.......................................................             61,698              173,745
Restricted cash..............................................................             18,602               18,972
Note receivable from affiliate (Note 3)......................................            618,724                    -
Other assets.................................................................             78,378              132,658
                                                                                   -----------------    ---------------
              Total assets...................................................      $  10,252,746        $  10,643,102
                                                                                   =================    ===============
                       LIABILITIES AND SHAREHOLDERS' EQUITY
                       ------------------------------------

Notes payable................................................................      $     651,941        $   1,031,847
Debt to joint venture partner................................................             38,398               38,081
Accrued and other liabilities................................................            223,197              303,357
                                                                                   -----------------    ---------------
         Total liabilities...................................................            913,536            1,373,285
Minority interest:
   Preferred partnership interests...........................................            325,000              325,000
   Other partnership interests...............................................             38,376              181,688
Commitments and contingencies (Note 14)
Shareholders' equity:
   Cumulative Preferred Shares of beneficial interest, $0.01 par value,
     100,000,000 shares authorized, 1,739,500 shares issued (in series) and
     outstanding, (1,739,500 at December 31, 2007) at liquidation preference.          3,527,500            3,527,500
   Common Shares of beneficial interest, $0.10 par value, 650,000,000 shares
     authorized, 168,074,469 shares issued and outstanding (169,422,475 at
     December 31, 2007)......................................................             16,807               16,943
   Equity Shares of beneficial interest, Series A, $0.01 par value, 100,000,000
     shares authorized, 8,744.193 shares issued and outstanding..............                  -                    -
   Paid-in capital...........................................................          5,551,189            5,653,975
   Cumulative net income.....................................................          4,606,982            3,960,827
   Cumulative distributions paid.............................................         (4,763,161)          (4,446,181)
   Accumulated other comprehensive income....................................             36,517               50,065
                                                                                   -----------------    ---------------
         Total shareholders' equity..........................................          8,975,834            8,763,129
                                                                                   -----------------    ---------------
              Total liabilities and shareholders' equity.....................      $  10,252,746        $  10,643,102
                                                                                   =================    ===============


                             See acompanying notes.
                                       1



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

                                   (Unaudited)



                                                                    Three Months Ended                 Six Months Ended
                                                                         June 30,                          June 30,
                                                               -------------------------------    -----------------------------
                                                                    2008             2007             2008             2007
                                                               ---------------  --------------    -------------  --------------
Revenues:
                                                                                                      
   Self-storage rental income..............................     $    381,345     $    410,972     $    806,165    $    809,580
   Ancillary operating revenue.............................           31,779           36,262           66,879          69,087
   Interest and other income...............................           11,014              955           13,858           3,080
                                                               ---------------  --------------    -------------  --------------
                                                                     424,138          448,189          886,902         881,747
                                                               ---------------  --------------    -------------  --------------
Expenses:
  Cost of operations (excluding depreciation and amortization):
      Self-storage facilities..............................          128,354          149,137          285,269         297,829
      Ancillary operations.................................           18,109           20,352           35,577          39,661
  Depreciation and amortization............................           95,383          167,510          217,869         343,876
  General and administrative...............................           33,173           21,465           48,089          37,981
  Interest expense.........................................            9,601           16,707           26,088          33,515
                                                               ---------------  --------------    -------------  --------------
                                                                     284,620          375,171          612,892         752,862
                                                               ---------------  --------------    -------------  --------------
Income from continuing operations before equity in earnings
   of real estate entities, gain on disposition of an interest
   in Shurgard Europe, (loss) gain on disposition of other
   real estate investments, casualty gain, foreign currency
   exchange gain (loss), income (expense) from derivatives
   and minority interest in income.........................          139,518           73,018          274,010         128,885
Equity in earnings of real estate entities.................            4,632            2,782            7,361           6,759
Gain on disposition of an interest in Shurgard Europe
   (Note 3)................................................                -                -          341,865               -
(Loss) gain on disposition of other real estate investments              (92)           2,238              (92)          2,238
Casualty gain..............................................                -                -                -           2,665
Foreign currency exchange gain (loss)......................               (2)           5,553           41,012          10,593
Income (expense) from derivatives, net.....................                -            1,771              (43)          1,009
 Minority interest in income...............................          (10,142)          (7,524)         (17,741)        (13,307)
                                                               ---------------  --------------    -------------  --------------
Income from continuing operations..........................          133,914           77,838          646,372         138,842
Discontinued operations....................................             (101)            (734)            (217)         (1,960)
                                                               ---------------  --------------    -------------  --------------
Net income.................................................     $    133,813     $     77,104     $    646,155    $    136,882
                                                               ===============  ==============    =============  ==============
Net income allocation:
   Allocable to preferred shareholders.....................     $     60,333    $      57,315     $    120,666   $     116,091
   Allocable to Equity Shares, Series A....................            5,356            5,356           10,712          10,712
   Allocable to common shareholders........................           68,124           14,433          514,777          10,079
                                                               ---------------  --------------    -------------  --------------
                                                                $    133,813     $     77,104     $    646,155    $    136,882
                                                               ===============  ==============    =============  ==============
Net income per common share - basic
   Continuing operations...................................     $      0.41      $      0.09      $      3.06     $      0.07
   Discontinued operations.................................            -                 -               -               (0.01)
                                                               ---------------  --------------    -------------  --------------
                                                                $      0.41      $      0.09      $      3.06     $      0.06
                                                               ===============  ==============    =============  ==============
Net income per common share - diluted
   Continuing operations...................................     $      0.40      $      0.09      $      3.05     $      0.07
   Discontinued operations.................................            -                (0.01)           -               (0.01)
                                                               ---------------  --------------    -------------  --------------
                                                                $      0.40      $      0.08      $      3.05     $      0.06
                                                               ===============  ==============    =============  ==============
Net income per depositary share of Equity Shares, Series A
   (basic and diluted) ....................................     $       0.61     $       0.61     $       1.23    $       1.23
                                                               ===============  ==============    =============  ==============
Basic weighted average common shares outstanding...........          168,028          169,346          168,307         169,288
                                                               ===============  ==============    =============  ==============
Diluted weighted average common shares outstanding.........          168,814          170,213          169,022         170,275
                                                               ===============  ==============    =============  ==============
Weighted average shares of Equity Shares, Series A (basic
   and diluted)............................................            8,744            8,744            8,744           8,744
                                                               ===============  ==============    =============  ==============


                            See accompanying notes.
                                       2


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

                                   (Unaudited)





                                                                 Cumulative                                        Cumulative Net
                                                              Preferred Shares   Common Shares   Paid-in Capital       Income
                                                              -----------------  --------------  ---------------   ---------------
                                                                                                         
Balance at December 31, 2007..............................      $  3,527,500      $     16,943     $  5,653,975      $  3,960,827

Issuance of common shares in connection with:
   Exercise of employee stock options (123,241  shares)...                 -                11            5,079                 -
   Vesting of restricted shares (48,949 shares) ..........                 -                 5               (5)                -

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

Stock-based compensation expense (Note 12) ...............                 -                 -            3,891                 -

Net income................................................                 -                 -                -           646,155

Cash distributions:
   Cumulative preferred shares (Note 10)..................                 -                 -                -                 -
   Equity Shares, Series A ($1.225 per depositary share)..                 -                 -                -                 -
   Common Shares ($1.10 per share)........................                 -                 -                -                 -

Other comprehensive loss (Note 2).........................                 -                 -                -                 -
                                                              -----------------  --------------  ---------------   ---------------
Balance at June 30, 2008..................................      $  3,527,500      $     16,807     $  5,551,189      $  4,606,982
                                                              =================  ==============  ===============   ===============





                                                                                  Accumulated
                                                                                     Other             Total
                                                                 Cumulative      Comprehensive     Shareholders'
                                                               Distributions         Income           Equity
                                                               ---------------   ----------------  --------------
                                                                                           
Balance at December 31, 2007..............................      $ (4,446,181)     $     50,065      $  8,763,129

Issuance of common shares in connection with:
   Exercise of employee stock options (123,241  shares)...                 -                 -             5,090
   Vesting of restricted shares (48,949 shares) ..........                 -                 -                 -

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

Stock-based compensation expense (Note 12) ...............                 -                 -             3,891

Net income................................................                 -                 -           646,155

Cash distributions:
   Cumulative preferred shares (Note 10)..................          (120,666)                -          (120,666)
   Equity Shares, Series A ($1.225 per depositary share)..           (10,712)                -           (10,712)
   Common Shares ($1.10 per share)........................          (185,602)                -          (185,602)

Other comprehensive loss (Note 2).........................                 -           (13,548)          (13,548)
                                                               ---------------   ----------------  --------------
Balance at June 30, 2008..................................      $ (4,763,161)     $     36,517      $  8,975,834
                                                               ===============   ================  ==============

                            See accompanying notes.
                                       3



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

                                   (Unaudited)



                                                                                      For the Six Months Ended
                                                                                              June 30,
                                                                                    -----------------------------
                                                                                        2008              2007
                                                                                    -------------   -------------
Cash flows from operating activities:
                                                                                               
   Net income..................................................................      $  646,155      $  136,882
   Adjustments to reconcile net income to net cash provided by operating
     activities:
    Amortization of note premium, net of increase in debt to joint venture
       partner (Notes 7 and 8).................................................          (2,434)         (2,329)
    Gain on disposition and realized currency translation gain associated
       with disposition of an interest in Shurgard Europe (Note 3)..........           (341,865)              -
    Loss (gain) on disposition of real estate and real estate investments
       (Notes 4 and 14).....................................................                 92          (2,238)
    Depreciation and amortization including discontinued operations.........            217,877         344,082
    Equity in earnings of real estate entities..............................             (7,361)         (6,759)
    Foreign currency exchange gain..........................................            (41,012)        (10,593)
    (Income) expense from derivatives, net..................................                 43          (1,009)
    Distributions received from the real estate entities....................             19,149          10,535
    Distributions paid to other minority interests..........................             (8,595)        (10,357)
    Minority interest in income.............................................             17,741          13,307
       Other operating activities...........................................              2,805          (2,756)
                                                                                    -------------   -------------
       Total adjustments....................................................           (143,560)        331,883
                                                                                    -------------   -------------
       Net cash provided by operating activities............................            502,595         468,765
                                                                                    -------------   -------------
Cash flows from investing activities:
    Capital improvements to real estate facilities .........................            (31,571)        (28,807)
    Construction in process.................................................            (40,081)        (47,329)
    Acquisition of real estate facilities...................................            (20,992)        (28,844)
    Proceeds from the disposition of an interest in Shurgard Europe (Note 3)            609,059               -
    Deconsolidation of Shurgard Europe (Note 3).............................            (34,588)              -
    Deconsolidation of partnerships (Note 2)................................                  -             (65)
    Proceeds from sales of real estate......................................                493           2,242
    Sale of real estate investments to affiliates...........................                  -           4,909
    Reductions (additions) to restricted cash...............................                370            (306)
    Investment in Shurgard Europe...........................................            (32,911)              -
    Proceeds from sales of held-to-maturity debt securities (Note 2)........                 67           5,766
    Other investing activities..............................................                720               -
                                                                                    -------------   -------------
       Net cash provided by (used in) investing activities..................            450,566         (92,434)
                                                                                    -------------   -------------
Cash flows from financing activities:
    Principal payments on notes payable.....................................             (6,200)       (502,134)
    Net repayments on bank credit facilities................................                  -        (275,000)
    Proceeds from borrowings on debt of Existing European Joint Ventures....             14,654          32,039
    Net proceeds from the issuance of common shares.........................              5,090           7,125
    Net proceeds from the issuance of cumulative preferred shares...........                  -         484,767
    Repurchases of common shares............................................           (111,903)              -
    Redemption of cumulative preferred shares...............................                  -        (302,150)
    Distributions paid to shareholders......................................           (316,980)       (296,821)
    Distributions paid to holders of preferred partnership interests........            (10,806)        (10,806)
                                                                                    -------------   -------------
       Net cash used in financing activities................................           (426,145)       (862,980)
                                                                                    -------------   -------------
Net increase (decrease) in cash and cash equivalents........................            527,016        (486,649)
Net effect of foreign exchange translation on cash..........................              2,542          (2,292)
                                                                                    -------------   -------------
Cash and cash equivalents at the beginning of the period....................            245,444         535,684
                                                                                    -------------   -------------
Cash and cash equivalents at the end of the period..........................         $  775,002      $   46,743
                                                                                    =============   =============


                            See accompanying notes.
                                       4



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

                                   (Unaudited)

                                   (Continued)



                                                                                      For the Six Months Ended
                                                                                              June 30,
                                                                                    -----------------------------
                                                                                        2008              2007
                                                                                    -------------   -------------
Supplemental schedule of non-cash investing and financing activities:

   Foreign currency translation adjustment:
                                                                                                
       Real estate facilities, net of accumulated depreciation..............          $ (96,581)      $ (23,790)
       Construction in process..............................................               (956)           (785)
       Investment in real estate entities...................................                891               -
       Intangible assets, net...............................................             (4,526)         (3,470)
       Note receivable from affiliate.......................................                 98               -
       Other assets.........................................................             (3,742)         (1,072)
       Notes payable........................................................             28,912           6,579
       Accrued and other liabilities........................................              5,879           1,985
       Minority interest - other partnership interests......................              7,249           1,917
       Accumulated other comprehensive income...............................             65,318          16,344

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

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

   Real estate acquired in exchange for assumption of mortgage note.........            (10,250)              -
   Mortgage note assumed in connection with the acquisition of real estate..             10,250               -

   Revaluation of debt to joint venture partner:
       Debt to joint venture partner........................................                224               -
       Other assets.........................................................               (224)              -





                            See accompanying notes.
                                       5



                                 PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

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

              Public  Storage,  Inc.,  formerly a  California  corporation,  was
     organized  in 1980.  Effective  June 1,  2007,  following  approval  by our
     shareholders,  we reorganized  Public Storage,  Inc. into Public Storage, a
     Maryland real estate investment trust (referred to herein as "the Company",
     "the  Trust",   "we",  "us",  or  "our").   We  are  a  fully   integrated,
     self-administered  and self-managed  real estate  investment trust ("REIT")
     whose principal business  activities include the acquisition,  development,
     ownership  and  operation of  self-storage  facilities  which offer storage
     spaces for lease,  generally on a  month-to-month  basis,  for personal and
     business use.

              In addition to our  self-storage  facilities,  we own interests in
     commercial properties containing commercial and industrial rental space for
     rent and conduct other ancillary  operations at our self-storage  locations
     comprised  principally of  reinsurance of policies  against losses to goods
     stored  by our  self-storage  tenants,  retail  sales  of  storage  related
     products and truck rentals.

              At June 30, 2008, we had direct and indirect  equity  interests in
     2,015  self-storage  facilities  located in 38 states  operating  under the
     "Public  Storage" name, and 179 self-storage  facilities  located in Europe
     which  operate  under the  "Shurgard  Storage  Centers"  name. We also have
     direct and  indirect  equity  interests  in  approximately  21 million  net
     rentable square feet of commercial space located in 11 states in the United
     States (the "U.S.") operated under the "PS Business Parks" name.

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

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

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

              The  accompanying   unaudited  condensed   consolidated  financial
     statements  have been prepared in accordance with U.S.  generally  accepted
     accounting  principles  ("GAAP") for interim financial  information and the
     instructions  to Form 10-Q and Article 10 of Regulation  S-X.  Accordingly,
     they do not include all of the  information  and notes required by GAAP for
     complete  financial   statements.   In  the  opinion  of  management,   all
     adjustments  (consisting  of normal and recurring  adjustments)  considered
     necessary for a fair  presentation  have been reflected in these  unaudited
     condensed  consolidated  financial  statements.  Operating  results for the
     three and six months ended June 30, 2008 are not necessarily  indicative of
     the results that may be expected for the year ending December 31, 2008. The
     accompanying  unaudited condensed  consolidated financial statements should
     be read together with the  consolidated  financial  statements  and related
     notes  included in the  Company's  Annual  Report on Form 10-K for the year
     ended December 31, 2007.

              Certain  amounts  previously  reported have been  reclassified  to
     conform to the June 30, 2008 presentation.  Certain  reclassifications have
     also been  made from  previous  presentations  as a result of  discontinued
     operations.

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

              Entities  in which we have an  interest  are  first  evaluated  to
     determine  whether,  in  accordance  with the  provisions  of the Financial

                                       6


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

     Accounting  Standards  Board's  Interpretation  No. 46R,  "Consolidation of
     Variable  Interest  Entities," they represent  Variable  Interest  Entities
     ("VIE's").  VIE's in which we are the primary beneficiary are consolidated.
     Entities that are not VIE's that we control are consolidated.

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

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

              On  March  31,  2008,  we  entered  into  a  transaction  with  an
     institutional   investor  (the  transaction  referred  to  as  the  "Europe
     Transaction")  whereby the investor acquired a 51% interest in our European
     operations  ("Shurgard Europe").  Shurgard Europe held substantially all of
     our  operations  in Europe.  Since March 31, 2008, we own the remaining 49%
     interest and are the managing member of Shurgard  European  Holdings LLC, a
     new joint venture formed to own Shurgard Europe's  operations.  As a result
     of the Europe Transaction,  our remaining  investment in Shurgard Europe is
     accounted  for using the equity method  effective  March 31, 2008 (see Note
     3).

              Collectively,  at June 30, 2008, the Company and the  Consolidated
     Entities own a total of 1,996 real estate  facilities,  consisting of 1,987
     self-storage  facilities in the U.S., one self-storage  facility in London,
     England and eight commercial facilities.

              At June 30, 2008, the Unconsolidated Entities are comprised of our
     interest in Shurgard Europe, PS Business Parks,  Inc. ("PSB"),  and various
     limited and joint venture partnerships (the "Other  Investments").  At June
     30,  2008,  PSB owns  approximately  19.6 million  rentable  square feet of
     commercial  space,  Shurgard  Europe  has  interests  in  178  self-storage
     facilities  in Europe with 9.3 million net rentable  square  feet,  and the
     Other Investments own in aggregate 28 self-storage facilities in the U.S.

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

              On May 24, 2007, a judgment  was  rendered  which  resulted in the
     loss of our effective  control over several limited  partnerships  and as a
     result, we discontinued  consolidating  these entities and began to account
     for our ownership in these limited  partnerships using the equity method of
     accounting, effective the date of the judgment. Notwithstanding our loss of
     control,  we continue to retain all of our previous financial  interests in
     these partnerships.

                                       7


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

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

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

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

              For all taxable years  subsequent to 1980,  the Company  qualified
     and intends to continue to qualify as a REIT,  as defined in Section 856 of
     the  Internal  Revenue  Code.  As a  REIT,  we  do  not  incur  federal  or
     significant  state  tax on that  portion  of our  taxable  income  which is
     distributed to our  shareholders,  provided that we meet certain tests.  We
     believe  we have met these  tests  during  2007 and will meet  these  tests
     during 2008 and,  accordingly,  no provision  for federal  income taxes has
     been made in the accompanying  condensed  consolidated financial statements
     on income  produced and distributed on real estate rental  operations.  Our
     taxable REIT  subsidiaries  are subject to regular  corporate  tax on their
     income.

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

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

              For purposes of financial statement presentation,  we consider all
     highly liquid financial instruments such as short-term treasury securities,
     money  market funds with daily  liquidity  and a rating in excess of AAA by
     Standard and Poor's,  or investment grade short-term  commercial paper with
     remaining  maturities of three months or less at the date of acquisition to
     be cash equivalents.

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

              Financial assets that are exposed to credit risk consist primarily
     of cash and cash  equivalents,  accounts  receivable,  and notes receivable
     from  affiliates.  Cash  and cash  equivalents,  consisting  of  short-term
     investments, including commercial paper, are only invested in entities with
     an  investment  grade  rating.  Accounts  receivable  are not a significant
     portion  of total  assets  and are  comprised  of a large  number  of small
     individual customer balances.  Our note receivable totaling $618,724,000 at
     June 30, 2008 is owed to us by Shurgard  Europe.  Although  there can be no
     assurance,  we believe that Shurgard  Europe has sufficient  debt coverage,
     and that we have sufficient creditor rights to maintain debt coverage, such
     that the credit risk on the note receivable is minimal.

              At June 30, 2008, we have an investment  in Shurgard  Europe,  and
     one wholly owned real estate facility in London,  England. In addition, the
     aforementioned  note  receivable  from Shurgard  Europe is  denominated  in
     Euros. Accordingly,  our operations and our financial position are affected
     by  fluctuations  in the exchange  rates between the Euro,  and to a lesser
     extent, other European currencies, against the U.S. Dollar.

                                       8


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

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

              Restricted  cash at June 30, 2008 and December 31, 2007,  consists
     of cash held by our captive insurance  entities which, due to insurance and
     other  regulations  with respect to required  reserves and minimum  capital
     requirements,  can  only be  utilized  to pay  insurance  claims  of  these
     entities.

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

              Real estate facilities are recorded at cost. Costs associated with
     the acquisition,  development,  construction, renovation and improvement of
     properties  are  capitalized.  Interest,  property  taxes and  other  costs
     associated with  development  incurred during the  construction  period are
     capitalized as building cost. Costs associated with the sale of real estate
     facilities  or  interests  in  real  estate  investments  are  expensed  as
     incurred.  The purchase cost of existing  self-storage  facilities  that we
     acquire are allocated based upon relative fair value of the land,  building
     and tenant intangible components of the real estate facility.  Expenditures
     for  repairs and  maintenance  are  expensed  when  incurred.  Depreciation
     expense is  computed  using the  straight-line  method  over the  estimated
     useful lives of the buildings and improvements,  which generally range from
     5 to 25 years.

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

              We evaluate  impairment  of goodwill  annually  through a two-step
     process.  In the first  step,  if the fair value of the  reporting  unit to
     which the goodwill  applies is equal to or greater than the carrying amount
     of the assets of the reporting unit,  including the goodwill,  the goodwill
     is considered  unimpaired and the second step is unnecessary.  If, however,
     the fair value of the reporting  unit  including  goodwill is less than the
     carrying amount, the second step is performed. In this test, we compute the
     implied fair value of the goodwill based upon the allocations that would be
     made to the goodwill, other assets and liabilities of the reporting unit as
     if a business combination  transaction was consummated at the fair value of
     the reporting  unit. An impairment  loss is recorded to the extent that the
     implied  fair value of the  goodwill is less than the  goodwill's  carrying
     amount.  No  impairment  of our  goodwill  was  identified  in  our  annual
     evaluation at December 31, 2007,  and no impairment  indicators  were noted
     through June 30, 2008.

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

              Any long-lived assets which we expect to sell or otherwise dispose
     of prior to their  previously  estimated  useful life are stated at what we
     estimate to be the lower of their estimated net realizable value (less cost
     to sell) or their carrying  value.  No impairment  was identified  from our
     evaluations as of June 30, 2008.

                                       9


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

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

              We  utilize  the Fair  Value  Method  (as  defined  in Note 12) of
     accounting for our employee stock options. Restricted share unit expense is
     recorded  over the  relevant  service  period.  See Note 12 for  additional
     information  on our  accounting  for employee  share options and restricted
     share units.

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

              Other assets primarily  consists of prepaid expenses,  investments
     in  held-to-maturity  debt  securities,  accounts  receivable,  merchandise
     inventory  held for sale as well as trucks and other  equipment  associated
     with our ancillary operations. Other assets included a total of $56,714,000
     related to Shurgard  Europe at December 31, 2007,  which we  deconsolidated
     effective March 31, 2008 as described in Note 3.

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

              Accrued and other  liabilities at June 30, 2008 consist  primarily
     of real property tax accruals, tenant prepayments of rents, trade payables,
     losses  and  loss  adjustment   liabilities  for  our  self-insured   risks
     (described  below) accrued interest and, at December 31, 2007,  value-added
     tax accruals with respect to Shurgard Europe. Accrued and other liabilities
     included $95,444,000 related to Shurgard Europe at December 31, 2007, which
     we deconsolidated effective March 31, 2008 as described in Note 3.

              We are self-insured for a portion of the risks associated with our
     property and casualty  losses,  workers  compensation  and employee  health
     care.  We also  utilize  third-party  insurance  carriers to limit our self
     insurance  exposure.  We accrue  liabilities for uninsured  losses and loss
     adjustment expense, which at June 30, 2008 totaled $28,220,000 ($26,643,000
     at December 31, 2007).  Liabilities for losses and loss adjustment expenses
     include an amount we determine from loss reports and  individual  cases and
     an amount,  based on recommendations  from an independent actuary that is a
     member of the American  Academy of Actuaries using a frequency and severity
     method, for losses incurred but not reported. Determining the liability for
     unpaid losses and loss adjustment expense is based upon estimates.

              Through a  wholly-owned  subsidiary,  we  reinsure a program  that
     provides  insurance  to  certificate  holders  against  claims for property
     losses due to specific named perils (earthquakes and floods are not covered
     by  these  policies)  to  goods  stored  by  tenants  in  our  self-storage
     facilities  for individual  limits up to a maximum of $5,000.  For our U.S.
     operations,  we have  third-party  insurance  coverage  for losses from any
     individual  event  that  exceeds  a loss of  $1,000,000,  to a  maximum  of
     $49,000,000.  Estimated  uninsured  losses  are  accrued  and  expensed  as
     ancillary costs of operations.

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

     Goodwill
     --------

              Goodwill  represents the excess of acquisition  cost over the fair
     value of net  tangible  and  identifiable  intangible  assets  acquired  in
     business  combinations.  Each business  combination from which our goodwill
     arose was for the  acquisition of single  businesses and  accordingly,  the
     allocation of our goodwill to our business segments  (principally  Domestic

                                       10


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

     Self-Storage) is based directly on such  acquisitions.  Our goodwill has an
     indeterminate  life in  accordance  with the  provisions  of  Statement  of
     Financial  Accounting  Standards No. 142 ("SFAS 142"). Our goodwill balance
     of $174,634,000 is reported net of accumulated  amortization of $85,085,000
     as of June 30, 2008 and  December  31, 2007 in our  accompanying  condensed
     consolidated balance sheets.

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

              As we acquire real estate  facilities,  we also acquire intangible
     assets  representing  primarily  the  tenants  in  place at the date of the
     acquisition  of each  respective  facility.  The  value  of  these  tenants
     represent a  finite-lived  intangible  asset (a "Tenant  Intangible"),  and
     these assets are amortized  relative to the benefit of the tenants in place
     to each period. At June 30, 2008, our finite-lived  intangibles have a book
     value of $42,874,000  ($154,921,000 at December 31, 2007),  which is net of
     accumulated  amortization  of  $324,683,000  ($423,788,000  at December 31,
     2007).  During the six months ended June 30, 2008,  intangible  assets were
     increased  by  approximately  $4,526,000  due to the  impact of  changes in
     foreign  currency  exchange  rates and  $1,695,000  for the  acquisition of
     Tenant  Intangibles  in  connection  with  the  acquisition  of  additional
     self-storage   facilities  (Note  4).  On  March  31,  2008,   finite-lived
     intangible   assets   decreased   approximately   $78,135,000  due  to  the
     deconsolidation  of  Shurgard  Europe,  as  described  more fully in Note 3
     below.

              Amortization  expense of $11,722,000  and $71,367,000 was recorded
     for our finite-lived  intangible assets for the three months ended June 30,
     2008 and 2007, respectively,  and $40,133,000 and $157,151,000, for the six
     months ended June 30, 2008 and 2007,  respectively.  The  estimated  annual
     amortization expense for our finite-lived intangible assets is as follows:

           2008 (remainder of)                       $    10,581,000
           2009                                            4,382,000
           2010                                            2,611,000
           2011                                            2,435,000
           2012                                            2,337,000
           2013 and beyond                                20,528,000

              We  also  have  an  intangible   representing  the  value  of  the
     "Shurgard"  trade  name,  which is used by  Shurgard  Europe  pursuant to a
     licensing  agreement  described  more fully in Note 3, with a book value of
     $18,824,000 at June 30, 2008 and December 31, 2007. The Shurgard trade name
     has an indefinite life and, accordingly,  we do not amortize this asset but
     instead analyze it on an annual basis for impairment.  No impairments  were
     noted in the most recent annual analysis at December 31, 2007.

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

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

              We accrue  for  property  tax  expense  based upon  estimates  and
     historical trends. If these estimates are incorrect,  the timing and amount
     of expense recognition could be affected.  Cost of operations,  general and
     administrative  expense,  interest expense,  as well as television,  yellow
     page, and other advertising expenditures are expensed as incurred.

                                       11


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

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

              The local  currency is the  functional  currency  for the European
     operations that we have an interest in. Assets and liabilities  included on
     our  consolidated  balance sheet are translated at  end-of-period  exchange
     rates, while revenues, expenses, and equity in earnings of the related real
     estate  entities,  are  translated at the average  exchange rates in effect
     during the period. The Euro, which represents the functional  currency used
     by a  majority  of  Shurgard  Europe's  operations,  was  translated  at an
     end-of-period exchange rate of approximately 1.579 U.S. Dollars per Euro at
     June 30, 2008 and March 31, 2008 (1.472 at December 31, 2007),  and average
     exchange  rates of 1.563 and 1.348 for the three months ended June 30, 2008
     and 2007,  respectively,  and 1.530 and 1.329 for the six months ended June
     30, 2008 and 2007,  respectively.  Equity is translated at historical rates
     and the resulting  cumulative  translation  adjustments,  to the extent not
     included in net income,  are included as a component of  accumulated  other
     comprehensive income (loss) until the translation adjustments are realized.
     See "Other  Comprehensive  Income" below for further information  regarding
     our foreign currency translation gains and losses.

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

              In February  2007,  the FASB issued SFAS No. 159,  "The Fair Value
     Option  for  Financial  Assets  and  Financial  Liabilities,  including  an
     amendment  of FASB  Statement  No.  115"  ("SFAS  No.  159").  SFAS No. 159
     provides  companies with an option to report selected  financial assets and
     liabilities  at fair  value.  The  standard  establishes  presentation  and
     disclosure   requirements   designed  to  facilitate   comparisons  between
     companies that choose different measurement attributes for similar types of
     assets  and  liabilities.  SFAS No.  159 was  effective  for  fiscal  years
     beginning  after November 15, 2007. The Company did not elect to report any
     of its financial assets or liabilities at fair value, and as a result,  the
     adoption of SFAS No. 159 had no material impact on our financial  position,
     operating results or cash flows.

              In 2006,  the FASB issued SFAS No. 157,  "Fair Value  Measurement"
     (SFAS No.  157).  SFAS No. 157  provides  guidance  for using fair value to
     measure assets and liabilities.  SFAS No. 157 expands required  disclosures
     about the extent to which companies  measure assets and liabilities at fair
     value,  the information  used to measure fair value, and the effect of fair
     value  measurements  on  earnings.  SFAS No.  157  applies  whenever  other
     accounting  standards require or permit fair value  measurements.  SFAS No.
     157 does  not  require  any new  fair  value  measurements.  SFAS  No.  157
     clarifies  that fair value is an exit price,  representing  the amount that
     would be received  to sell an asset or paid to  transfer a liability  in an
     orderly transaction between market participants.  SFAS No. 157 is effective
     for fiscal years  beginning  after November 15, 2007,  and interim  periods
     within those fiscal years.  In December 2007, the FASB agreed to a one year
     deferral  of  SFAS  No.  157's  fair  value  measurement  requirements  for
     nonfinancial  assets and liabilities  that are not required or permitted to
     be measured at fair value on a recurring  basis.  The Company  adopted SFAS
     No. 157 on January 1, 2008, which had no effect on our financial  position,
     operating results or cash flows.

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

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

              As of June 30, 2008, we had a note receivable from Shurgard Europe
     totaling  $618,724,000  ($561,182,000  at  December  31,  2007,  which  was
     eliminated in consolidation).  Effective March 31, 2008, as a result of the

                                       12


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

     Europe Transaction, Shurgard Europe is no longer consolidated, accordingly,
     the  note  receivable  is no  longer  eliminated  in  consolidation  and is
     presented as "Note Receivable from Affiliate" (see Note 3).

              In connection with the Europe  Transaction,  the terms of the note
     were modified.  The outstanding loan balance was increased by approximately
     (euro)10,529,000 ($16,626,000) on March 31, 2008 due to the conversion of a
     portion of our equity  investment  into  intercompany  debt. The note bears
     interest at a fixed rate of 7.5% per annum,  and has an initial term of one
     year  expiring  March 31, 2009,  and an  additional  one year  extension at
     Shurgard Europe's option.  Further,  we are committed to provide additional
     loans to Shurgard Europe,  under these same terms, up to (euro)305  million
     to  fund  Shurgard  Europe's  obligations  to  repay  existing  third-party
     indebtedness  (a total of  (euro)258.5  million  at June 30,  2008) owed by
     First Shurgard and Second Shurgard, joint ventures in which Shurgard Europe
     has a 20%  interest  (First  Shurgard  and Second  Shurgard are referred to
     hereinafter  collectively as the "Existing  European Joint Ventures"),  and
     the possible acquisition of the remaining interest in the Existing European
     Joint Ventures.  Shurgard  Europe intends to repay all of its  intercompany
     debt through the issuance of third-party debt as soon as market  conditions
     permit, but no later than March 31, 2010 when all of the loans mature.

              The   note   receivable   includes   a  1%   arrangement   fee  of
     (euro)3,919,000.  These fees are being  amortized  over a  two-year  period
     through March 31, 2009.  During each of the three and six months ended June
     30, 2008, we recorded  interest  income of $357,000  (which  represents the
     aggregate  amortization  of the fee, less our 49% pro-rata share of the fee
     which is  shown as  "equity  in  earnings  of real  estate  entities"),  in
     connection with these fees.

              The note  receivable is  denominated  in Euros and is converted to
     U.S.  Dollars on our balance sheet. At the end of each  applicable  period,
     because we have expected  repayment  within one to two years,  we have been
     recognizing foreign exchange rate gains or losses as a result of changes in
     exchange  rates between the Euro and the U.S.  Dollar during each period in
     2008 and 2007.  During the three months ended June 30, 2008, the balance of
     this loan decreased due to foreign  currency  losses totaling  $98,000,  as
     compared to an increase due to foreign currency gains of $5,539,000  during
     the three months ended June 30, 2007, which are recognized as income on our
     accompanying  condensed  consolidated  statements of income. During the six
     months ended June 30, 2008 and 2007,  such foreign  currency  gains totaled
     $41,208,000 and $11,095,000,  respectively.  See Note 5 for a discussion of
     interest and other income with respect to this note.

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

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

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

                                       13


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

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



                                                   For the Three Months Ended        For the Six Months Ended
                                                            June 30,                         June 30,
                                                  ------------------------------- -------------------------------
                                                     2008             2007             2008            2007
                                                  --------------   -------------- --------------   --------------
                                                                      (Amounts in thousands)
                                                                                         
     Net income................................    $   133,813      $    77,104     $   646,155      $   136,882
     Other comprehensive income:
        Aggregate foreign currency translation
           adjustments for the period..........           (947)          11,486          65,318           26,937
        Less: foreign currency translation
           adjustments recognized during the
           period and reflected in "Gain on
           disposition of an interest in
           Shurgard Europe" (Note 3)...........              -                -         (37,854)               -
        Less: foreign currency translation
           adjustments reflected in net income
           as "Foreign currency (gain) loss"                 2           (5,553)        (41,012)         (10,593)
           (a).................................
                                                 --------------   --------------  --------------   --------------
     Other comprehensive income (loss) for the
               period..........................           (945)           5,933         (13,548)          16,344
                                                 --------------   --------------  --------------   --------------
     Total comprehensive income................    $   132,868      $    83,037     $   632,607      $   153,226
                                                 ==============   ==============  ==============   ==============


     (a) In addition to exposure of foreign currency translation  adjustments in
        connection with our note receivable from Shurgard Europe, we are exposed
        to foreign  currency  translation  adjustments  in  connection  with the
        operations of our facility located in London, England.

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

              Our policy is to record casualty losses or gains in the period the
     casualty  occurs  equal to the  differential  between (a) the book value of
     assets  destroyed  and (b)  insurance  proceeds,  if any, that we expect to
     receive in accordance  with our insurance  contracts.  Potential  insurance
     proceeds  that are  subject to  uncertainties,  such as  interpretation  of
     deductible  provisions  of the governing  agreements  or the  estimation of
     costs of restoration, are treated as contingent proceeds in accordance with
     Statement  of  Financial  Accounting  Standards  No. 5 ("SFAS 5"),  and not
     recorded until the uncertainties are satisfied. During the six months ended
     June  30,  2007,  we  recorded  a  casualty   gain   totaling   $2,665,000,
     representing  the  realization  of such  contingent  proceeds  relating  to
     hurricanes which occurred in 2005.

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

              Shurgard Europe has certain  derivative  financial  instruments in
     its two joint venture partnerships,  including interest rate caps, interest
     rate swaps,  cross-currency  swaps and foreign currency forward  contracts.
     These  derivatives  were entered into by the joint venture  partnerships in
     order to mitigate currency and exchange rate fluctuation risk in connection
     with borrowings,  and are not for speculative or trading purposes. Since we
     acquired  an  interest  in  Shurgard  Europe  in August  2006,  none of the

                                       14


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

     derivatives  were  considered  effective  hedges  because  at the  time  we
     acquired  them,  we believed it was not highly likely that the debt and the
     related  derivative  instruments would remain  outstanding for their entire
     contractual  period.  Accordingly,  for periods where  Shurgard  Europe was
     consolidated (see Note 3) all changes in the fair values of the derivatives
     are  reflected  in  earnings,  along with the related cash flows from these
     instruments,   under  "Income  from  derivatives,  net"  on  our  condensed
     consolidated statements of income.

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

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

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

              We segregate all of our disposed  components  that have operations
     that  can be  distinguished  from  the  rest  of the  Company  and  will be
     eliminated  from  the  ongoing  operations  of the  Company  in a  disposal
     transaction.  Discontinued operations principally consist of the historical
     operations  related  to  facilities  that were  closed and are no longer in
     operation  and  facilities  that  have  been  disposed  of  either  through
     condemnation  by a local  governmental  agency or sale. The following table
     summarizes the historical operations with respect to these facilities:



                                     For the Three Months      For the Six Months Ended
                                         Ended June 30,                June 30,
                                    ------------------------- ---------------------------
                                       2008         2007          2008          2007
                                    ------------ ------------ ------------- -------------
                                                  (Amounts in thousands)
                                                                  
Rental income.....................   $     408    $     979     $     833     $   1,788
Cost of operations................        (506)      (1,622)       (1,042)       (3,542)
Depreciation expense..............          (3)         (91)           (8)         (206)
                                    ------------ ------------ ------------- -------------
Total discontinued operations.....   $    (101)   $    (734)    $    (217)    $  (1,960)
                                    ============ ============ ============= =============



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

              In computing net income allocated to our common  shareholders,  we
     first allocate net income to our preferred  shareholders  ($60,333,000  and
     $120,666,000   for  the  three  and  six  months   ended  June  30,   2008,
     respectively, and $57,315,000 and $116,091,000 for the three and six months
     ended June 30, 2007,  respectively),  to arrive at net income  allocable to
     our common shareholders.

              The  remaining  net income is allocated  among our regular  common
     shares and our Equity  Shares,  Series A using the  two-class  method which
     allocates  income based upon the dividends  declared (or  accumulated)  for
     each  security  in the  period,  combined  with each  security's  rights to
     earnings (or losses) that were not distributed to shareholders.  Under this
     method,  the  Equity  Shares,  Series  A,  were  allocated  net  income  of
     $5,356,000 and  $10,712,000 for each of the three and six months ended June
     30, 2008 and 2007, respectively. Net income of $68,124,000 and $514,777,000
     for the  three  and six  months  ended  June 30,  2008,  respectively,  and
     $14,433,000  and  $10,079,000  for the three and six  months ended June 30,
     2007, respectively, were allocated to the regular common shareholders.

              Basic net income per share is computed using the weighted  average
     common shares  outstanding  (prior to the dilutive  impact of stock options
     and  restricted  share  units  outstanding).  Diluted net income per common
     share is computed  using the weighted  average  common  shares  outstanding
     (adjusted  for the impact,  if dilutive,  of stock  options and  restricted
     share units outstanding).

                                       15


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

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

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

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

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

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

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

              On March  31,  2008,  an  institutional  investor  acquired  a 51%
     interest in Shurgard European Holdings LLC, a newly formed Delaware limited
     liability  company and the holding company for Shurgard  Europe  ("Shurgard
     Holdings").  Public  Storage  owns the  remaining  49%  interest and is the
     managing member of Shurgard  Holdings.  In exchange for the 51% interest in
     Shurgard  Holdings,  the investor  paid  Shurgard  Holdings an aggregate of
     $613,201,000,  comprised of approximately (euro)383,200,000  ($605,627,000)
     received  on  March  31,  2008  and,  on  June  20,  2008,   an  additional
     (euro)4,797,000  ($7,574,000)  was  received,  representing  the  operating
     results (as defined)  generated by Shurgard  Europe during the three months
     ended March 31, 2008.

              In connection with the Europe Transaction,  the intercompany notes
     receivable  owed by Shurgard  Europe to Public  Storage were  modified (see
     Note 2  under  "Note  Receivable  from  Affiliate,")  and  Shurgard  Europe
     obtained an option, which expired without being exercised on June 30, 2008,
     to acquire one facility located in London,  England that the Company wholly
     owns for an aggregate of (euro)42  million  representing its estimated fair
     value.  Shurgard  Europe  manages  this  facility  for us in exchange for a
     management fee.

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

                                       16


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

              The  provisions of Emerging  Issues Task Force 04-5,  "Determining
     Whether a General Partner,  or the General Partners as a Group,  Controls a
     Limited  Partnership  or Similar  Entity  When the  Limited  Partners  Have
     Certain  Rights,"  indicate there is a presumption that the managing member
     of a limited  liability  company  controls  the  company,  unless the other
     member has substantive  "participating" or "kick-out" rights as those terms
     are defined in the  accounting  standard.  Even though we are the  managing
     member,  based  upon  the  terms of the  governing  documents  of  Shurgard
     Holdings,  the  institutional  investor shares with us the  decision-making
     authority  with  respect  to a) the  significant  operating,  capital,  and
     investing  decisions of Shurgard  Europe,  including the  establishment  of
     annual budgets,  and b) the level of  compensation  of, and replacement and
     selection of Shurgard Europe's senior operating  officers.  As a result, we
     have   concluded   that  the   institutional   investor   has   substantive
     participating rights and,  accordingly,  we do not control Shurgard Europe.
     Therefore,  we  have  deconsolidated  the  operations  of  Shurgard  Europe
     effective March 31, 2008.

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

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

              Our net proceeds  from the  transaction  aggregated  $609,059,000,
     comprised  of  $613,201,000  paid  by  the   institutional   investor  less
     $4,142,000 in legal, accounting,  and other expenses incurred in connection
     with the  transaction.  As a result  of the  disposition,  we  reduced  our
     investment in Shurgard  Europe by  approximately  $305,048,000  for the pro
     rata  portion of our  investment  that was sold,  and  recognized a gain of
     $304,011,000, representing the difference between the net proceeds received
     and the pro rata portion of our investment sold. The receivable was paid by
     the investor in June 2008.

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

              The gain upon disposition of $304,011,000 and associated  realized
     currency  exchange gain totaling  $37,854,000 are both included in the gain
     on disposition  of an interest in Shurgard  Europe of  $341,865,000  in our
     condensed  consolidated  statement  of income for the six months ended June
     30, 2008.

                                       17


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

              The results of operations of Shurgard Europe have been included in
     our condensed consolidated  statements of income for the three months ended
     March 31, 2008 and three and six months ended June 30, 2007,  respectively.
     Commencing  April 1, 2008,  our pro rata share of  operations  of  Shurgard
     Europe are  reflected on our income  statement  under equity in earnings of
     real estate  entities.  See Note 5,  "Investment  in  Shurgard  Europe" for
     further analysis of our earnings from Shurgard Europe for the quarter ended
     June 30, 2008.

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

              Activity in real estate facilities is as follows:


                                                                Six Months Ended
                                                                  June 30, 2008
                                                                ----------------
                                                                  (Amounts in
                                                                    thousands)
Operating facilities, at cost:
  Beginning balance.......................................        $ 11,658,807
  Capital improvements....................................              31,571
  Acquisition of real estate facilities from third parties              29,547
  Newly developed facilities opened for operation.........              51,861
  Deconsolidation of Shurgard Europe (Note 3).............          (1,766,122)
  Disposition of real estate facilities...................                (699)
  Impact of foreign exchange rate changes.................             100,231
                                                                ----------------
  Ending balance..........................................          10,105,196
                                                                ----------------
Accumulated depreciation:
  Beginning balance.......................................          (2,128,225)
  Depreciation expense....................................            (175,196)
  Deconsolidation of Shurgard Europe (Note 3).............              72,598
  Disposition of real estate facilities...................                 114
  Impact of foreign exchange rate changes.................              (3,650)
                                                                ----------------
  Ending balance..........................................          (2,234,359)
                                                                ----------------
Construction in process:
   Beginning balance......................................              60,324
   Current development....................................              40,081
   Newly developed facilities opened for operation........             (51,861)
  Deconsolidation of Shurgard Europe (Note 3) ............             (10,886)
   Impact of foreign exchange rate changes................                 956
                                                                ----------------
   Ending balance.........................................              38,614
                                                                ----------------
 Total real estate facilities.............................        $  7,909,451
                                                                ================

              During the six months  ended June 30,  2008,  we completed a newly
     developed facility with approximately  49,000 net rentable square feet at a
     total cost of $5,592,000 and three expansion  projects in the U.S. which in
     aggregate  added   approximately   166,000  net  rentable  square  feet  of
     self-storage  space at a total cost of  $12,806,000.  During the six months
     ended June 30, 2008, we acquired two self-storage facilities (approximately
     211,000 net  rentable  square feet) in the U.S.  from third  parties for an
     aggregate  cost of  $31,242,000,  consisting  of  $20,992,000  in cash  and
     assumed  mortgage  debt  totaling  $10,250,000.   The  aggregate  cost  was
     allocated   $29,547,000  to  real  estate   facilities  and  $1,695,000  to
     intangibles,  based upon the  estimated  relative  fair values of the land,
     buildings and intangibles.

                                       18


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

              Also in the  three  months  ended  March  31,  2008,  prior to its
     deconsolidation,  Shurgard Europe completed three  development  projects in
     Europe which in aggregate added  approximately  166,000 net rentable square
     feet of self-storage space at a total cost of $33,463,000.

              Construction  in process at June 30, 2008 includes the development
     costs  relating  to 25  projects  (1,066,000  net  rentable  square  feet),
     consisting of newly developed self-storage facilities,  conversion of space
     at  facilities  that was  previously  used for  containerized  storage  and
     expansions  to existing  self-storage  facilities,  with costs  incurred of
     $38,614,000  at June 30,  2008 and total  estimated  costs to  complete  of
     $71,063,000.

              From time to time,  our  facilities  are  subject to  condemnation
     proceedings,  resulting  in disposal  of a portion  or, in some cases,  the
     entire  facility.  In  addition,  we dispose  of unused  parcels of land in
     certain  cases.  When an entire  real estate  facility is disposed  of, the
     operating results of these disposed facilities,  including the gain on sale
     are classified in discontinued operations on our consolidated statements of
     income for all  periods  presented.  During  the six months  ended June 30,
     2008, we received proceeds for partial condemnations and other disposals to
     certain of our  self-storage  facilities  for an  aggregate of $493,000 and
     recorded a loss of $92,000  as a result of these  transactions.  During the
     six  months  ended  June  30,  2007,  we  received   proceeds  for  partial
     condemnations and other disposals to certain of our self-storage facilities
     for an  aggregate of  $2,242,000  and  recorded a gain of  $1,044,000  as a
     result  of these  transactions.  In  connection  with  the sale of  limited
     liability partner interests in Shurgard Europe (Note 9), we also recorded a
     gain of  $1,194,000  for the  three and six  months  ended  June 30,  2007,
     representing  the excess of the sales  proceeds  less the book value of the
     interests sold. The gain is reflected in gain on disposition of real estate
     investments  on  our  accompanying  condensed  consolidated  statements  of
     income.

              We  capitalize  interest  incurred  on debt  during  the course of
     construction of our self-storage  facilities.  Interest capitalized for the
     three and six  months  ended June 30,  2008 was  $434,000  and  $1,182,000,
     respectively,  as compared to $973,000 and  $1,714,000 for the same periods
     in 2007.

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

              For the three and six months  ended June 30, 2008,  we  recognized
     earnings from our  investments  in real estate  entities of $4,632,000  and
     $7,361,000,  respectively, as compared to $2,782,000 and $6,759,000 for the
     same periods in 2007.  For the six months ended June 30, 2008 and 2007,  we
     received  cash   distributions   totaling   $19,149,000  and   $10,535,000,
     respectively.

              Our investments in real estate entities  increased by $309,514,000
     due to (i) the  deconsolidation  of Shurgard  Europe  which  increased  our
     investment by $289,282,000,  representing  our remaining 49% interest,  and
     (ii) additional  investments totaling $32,911,000,  offset by (iii) foreign
     currency  translation  adjustments  totaling  $891,000 and distributions in
     excess of equity in earnings totaling $11,788,000.

              The following  table sets forth our investments in the real estate
     entities at June 30, 2008 and December 31, 2007, and our equity in earnings
     of real estate  entities  for the three and six months  ended June 30, 2008
     and 2007 (amounts in thousands):

                                       19


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)




                                                                    Equity in Earnings of Real    Equity in Earnings of Real
                                   Investments in Real Estate        Estate Entities for the      Estate Entities for the Six
                                          Entities at              Three Months Ended June 30,       Months Ended June 30,
                                -------------------------------    ----------------------------   ----------------------------
                                   June 30,        December 31,
                                     2008              2007            2008           2007            2008           2007
                                -------------      -------------   -------------   ------------   ------------    ------------
                                                                                                
PSB..........................   $   267,713        $     273,717    $     2,847    $     2,224    $     5,192     $     5,714
Shurgard Europe..............       316,483                    -          1,457              -          1,457               -
Other Investments............        32,061               33,026            328            558            712           1,045
                                -------------      -------------   -------------   ------------   ------------    ------------
  Total......................   $   616,257        $     306,743    $     4,632    $     2,782    $     7,361     $     6,759
                                =============      =============   =============   ============   ============    ============


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

              PS Business  Parks,  Inc. is a REIT traded on the  American  Stock
     Exchange, which controls an operating partnership  (collectively,  the REIT
     and the  operating  partnership  are  referred to as "PSB").  We have a 46%
     common  equity  interest in PSB as of June 30,  2008.  This  common  equity
     interest is comprised of our ownership of 5,418,273  shares of PSB's common
     stock and 7,305,355 limited partnership units in the operating  partnership
     at both June 30, 2008 and December 31, 2007. The limited  partnership units
     are  convertible  at  our  option,  subject  to  certain  conditions,  on a
     one-for-one  basis into PSB common  stock.  Based upon the closing price at
     June 30, 2008 ($51.60 per share of PSB common stock),  the shares and units
     had a market value of  approximately  $656.5  million as compared to a book
     value of $267.7 million.

              At June 30, 2008, PSB owned  approximately  19.6 million  rentable
     square feet of commercial space. In addition,  PSB manages commercial space
     owned by the Company  and the  Consolidated  Entities  pursuant to property
     management agreements.

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



                                                              2008              2007
                                                         ---------------   ----------------
                                                            (Amounts in thousands)
 For the six months ended June 30,
 --------------------------------
                                                                      
   Total operating revenue.............................. $      140,929     $      132,764
   Costs of operations and other operating expenses.....        (48,560)           (45,275)
   Other income and expense, net........................         (1,373)               871
   Depreciation and amortization........................        (50,567)           (46,556)
   Minority interest....................................         (6,491)            (6,675)
                                                         ---------------   ----------------
     Net income......................................... $       33,938     $       35,129
                                                         ===============   ================





                                                           At June 30,      At December 31,
                                                              2008               2007
                                                         ---------------   ----------------
                                                              (Amounts in thousands)

                                                                      
   Total assets (primarily real estate)................. $    1,485,301     $    1,516,583
   Total debt...........................................         60,037             60,725
   Other liabilities....................................         49,829             51,058
   Preferred equity and preferred minority interests....        811,000            811,000
   Common equity and common minority interests..........        564,435            593,800


                                       20


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

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

              As  described  more fully in Note 3, at June 30, 2008 we had a 49%
     equity  investment in Shurgard Europe. As a result of our disposition of an
     interest in Shurgard Europe,  we  deconsolidated  Shurgard Europe effective
     March 31, 2008.

              For the quarter ended June 30, 2008 following the  deconsolidation
     of Shurgard  Europe,  we reflected an aggregate of  $1,457,000 in equity in
     earnings of real estate  entities.  In  addition,  included in interest and
     other income is an aggregate of $6,532,000  related to the notes payable by
     Shurgard Europe and trademark license fees payable to Public Storage. While
     interest and trademark  license fees were charged prior to April 1, 2008 to
     Shurgard Europe, these amounts were eliminated in consolidation. During the
     three months ended June 30, 2008,  our  investment  in Shurgard  Europe was
     decreased by approximately $891,000 due to the impact of changes in foreign
     currency exchange rates primarily between the Euro and the U.S. Dollar.

              The  $6,532,000  in interest  and other  income  reflected  on our
     statement  of  operations  reflects  the gross  amount  charged to Shurgard
     Europe for interest and license fees  totaling  $12,390,000  and  $418,000,
     respectively,   less  our  pro-rata   portion  of  these  amounts  totaling
     $6,071,000  and  $205,000,  respectively,  which are reflected as equity in
     earnings of real estate entities rather than interest and other income.

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

              Amounts  for  all  periods  are  presented,  notwithstanding  that
     Shurgard Europe was deconsolidated  effective March 31, 2008.  Accordingly,
     except  for the three  months  ended June 30,  2008,  all  amounts  (net of
     intercompany  eliminations)  are  included  in our  condensed  consolidated
     financial  statements  and are not  reflected  as a component  of equity in
     earnings,  in the case of our condensed  consolidated income statement,  or
     investment  in  real  estate  entities,   in  the  case  of  our  condensed
     consolidated balance sheet.



                                                        For the Three Months Ended June 30,  For the Six Months Ended June 30,
                                                        -----------------------------------  ---------------------------------
                                                              2008              2007             2008             2007
                                                        ----------------   ----------------  -------------   -----------------
                                                                               (Amounts in thousands)

                                                                                                 
   Self-storage revenues (a)............................   $    57,758     $   45,840        $   112,480     $    88,886
   Ancillary revenues...................................         5,628          4,304             10,541           8,064
   Interest and other income............................           379            230                437             238
   Self-storage cost of operations (b)..................       (25,895)       (22,915)           (50,549)        (45,300)
   Ancillary cost of operations.........................        (1,604)        (1,353)            (3,013)         (2,690)
   Trademark license fee payable to Public Storage......          (418)             -             (1,060)              -
   Depreciation and amortization........................       (25,604)       (38,564)           (47,475)        (76,836)
   General and administrative (c).......................        (2,390)       (12,455)            (7,034)        (14,719)
   Interest expense on third party debt (d).............        (6,977)        (5,232)           (13,574)        (10,330)
   Interest expense on debt to Public Storage...........       (12,390)        (9,367)           (22,798)        (19,016)
   Income from foreign exchange and derivatives, net ...            43          1,900                  -             636
   Discontinued operations..............................             -           (130)                 -            (334)
   Minority interest (e)................................         1,636          1,973              3,778           5,785
                                                        ----------------   ----------------  -------------   -----------------
     Net loss...........................................   $    (9,834)    $  (35,826)       $   (18,267)    $   (65,722)
                                                        ================   ================  =============   =================


                                       21


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

                                                    At June 30,  At December 31,
                                                       2008            2007
                                                   ------------- ---------------
                                                     (Amounts in thousands)

   Total assets (primarily storage facilities)..... $ 1,803,514   $1,774,037
   Total debt to third parties.....................     415,844      384,045
   Total debt to Public Storage....................     618,724      561,182
   Other liabilities...............................      88,369       95,444
   Equity..........................................     680,577      733,366

     (a) Revenues   for  the  three  and  six  months   ended  June  30,   2008,
         respectively,  include  $19,349,000  and  $37,136,000  with  respect to
         facilities  owned  by  the  Existing   European  Joint  Ventures,   and
         $12,942,000 and $24,803,000 for the same periods in 2007.

     (b) Cost of  operations  for the three and six months  ended June 30, 2008,
         respectively,  include  $10,835,000  and  $21,156,000  with  respect to
         facilities  owned  by  the  Existing   European  Joint  Ventures,   and
         $9,041,000 and $18,347,000 for the same periods in 2007.

     (c) General and  administrative  expense for the six months  ended June 30,
         2008  includes  approximately  $2.5 million in incentive  compensation,
         while  general and  administrative  expense for the same period in 2007
         includes $9.6 million in expenses associated with an offering of shares
         in Shurgard Europe.

     (d) Represents  interest  expense  on  third-party  debt as well as capital
         leases.  At June 30,  2008,  $408,036,000  of such  debt is held by the
         Existing European Joint Ventures.

     (e) Minority  interest  in  income  includes   $3,448,000  and  $6,632,000,
         respectively,  in depreciation and  amortization  expense for the three
         and six months  ended June 30, 2008,  and  $2,774,000  and  $5,607,000,
         respectively, for the same periods in 2007.

              Our equity in  earnings of  Shurgard  Europe for the three  months
     ended June 30,  2008,  totaling  $1,457,000  is  comprised of (i) a loss of
     $4,819,000,   representing  our  49%  equity  share  of  Shurgard  Europe's
     $9,834,000  net loss for the  three  months  ended  June 30,  2008 and (ii)
     income of $6,071,000 and $205,000, respectively,  representing our pro rata
     share of the  interest  income and  trademark  license fees  received  from
     Shurgard  during the three  months  ended June 30,  2008 (such  amounts are
     presented  as  equity in  earnings  of real  estate  entities  rather  than
     interest and other income).

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

              At June 30, 2008,  other  investments  include an aggregate common
     equity ownership of approximately 28% in six entities that own an aggregate
     of 28 self-storage facilities.  As described more fully in Note 16, on July
     21, 2008 we acquired the remaining  interests that we did not own in two of
     these facilities.  These two facilities had aggregate  revenues of $735,000
     and $718,000 for the six months ended June 30, 2008 and 2007, respectively;
     cost of  operations  of $268,000 and $250,000 for the six months ended June
     30, 2008 and 2007,  respectively,  and  depreciation  and  amortization  of
     $144,000  and  $138,000  for the six months  ended June 30,  2008 and 2007,
     respectively.

              The  following  table  sets  forth  certain  condensed   financial
     information  (representing 100% of these entities' balances and not our pro
     rata share) with  respect to these other  investments  that we held at June
     30, 2008:

                                       22


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

                                               2008             2007
                                          --------------  ----------------
                                              (Amounts in thousands)
 For the six months ended June 30,
 --------------------------------
 Total revenue........................     $   10,903      $   10,517
 Cost of operations and other expenses         (4,966)         (4,571)
 Depreciation and amortization........         (2,234)         (1,784)
                                          --------------  ----------------
     Net income.......................     $    3,703      $    4,162
                                          ==============  ================

                                            At June 30,   At December 31,
                                               2008            2007
                                          --------------  ----------------
                                                 (Amounts in thousands)

 Total assets (primarily storage
     facilities)......................     $   76,294    $   75,903
 Total debt...........................         12,326        12,409
 Total accrued and other liabilities..          1,452           774
 Total Partners' equity...............         62,516        62,720

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

              On March 27, 2007,  we entered into a five-year  revolving  credit
     agreement (the "Credit  Agreement") with an aggregate limit with respect to
     borrowings  and  letters of credit of $300  million.  Amounts  drawn on the
     Credit  Agreement  bear an annual  interest  rate  ranging  from the London
     Interbank  Offered Rate ("LIBOR") plus 0.35% to LIBOR plus 1.00%  depending
     on our credit ratings (LIBOR plus 0.35% at June 30, 2008). In addition,  we
     are  required to pay a quarterly  facility fee ranging from 0.10% per annum
     to 0.25% per annum depending on our credit ratings (0.10% per annum at June
     30, 2008). We had no outstanding borrowings on our Credit Agreement at June
     30, 2008 or at August 8, 2008.

              The  Credit  Agreement  includes  various   covenants,   the  more
     significant  of which  require  us to (i)  maintain  a  leverage  ratio (as
     defined  therein) of less than 0.55 to 1.00,  (ii)  maintain  certain fixed
     charge and interest  coverage ratios (as defined  therein) of not less than
     1.5 to 1.0 and 1.75 to 1.0,  respectively,  and  (iii)  maintain  a minimum
     total shareholders' equity (as defined therein). We were in compliance with
     all covenants of the Credit Agreement at June 30, 2008.

              At June 30, 2008, we had undrawn standby letters of credit,  which
     reduce our borrowing  capability  with respect to our line of credit by the
     amount of the  letters  of credit,  totaling  $17,736,000  ($20,408,000  at
     December 31, 2007).  The  beneficiaries  of these standby letters of credit
     were primarily  certain  insurance  companies  associated  with our captive
     insurance and tenant re-insurance activities.


                                       23


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

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

              The carrying amounts of our notes payable at June 30, 2008 and
     December 31, 2007 consist of the following (dollar amounts in thousands):




                                                                                  June 30,       December 31,
                                                                                    2008             2007
                                                                               --------------    --------------
  DOMESTIC UNSECURED NOTES PAYABLE:

  5.875%   effective  and  stated  note  rate,   interest  only  and  payable
                                                                                           
     semi-annually, matures in March 2013................................      $     200,000      $   200,000
  5.73%  effective rate,  7.75% stated note rate,  interest only and payable
     semi-annually,  matures in  February  2011  (carrying  amount  includes
     $9,246 of unamortized premium at June 30, 2008) ....................            209,246          210,905

  SECURED DEBT:

  5.47% average effective rate fixed rate mortgage notes payable, secured by 89
     real estate facilities with a net book value of $604,560 at June 30, 2008
     and stated note rates between 4.95% and 8.75%, maturing at varying dates
     between July 2008 and August 2015 (carrying amount includes $6,434 of
    unamortized premium at June 30, 2008) ...............................            242,695          236,897
  First  Shurgard  credit  agreement,  due originally in 2008 but extended to
     May 2009............................................................                  -          189,064
  Second Shurgard credit agreement, due in July 2009.....................                  -          187,665
  Shurgard Europe's liability under Capital Leases.......................                  -            7,316
                                                                               --------------    --------------
         Total notes payable.............................................      $     651,941      $ 1,031,847
                                                                               ==============    ==============


              All of our  notes  payable  represent  preexisting  debt  that  we
     assumed in connection  with the  acquisition  of real estate  facilities or
     business combinations. The Domestic Unsecured Notes Payable and the Secured
     Debt were recorded at their  estimated fair values upon  acquisition  based
     upon  estimated  market rates for debt  instruments  with similar terms and
     ratings.  Any initial  premium or  discount,  representing  the  difference
     between the stated  note rate and  estimated  fair value on the  respective
     date of assumption, is being amortized over the remaining term of the notes
     using the effective  interest method.  During the six months ended June 30,
     2008, we assumed mortgage debt totaling  $10,250,000 in connection with the
     acquisition  of a real estate  facility  (Note 4). This mortgage debt had a
     stated note balance of $9,776,000, and we recorded a premium,  representing
     the differential between the fair value of the mortgage note and the stated
     note balance of $474,000.

              The Domestic  Unsecured  Notes  Payable  have various  restrictive
     covenants, the more significant of which require us to (i) maintain a ratio
     of debt to total  assets (as  defined  therein)  of less than 0.60 to 1.00,
     (ii) maintain a ratio of secured debt to total assets (as defined  therein)
     of less than 0.40 to 1.00, (iii) maintain a debt service coverage ratio (as
     defined therein) of greater than 1.50 to 1.00, and (iv) maintain a ratio of
     unencumbered  assets to unsecured debt (as defined therein) of greater than
     150%, all of which have been met at June 30, 2008.

              The Secured Debt outstanding at June 30, 2008 require interest and
     principal  payments  to  be  paid  monthly  and  have  various  restrictive
     covenants, all of which we believe have been met at June 30, 2008.

                                       24


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

              First  Shurgard  and Second  Shurgard,  in each of which  Shurgard
     Europe has a 20% interest, have senior credit agreements that were put into
     place, prior to our acquisition of an interest in Shurgard Europe through a
     business  combination in August 2006, to fund development  costs of various
     self-storage projects. On March 31, 2008, we deconsolidated Shurgard Europe
     and, as a result,  the related notes payable owed by the Existing  European
     Joint Ventures are no longer included in our consolidated balance sheet.

              At June 30, 2008,  approximate  principal  maturities of our notes
     payable are as follows (amounts in thousands):

                                       Domestic       Domestic
                                      Unsecured    Mortgage Notes
                                    Notes Payable      Payable        Total
                                  --------------- ---------------- ------------
2008 (remainder of)..........     $      1,831    $     19,094     $    20,925
2009.........................            3,821           8,909          12,730
2010.........................            4,046          10,797          14,843
2011.........................          199,548          27,581         227,129
2012.........................                -          55,336          55,336
Thereafter...................          200,000         120,978         320,978
                                  --------------- ---------------- -----------
                                  $    409,246    $    242,695     $   651,941
                                  =============== ================ ============
Weighted average effective rate          5.8%            5.5%            5.7%
                                  =============== ================ ============

              We incurred  interest  expense with respect to our notes  payable,
     capital  leases,   debt  to  joint  venture  partner  and  line  of  credit
     aggregating  $27,270,000  and $35,229,000 for the six months ended June 30,
     2008 and 2007,  respectively.  These amounts were  comprised of $29,704,000
     and  $37,558,000  in cash for the six months  ended June 30, 2008 and 2007,
     respectively, less $2,434,000 and $2,329,000 in amortization of premium net
     of  increase  in  Debt  to  Joint  Venture  Partner  described  in  Note 8,
     respectively.

8.   Acquisition Joint Venture
     -------------------------

              In January 2004, we entered into a joint venture  partnership (the
     "Acquisition Joint Venture") with an institutional investor for the purpose
     of  acquiring  existing  self-storage  properties.  The  Acquisition  Joint
     Venture is funded  entirely with equity  consisting of 30% from the Company
     and 70% from the institutional investor.  Under the partnership agreements,
     we had an option to acquire the institutional investor's interest for a six
     month period beginning July 1, 2008.

              We determined that the Acquisition Joint Venture is not a variable
     interest entity,  and we do not control this entity.  Therefore,  we do not
     consolidate  the  accounts  of  the   Acquisition   Joint  Venture  on  our
     consolidated  financial  statements.  The Acquisition Joint Venture owns 12
     facilities at June 30, 2008.

              The Acquisition Joint Venture had acquired two of these facilities
     directly  from third parties in 2004.  We account for our  investment  with
     respect to these two facilities using the equity method,  with our pro rata
     share of the income from these  facilities  recorded as "Equity in earnings
     of real estate  entities" on our  consolidated  statements  of income,  and
     these facilities are included in the Other Investments in Note 5.

              The  Acquisition   Joint  Venture  had  purchased  the  other  ten
     facilities  it owns  directly  from us in 2004.  The  purchase of these ten
     facilities  did not  qualify  under FAS 66 as a  completed  sale due to our
     continued involvement and, due to the likelihood that we would exercise our

                                       25


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

     option to acquire our  partner's  interest,  we account  for our  partner's
     investment  in these ten  facilities  as,  in  substance,  debt  financing.
     Accordingly,  our partner's  investment with respect to these facilities is
     accounted  for as  Debt  to  Joint  Venture  Partner  on  our  accompanying
     condensed  consolidated  balance sheets.  Our partner's share of operations
     with respect to these facilities has been accounted for as interest expense
     on our accompanying condensed consolidated statements of income.

              The outstanding balances of Debt to Joint Venture Partner totaling
     $38,398,000  and  $38,081,000  as of June 30, 2008 and  December  31, 2007,
     respectively,  are estimated at fair value. On a quarterly basis, we review
     the fair value of this liability,  and to the extent fair value exceeds the
     carrying  value of the  liability  we record  adjustments  to increase  the
     liability  to fair value,  and to  increase  other  assets,  with the other
     assets  amortized over the remaining  period term of the joint venture.  We
     determine the fair value of this  liability  based upon our estimate of the
     fair value of the underlying net assets  (principally  real estate assets),
     applying the related liquidation  provisions of the partnership  agreement.
     We determine the fair value of the  underlying  real estate by reference to
     the historical  operating  results,  and apply an estimate of the effective
     earnings  multiple based upon our review of market  transactions  and other
     market  data.  We  increased  the note  balance by $224,000  during the six
     months  ended  June 30,  2008 as a result  of our  periodic  review of fair
     value.  The  remainder  of the increase in fair value from  $38,081,000  at
     December 31, 2007 to $38,398,000 at June 30, 2008 is due principally to the
     excess of interest expense (as described below) over interest paid.

              A total of  $1,618,000  and  $1,583,000  was  recorded as interest
     expense on our condensed consolidated  statements of income with respect to
     our Debt to Joint Venture Partner during the six months ended June 30, 2008
     and 2007,  respectively,  representing  our partner's pro rata share of net
     earnings with respect to the  properties we sold to the  Acquisition  Joint
     Venture (an 8.5% return on their  investment).  This  interest  expense was
     comprised of a total of $1,525,000 and $1,492,000 paid to our joint venture
     partner  (an  8.0%  return  payable   currently  in  accordance   with  the
     partnership  agreement) during the six months ended June 30, 2008 and 2007,
     respectively, and increases in the Debt to Joint Venture Partner of $93,000
     and $91,000 for the six months ended June 30, 2008 and 2007, respectively.

              As  described  more fully in Note 16, on July 21, 2008 we acquired
     the institutional investor's interest in the Acquisition Joint Venture.

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

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

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

              The following  table  summarizes the preferred  partnership  units
     outstanding at June 30, 2008 and December 31, 2007:



                                                             June 30, 2008             December 31, 2007
                                                        -------------------------  --------------------------
                    Earliest Redemption   Distribution     Units       Carrying       Units        Carrying
      Series                Date              Rate      Outstanding     Amount     Outstanding      Amount
- ------------------  --------------------  ------------  -----------   -----------  -----------    -----------
                                                                       (Amounts in thousands)
                                                                                
Series NN........        March 17, 2010        6.400%        8,000    $   200,000       8,000     $   200,000
Series Z.........      October 12, 2009        6.250%        1,000         25,000       1,000          25,000
Series J.........           May 9, 2011        7.250%        4,000        100,000       4,000         100,000
                                                        -----------   -----------  -----------    -----------
Total............                                           13,000    $   325,000      13,000     $   325,000
                                                        ===========   ===========  ===========    ===========


                                       26


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

              Income  allocated  to the  preferred  minority  interests  totaled
     $5,403,000 and  $10,806,000 for each of the three and six months ended June
     30, 2008 and 2007, respectively, comprised of distributions paid.

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

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

              Income is allocated to the minority interests based upon their pro
     rata interest in the operating  results of the Consolidated  Entities.  The
     following  tables set forth the  minority  interests  at June 30,  2008 and
     December 31, 2007 as well as the income allocated to minority interests for
     the three and six months  ended June 30, 2008 and 2007 with  respect to the
     other partnership interests:

                                              Minority Interest at
                                          ------------------------------
                                            June 30,        December 31,
     Description of Minority Interest         2008               2007
     ----------------------------------   -------------    -------------
                                             (Amounts in thousands)
     Existing European Joint Ventures..    $       -        $    140,385
     PS Officers' Europe Investment....            -               3,520
     Convertible Partnership Units.....        5,967               5,516
     Other consolidated partnerships...       32,409              32,267
                                          -------------    -------------
     Total other partnership interests.    $  38,376        $    181,688
                                          =============    =============



                                         Minority Interests in Income    Minority Interests in Income
                                                    (Loss)                          (Loss)
                                         for the Three Months Ended      for the Six Months Ended
                                         ----------------------------  -------------------------------
                                          June 30,       June 30,        June 30,      June 30,
                Description                 2008           2007            2008          2007
     ---------------------------------   -----------   --------------  ------------  -----------------
                                                               (Amounts in thousands)
                                                                          
     Existing European Joint Ventures.    $       -     $  (2,065)      $  (2,142)    $  (5,819)
     PS Officers' Europe Investment...            -             -            (111)            -
     Convertible Partnership Units....           94            19             706            11
     Other consolidated partnerships..        4,645         4,167           8,482         8,309
                                         -----------   --------------  ------------  -----------------
     Total other partnership interests    $   4,739     $   2,121       $   6,935     $   2,501
                                         ===========   ==============  ============  =================


              Distributions  paid to  minority  interests  for the three  months
     ended June 30, 2008 and 2007 were $4,074,000 and $4,856,000,  respectively,
     and for the six months  ended June 30,  2008 and 2007 were  $8,595,000  and
     $10,357,000,  respectively.  Minority  interests  increased  $7,249,000 and
     $1,917,000 as a result of the impact of foreign currency translation in the
     six months ended June 30, 2008 and 2007, respectively.

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

              Through the Shurgard Merger,  we acquired an interest in two joint
     venture entities:  First Shurgard SPRL ("First Shurgard") formed in January

                                       27


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

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

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

              In the  second  quarter  of 2007,  we sold an  approximately  0.6%
     common  equity  interest  in  Shurgard  Europe to various  officers  of the
     Company (the "PS Officers"),  other than our chief executive  officer.  The
     aggregate  proceeds  of the sale were  $4,909,000.  The sale  price for the
     interests was based upon the pro rata net asset value computed using, among
     other sources, information provided by an independent third party appraisal
     firm of the net asset value of  Shurgard  Europe as of March 31,  2007.  In
     connection  with the sale of these LLP  Interests,  we  recorded  a gain of
     $1,194,000  during the second quarter of 2007,  representing  the excess of
     the sales  proceeds  over the book  value of the LLP  Interests  sold.  For
     periods  commencing  from the sale of the interest  through March 31, 2008,
     the PS  Officers'  pro rata share of the  earnings of  Shurgard  Europe are
     reflected in minority interest in income - other  partnership  interests on
     our accompanying condensed consolidated statement of income.

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

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

              At June 30, 2008 and December 31,  2007,  one of the  Consolidated
     Entities  had   approximately   231,978   convertible   partnership   units
     ("Convertible  Units")  outstanding   representing  a  limited  partnership
     interest  in  the  entity.  The  Convertible  Units  are  convertible  on a
     one-for-one  basis (subject to certain  limitations)  into common shares of
     the Company at the option of the unit-holder.  Minority  interest in income
     with respect to Convertible Units reflects the Convertible  Units' share of
     our net  income,  with net income  allocated  to  minority  interests  with
     respect to weighted  average  outstanding  Convertible  Units on a per unit
     basis equal to diluted earnings per common share.

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

              At June 30, 2008 and  December 31,  2007,  the other  consolidated
     partnerships  reflect  common  equity  interests  that  we do not own in 33
     entities  (generally  partnerships)  that own in aggregate 177 self-storage
     facilities.  The related partnership agreements have termination dates that
     cannot be  unilaterally  extended by the Company and, upon  termination  of
     each partnership,  the net assets of these entities would be liquidated and
     paid to the minority  interests and the Company  based upon their  relative
     ownership interests.

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

              In May 2003,  the FASB issued  Statement of  Financial  Accounting
     Standards  No. 150 - "Accounting  for Certain  Financial  Instruments  with

                                       28


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

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

              The  provisions of SFAS No. 150 indicate  that the Other  Minority
     Interests  would  have  to  be  treated  as  a  liability,   because  these
     partnerships have termination dates that cannot be unilaterally extended by
     us and,  upon  termination,  the net  assets  of  these  entities  would be
     liquidated  and paid to the minority  interest  and us based upon  relative
     ownership  interests.  However,  on October 29,  2003,  the FASB decided to
     defer  indefinitely a portion of the  implementation of SFAS No. 150, which
     thereby  deferred our  requirement  to recognize  these  minority  interest
     liabilities.  We  estimate  that the fair  values of the Other  Partnership
     Interests are approximately  $311 million and $532 million at June 30, 2008
     and December 31, 2007, respectively. The decrease between December 31, 2007
     and  June  30,  2008  is due to the  deconsolidation  of  Shurgard  Europe,
     accordingly, the fair value of the Existing European Joint Ventures and the
     PS  Officers'  Europe  Investment  is not  included  in the June  30,  2008
     estimated fair value. We determine the fair value of the Other  Partnership
     Interests  based upon our estimate of the fair value of the  underlying net
     assets  (principally real estate assets),  applying the related liquidation
     provisions  of the related  partnership  agreement.  We determine  the fair
     value  of the  underlying  real  estate  by  reference  to  the  historical
     operating results, and apply an estimate of the effective earnings multiple
     based upon our review of market transactions and other market data.


                                       29


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

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

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

              At June 30,  2008 and  December  31,  2007,  we had the  following
     series of Cumulative Preferred Shares of beneficial interest outstanding:


                                                At June 30, 2008             At December 31, 2007
                    Earliest               --------------------------     --------------------------
                   Redemption   Dividend      Shares        Carrying         Shares         Carrying
       Series         Date        Rate      Outstanding      Amount        Outstanding       Amount
- ----------------  ------------  ---------- ------------  ------------     ------------  ------------
                                                     (Dollar amounts in thousands)
                                                                      
Series V            9/30/07      7.500%         6,900    $   172,500           6,900    $   172,500
Series W            10/6/08      6.500%         5,300        132,500           5,300        132,500
Series X           11/13/08      6.450%         4,800        120,000           4,800        120,000
Series Y             1/2/09      6.850%     1,600,000         40,000       1,600,000         40,000
Series Z             3/5/09      6.250%         4,500        112,500           4,500        112,500
Series A            3/31/09      6.125%         4,600        115,000           4,600        115,000
Series B            6/30/09      7.125%         4,350        108,750           4,350        108,750
Series C            9/13/09      6.600%         4,600        115,000           4,600        115,000
Series D            2/28/10      6.180%         5,400        135,000           5,400        135,000
Series E            4/27/10      6.750%         5,650        141,250           5,650        141,250
Series F            8/23/10      6.450%        10,000        250,000          10,000        250,000
Series G           12/12/10      7.000%         4,000        100,000           4,000        100,000
Series H            1/19/11      6.950%         4,200        105,000           4,200        105,000
Series I             5/3/11      7.250%        20,700        517,500          20,700        517,500
Series K             8/8/11      7.250%        18,400        460,000          18,400        460,000
Series L           10/20/11      6.750%         9,200        230,000           9,200        230,000
Series M             1/9/12      6.625%        20,000        500,000          20,000        500,000
Series N             7/2/12      7.000%         6,900        172,500           6,900        172,500
                                           ------------  ------------     ------------  ------------
     Total Cumulative Preferred Shares      1,739,500    $ 3,527,500       1,739,500    $ 3,527,500
                                           ============  ============     ============  ============



              The  holders  of our  Cumulative  Preferred  Shares  have  general
     preference rights with respect to liquidation and quarterly  distributions.
     Holders of the preferred  shares,  except under certain  conditions  and as
     noted below, will not be entitled to vote on most matters.  In the event of
     a cumulative  arrearage  equal to six quarterly  dividends,  holders of all
     outstanding  series of preferred  shares  (voting as a single class without
     regard to series)  will have the right to elect two  additional  members to
     serve on the  Company's  Board until events of default have been cured.  At
     June 30, 2008, there were no dividends in arrears.

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

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

              The Company is  authorized to issue  100,000,000  Equity Shares of
     beneficial   interest.   The  Articles  of  Amendment  and  Restatement  of

                                       30


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

     Declaration of Trust provide that the Equity Shares may be issued from time
     to time in one or more series and give our Board broad authority to fix the
     dividend and distribution rights,  conversion and voting rights, redemption
     provisions and liquidation rights of each series of Equity Shares.

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

              At  June  30,  2008  and  December  31,  2007,  we  had  8,744,193
     depositary  shares  outstanding,  each  representing  1/1,000  of an Equity
     Share,  Series A ("Equity  Shares A").  The Equity  Shares A rank on parity
     with our common shares and junior to the Cumulative  Preferred  Shares with
     respect to general  preference  rights and have a liquidation  amount which
     cannot  exceed  $24.50  per  share.  Distributions  with  respect  to  each
     depositary  share  shall be the  lesser  of:  (i) five  times the per share
     dividend  on our  common  shares  or  (ii)  $2.45  per  annum.  We  have no
     obligation  to  pay   distributions   on  the   depositary   shares  if  no
     distributions are paid to common shareholders.

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

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

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

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

              During  the six  months  ended June 30,  2008,  we issued  172,190
     common shares in connection with employee stock-based compensation.

              Our Board of Trustees  previously  authorized the repurchase  from
     time to time of up to 25,000,000 of our common shares on the open market or
     in privately  negotiated  transactions.  On May 8, 2008, such authorization
     was increased to 35,000,000 common shares. During the six months ended June
     30, 2008,  we  repurchased a total of 1,520,196 of our common shares for an
     aggregate of approximately  $111.9 million.  Through June 30, 2008, we have
     repurchased a total of  23,721,916  of our common  shares  pursuant to this
     authorization.

              At June 30,  2008 and  December  31,  2007,  certain  entities  we
     consolidate  owned  1,146,207  common shares.  These shares  continue to be
     legally issued and outstanding.  In the consolidation process, these shares
     and the related  balance sheet amounts have been  eliminated.  In addition,
     these shares are not included in the computation of weighted average shares
     outstanding.

              Dividends
              ---------

              The following table summarizes  dividends declared and paid during
     the six months ended June 30, 2008:

                                       31


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

                                           Distributions
                                           Per Share or         Total
                                         Depositary Share   Distributions
                                         ----------------  --------------
Preferred Shares:
Series V..............................        $0.937       $   6,468,000
Series W..............................        $0.812           4,306,000
Series X..............................        $0.806           3,870,000
Series Y..............................        $0.856           1,370,000
Series Z..............................        $0.781           3,516,000
Series A..............................        $0.766           3,522,000
Series B..............................        $0.891           3,874,000
Series C..............................        $0.825           3,796,000
Series D..............................        $0.773           4,172,000
Series E..............................        $0.844           4,768,000
Series F..............................        $0.806           8,062,000
Series G..............................        $0.875           3,500,000
Series H..............................        $0.869           3,649,000
Series I..............................        $0.906          18,760,000
Series K..............................        $0.906          16,674,000
Series L..............................        $0.844           7,762,000
Series M..............................        $0.828          16,561,000
Series N..............................        $0.875           6,036,000
                                                           --------------
                                                             120,666,000
Common Shares:
Equity Shares, Series A...............        $1.225          10,712,000
Common ...............................        $1.100         185,602,000
                                                           --------------
   Total dividends....................                     $ 316,980,000
                                                           ==============

              The dividend  rate on our common shares was $0.55 per common share
     and $1.10 per  common  share for the three and six  months  ended  June 30,
     2008, respectively. The dividend rate on the Equity Share A was $0.6125 per
     depositary  share and  $1.225  per  depositary  share for the three and six
     months ended June 30, 2008, respectively.

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

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

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

              Our   self-storage   segment   comprises  the  direct   ownership,
     development,  and operation of traditional  storage facilities in the U.S.,
     and the  ownership  of  equity  interests  in  entities  that  own  storage
     properties in the U.S., and our interest in the operations of a facility in
     London,  England. Our Shurgard Europe segment comprises our interest in the
     self-storage and associated  activities owned by Shurgard Europe.  See also
     Note  3 for  a  discussion  of  the  disposition  of an  interest  in,  and
     deconsolidation of, Shurgard Europe effective March 31, 2008.

              Our ancillary segment represents all of our other segments,  which
     are  reported  as  a  group,  including  (i)  containerized  storage,  (ii)
     commercial  property  operations,   which  reflects  our  interest  in  the
     ownership, operation, and management of commercial properties both directly

                                       32


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

     and through our interest in PSB (iii) the  reinsurance of policies  against
     losses to goods stored by tenants in our self-storage facilities, (iv) sale
     of merchandise  at our  self-storage  facilities,  (v) truck rentals at our
     self-storage   facilities  and  (vi)  management  of  facilities  owned  by
     third-party  owners and  domestic  facilities  owned by the  Unconsolidated
     Entities.

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

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

              Measurement of Segment Income (Loss) and Segment Assets - Shurgard
              ------------------------------------------------------------------
     Europe
     ------

              Shurgard  Europe's  operations  are primarily  independent  of our
     other segments,  with a separate  management team that makes the financing,
     capital  allocation,  and other significant  decisions.  As a result,  this
     segment is evaluated by  management  as a stand-alone  business  unit.  The
     Shurgard  Europe  segment  presentation   includes  all  of  the  revenues,
     expenses,  and operations of this business unit to the extent  consolidated
     in our financial statements,  and for periods following the deconsolidation
     of Shurgard  Europe,  the  presentation  below includes our equity share of
     Shurgard Europe's  operations,  the interest and other income received from
     Shurgard Europe,  as well as specific general and  administrative  expense,
     disposition  gains,  and foreign  currency  exchange  gains and losses that
     management  considers in evaluating our investment in Shurgard  Europe.  At
     December 31,  2007,  assets of Shurgard  Europe  include real estate with a
     book value of  approximately  $1.6 billion,  intangible  assets with a book
     value of approximately  $87 million,  and other assets with a book value of
     approximately  $57 million.  At December 31, 2007,  liabilities of Shurgard
     Europe include intercompany  payables of $561 million,  third party debt of
     $384 million, and accrued and other liabilities of $95 million. At June 30,
     2008,  our condensed  consolidated  balance sheet includes an investment in
     Shurgard  Europe with a book value of $316.5 million and a note  receivable
     totaling (euro)391.9 million ($618.7 million).

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

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


                                       33


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

For the three months ended June 30, 2008



                                                                                                     OTHER ITEMS
                                                                       SHURGARD                     NOT ALLOCATED        TOTAL
                                                     SELF STORAGE       EUROPE        ANCILLARY      TO SEGMENTS     CONSOLIDATED
                                                     -------------    -----------    ------------  ---------------  -------------
                                                                                  (Amounts in thousands)
REVENUES:
                                                                                                      
   Self-storage rental income....................     $   381,345     $        -      $        -      $        -     $   381,345
   Ancillary operating revenue...................               -              -          31,779               -          31,779
   Interest and other income.....................               -          6,532               -           4,482          11,014
                                                     -------------    -----------    ------------  ---------------  -------------
                                                          381,345          6,532          31,779           4,482         424,138
                                                     -------------    -----------    ------------  ---------------  -------------
EXPENSES:
  Cost of operations (excluding depreciation and
    amortization below):
      Self-storage facilities....................         128,354              -               -               -         128,354
      Ancillary operations.......................               -              -          18,109               -          18,109
  Depreciation and amortization..................          94,487              -             896               -          95,383
  General and administrative.....................               -         25,400               -           7,773          33,173
  Interest expense...............................               -              -               -           9,601           9,601
                                                     -------------    -----------    ------------  ---------------  -------------
                                                          222,841         25,400          19,005          17,374         284,620
                                                     -------------    -----------    ------------  ---------------  -------------
Income (loss) from continuing operations before
   equity in earnings of real estate entities,
   loss on disposition of other real estate
   investments, foreign currency exchange loss
   and minority interest in (income) loss........         158,504        (18,868)         12,774         (12,892)        139,518

Equity in earnings of real estate entities.......             328          1,457           2,847               -           4,632
Loss on disposition of other real estate
   investments...................................               -              -               -             (92)            (92)
Foreign currency exchange loss...................               -              -               -              (2)             (2)
Minority interest in (income) loss...............          (4,739)             -               -          (5,403)        (10,142)
                                                     -------------    -----------    ------------  ---------------  -------------
Income (loss) from continuing operations.........         154,093        (17,411)         15,621         (18,389)        133,914
Discontinued operations..........................               -              -               -            (101)           (101)
                                                     -------------    -----------    ------------  ---------------  -------------
Net income (loss)................................     $   154,093     $  (17,411)     $   15,621      $  (18,490)    $   133,813
                                                     =============    ===========    ============  ===============  =============


                                       34


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

For the three months ended June 30, 2007



                                                                                                     OTHER ITEMS
                                                                       SHURGARD                     NOT ALLOCATED        TOTAL
                                                     SELF STORAGE       EUROPE        ANCILLARY      TO SEGMENTS     CONSOLIDATED
                                                     -------------    -----------    ------------  ---------------  -------------
                                                                                  (Amounts in thousands)
REVENUES:
                                                                                                    
   Self-storage rental income....................     $  365,132      $  45,840      $       -      $       -       $  410,972
   Ancillary operating revenue...................              -          4,304         31,958              -           36,262
   Interest and other income.....................              -            230              -            725              955
                                                     -------------    -----------    ------------  ---------------  -------------
                                                         365,132         50,374         31,958            725          448,189
                                                     -------------    -----------    ------------  ---------------  -------------
EXPENSES:
  Cost of operations (excluding depreciation and
    amortization below):
      Self-storage facilities....................        126,222         22,915              -              -          149,137
      Ancillary operations.......................              -          1,353         18,999              -           20,352
  Depreciation and amortization..................        128,097         38,564            849              -          167,510
  General and administrative.....................              -         12,455              -          9,010           21,465
  Interest expense...............................              -          5,381              -         11,326           16,707
                                                     -------------    -----------    ------------  ---------------  -------------
                                                         254,319         80,668         19,848         20,336          375,171
                                                     -------------    -----------    ------------  ---------------  -------------
Income (loss) from continuing operations before
   equity in earnings of real estate entities,
   gain on disposition of other real estate
   investments, foreign currency exchange gain,
   income from derivatives and minority interest
   in (income) loss..............................        110,813        (30,294)        12,110        (19,611)          73,018

Equity in earnings of real estate entities.......            558              -              -          2,224            2,782
Gain on disposition of other real estate
   investments...................................              -              -              -          2,238            2,238
Foreign currency exchange gain...................              -          5,553              -              -            5,553
Income from derivatives, net.....................              -          1,771              -              -            1,771
Minority interest in (income) loss...............         (4,186)         2,065              -         (5,403)          (7,524)
                                                     -------------    -----------    ------------  ---------------  -------------
Income (loss) from continuing operations.........        107,185        (20,905)        12,110        (20,552)          77,838
Discontinued operations..........................              -           (130)             -           (604)            (734)
                                                     -------------    -----------    ------------  ---------------  -------------
Net income (loss)................................     $  107,185      $ (21,035)     $  12,110      $ (21,156)      $   77,104
                                                     =============    ===========    ============  ===============  =============



                                       35


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

For the six months ended June 30, 2008



                                                                                                     OTHER ITEMS
                                                                       SHURGARD                     NOT ALLOCATED        TOTAL
                                                     SELF STORAGE       EUROPE        ANCILLARY      TO SEGMENTS     CONSOLIDATED
                                                     -------------    -----------    ------------  ---------------  -------------
                                                                                  (Amounts in thousands)
REVENUES:
                                                                                                     
   Self-storage rental income....................     $    751,443     $  54,722     $       -      $        -      $    806,165
   Ancillary operating revenue...................                -         4,913        61,966               -            66,879
   Interest and other income.....................                -         6,590             -           7,268            13,858
                                                     -------------    -----------    ------------  ---------------  -------------
                                                           751,443        66,225        61,966           7,268           886,902
                                                     -------------    -----------    ------------  ---------------  -------------
EXPENSES:
  Cost of operations (excluding depreciation and
    amortization below):
      Self-storage facilities....................          260,615        24,654             -               -           285,269
      Ancillary operations.......................                -         1,409        34,168               -            35,577
  Depreciation and amortization..................          194,217        21,871         1,781               -           217,869
  General and administrative.....................                -        30,044             -          18,045            48,089
  Interest expense...............................                -         6,597             -          19,491            26,088
                                                     -------------    -----------    ------------  ---------------  -------------
                                                           454,832        84,575        35,949          37,536           612,892
                                                     -------------    -----------    ------------  ---------------  -------------
Income (loss) from continuing operations before
   equity in earnings of real estate entities, gain
   on disposition of an interest in Shurgard Europe,
   loss on disposition of other real estate investments,
   foreign currency exchange gain, expense from
   derivatives and minority interest in
   (income) loss.................................          296,611       (18,350)       26,017         (30,268)          274,010

Equity in earnings of real estate entities.......              712         1,457         5,192               -             7,361
Gain on disposition of an interest in Shurgard
   Europe........................................                -       341,865             -               -           341,865
Loss on disposition of other real estate
   investments...................................                -             -             -             (92)              (92)
Foreign currency exchange gain...................                -        41,012             -               -            41,012
Expense from derivatives, net....................                -           (43)            -               -               (43)
Minority interest in (income) loss...............           (9,077)        2,142             -         (10,806)          (17,741)
                                                     -------------    -----------    ------------  ---------------  -------------
Income from continuing operations................          288,246       368,083        31,209         (41,166)          646,372
Discontinued operations..........................                -             -             -            (217)             (217)
                                                     -------------    -----------    ------------  ---------------  -------------
Net income (loss)................................     $    288,246     $ 368,083     $  31,209      $  (41,383)     $    646,155
                                                     =============    ===========    ============  ===============  =============


                                       36



                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

For the six months ended June 30, 2007




                                                                                                     OTHER ITEMS
                                                                       SHURGARD                     NOT ALLOCATED        TOTAL
                                                     SELF STORAGE       EUROPE        ANCILLARY      TO SEGMENTS     CONSOLIDATED
                                                     -------------    -----------    ------------  ---------------  -------------
                                                                                  (Amounts in thousands)

REVENUES:
                                                                                                      
   Self-storage rental income....................     $  720,694      $  88,886      $        -      $        -      $   809,580
   Ancillary operating revenue...................              -          8,064          61,023               -           69,087
   Interest and other income.....................              -            238               -           2,842            3,080
                                                     -------------    -----------    ------------  ---------------  -------------
                                                         720,694         97,188          61,023           2,842          881,747
                                                     -------------    -----------    ------------  ---------------  -------------
EXPENSES:
  Cost of operations (excluding depreciation and
   amortization below):
      Self-storage facilities....................        252,529         45,300               -               -          297,829
      Ancillary operations.......................              -          2,690          36,971               -           39,661
  Depreciation and amortization..................        265,342         76,836           1,698               -          343,876
  General and administrative.....................              -         14,719               -          23,262           37,981
  Interest expense...............................              -         10,470               -          23,045           33,515
                                                     -------------    -----------    ------------  ---------------  -------------
                                                         517,871        150,015          38,669          46,307          752,862
                                                     -------------    -----------    ------------  ---------------  -------------
Income (loss) from continuing operations before
   equity in earnings of real estate entities,
   casualty gain, gain on disposition of other real
   estate investments, foreign currency exchange gain,
   income from derivatives and minority interest
   in income.....................................        202,823        (52,827)         22,354         (43,465)         128,885

Equity in earnings of real estate entities.......          1,045              -               -           5,714            6,759
Casualty gain....................................          2,665              -               -               -            2,665
Gain on disposition of other real estate
   investments...................................              -              -               -           2,238            2,238
Foreign currency exchange gain...................              -         10,593               -               -           10,593
Income from derivatives, net.....................              -          1,009               -               -            1,009
Minority interest in (income) loss...............         (8,320)         5,819               -         (10,806)         (13,307)
                                                     -------------    -----------    ------------  ---------------  -------------
Income (loss) from continuing operations.........        198,213        (35,406)         22,354         (46,319)         138,842
Discontinued operations..........................              -           (334)              -          (1,626)          (1,960)
                                                     -------------    -----------    ------------  ---------------  -------------
Net income (loss)................................     $  198,213      $ (35,740)     $   22,354      $  (47,945)     $   136,882
                                                     =============    ===========    ============  ===============  =============



                                       37


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

12.   Share-Based Compensation
      ------------------------

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

              We have various  stock option plans  (collectively  referred to as
     the "PS Plans").  Under the PS Plans, the Company has granted non-qualified
     options to certain  trustees,  officers  and key  employees to purchase the
     Company's  common  shares at a price equal to the fair market  value of the
     common shares at the date of grant.  Generally,  options under the PS Plans
     vest  over a  three-year  period  from  the  date of  grant  at the rate of
     one-third per year (options  granted after December 31, 2002 vest generally
     over a five-year period) and expire between eight years and ten years after
     the date they became  exercisable.  The PS Plans also provide for the grant
     of  restricted  shares (see below) to officers,  key  employees and service
     providers on terms determined by an authorized committee of our Board.

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

              For the three and six months  ended  June 30,  2008,  we  recorded
     $951,000 and $1,367,000, respectively, in stock option compensation expense
     related to options  granted  after January 1, 2002, as compared to $303,000
     and $606,000, for the same periods in 2007.

              A total of  935,000  stock  options  were  granted  during the six
     months ended June 30, 2008, 123,241 shares were exercised, and 4,000 shares
     were forfeited. A total of 2,497,233 stock options were outstanding at June
     30, 2008 (1,689,474 at December 31, 2007).

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

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

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

              The total value of each  restricted  share unit grant,  based upon
     the market  price of our common  shares at the date of grant,  is amortized
     over the  service  period,  net of  estimates  for future  forfeitures,  as
     compensation  expense.  The related  employer  portion of payroll  taxes is
     expensed as incurred.

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

                                       38


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

              During the six  months  ended June 30,  2008,  218,475  restricted
     share units were granted  with an aggregate  fair value on the date of each
     respective  grant of  approximately  $17,610,000,  46,894  restricted share
     units were forfeited (aggregate  grant-date fair value of $3,800,000),  and
     75,626  restricted share units vested  (aggregate  grant-date fair value of
     $5,532,000)  with an  aggregate  fair value on the date of each  respective
     vesting of  $6,107,000.  This  vesting  resulted in the  issuance of 48,949
     common shares. In addition, cash compensation was paid to employees in lieu
     of 26,677  common  shares  based upon the market value of the shares at the
     date of vesting,  and used to settle the employees' tax liability generated
     by the vesting.

              At June 30, 2008,  approximately  704,723  restricted  share units
     were  outstanding  (608,768 at December 31,  2007) with an  aggregate  fair
     value at June 30, 2008,  based upon the closing price of our common shares,
     of  approximately  $56,935,000.  A total of  $2,533,000  and  $4,891,000 in
     restricted  share  expense was  recorded for the three and six months ended
     June 30, 2008,  respectively,  as compared to $2,057,000 and $4,262,000 for
     the same periods in 2007. Restricted share expense includes amortization of
     the fair value of the grant reflected as an increase to paid-in capital, as
     well as payroll taxes we incurred upon each respective vesting.

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

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

              Mr.  Hughes,  the Company's  Chairman of the Board of Trustees and
     his family  (collectively the "Hughes Family") have ownership interests in,
     and operate  approximately  48 self-storage  facilities in Canada under the
     name  "Public  Storage"  ("PS  Canada")  pursuant  to a  trademark  license
     agreement with the Company.  We currently do not own any interests in these
     facilities nor do we own any  facilities in Canada.  The Hughes Family owns
     approximately  25.5% of our common shares  outstanding at June 30, 2008. We
     have a right of first  refusal  to  acquire  the  stock  or  assets  of the
     corporation that manages the 48 self-storage  facilities in Canada,  if the
     Hughes Family or the corporation agrees to sell them.  However,  we have no
     interest in the operations of this corporation, we have no right to acquire
     this  stock or assets  unless  the  Hughes  Family  decides  to sell and we
     receive no benefit from the profits and  increases in value of the Canadian
     self-storage facilities.

              Through  consolidated  entities,  we continue  to  reinsure  risks
     relating to loss of goods stored by tenants in the self-storage  facilities
     in  Canada.   During  the  six  months   ended  June  30,  2008  and  2007,
     respectively,   we  received  $441,000  and  $418,000,   respectively,   in
     reinsurance  premiums  attributable to the Canadian  facilities.  Since our
     right to provide  tenant  reinsurance  to the  Canadian  facilities  may be
     qualified, there is no assurance that these premiums will continue.

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

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

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

                                       39


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

              Dann V. Angeloff, a trustee of the Company, is the general partner
     of a limited  partnership  formed in June of 1973 that owns a  self-storage
     facility that is managed by us. We recorded management fees with respect to
     this facility amounting to $19,000 and $38,000 for the three and six months
     ended June 30, 2008,  respectively,  as compared to $19,000 and $37,000 for
     the same periods in 2007.

              PSB  manages  certain  of the  commercial  facilities  that we own
     pursuant  to  management  agreements  for a  management  fee equal to 5% of
     revenues.  We paid a total of $177,000  and  $372,000 for the three and six
     months  ended June 30,  2008,  respectively,  as compared  to $182,000  and
     $365,000 for the three and six months ended June 30, 2007, respectively, in
     management fees with respect to PSB's property management services. At June
     30, 2008,  included in other  liabilities are normal recurring amounts owed
     to PSB of $195,000  ($717,000 at December 31, 2007), for unpaid  management
     fees and certain other operating expenses related to the managed facilities
     which are initially paid by PSB on our behalf and then reimbursed by us.

              During  2007,  PSB acquired  certain  commercial  facilities  that
     include self-storage space. We are managing this self-storage space for PSB
     for a management fee equal to 6% of revenues  generated by the self-storage
     space.  We  recorded  management  fees  with  respect  to these  facilities
     amounting  to $13,000 and  $24,000 for the three and six months  ended June
     30,  2008,  respectively,  as  compared to $12,000 and $24,000 for the same
     periods in 2007.

              Pursuant to a cost-sharing and administrative  services agreement,
     PSB  reimburses us for certain  administrative  services that we provide to
     them. PSB's share of these costs totaled approximately $98,000 and $195,000
     for the three and six months ended June 30, 2008, respectively, as compared
     to $76,000 and $152,000 for the same periods in 2007.

              Shurgard  Europe  also  entered  into a licensing  agreement  with
     Public  Storage  effective  January 1,  2008,  under  which it pays  Public
     Storage a fee equal to 1.0% of its pro rata share of  revenues  in exchange
     for the rights to use the "Shurgard  Europe" trade name. During each of the
     three and six months ended June 30, 2008, net of our 49% equity interest in
     Shurgard Europe,  we recorded other income of $213,000 under this licensing
     agreement.

              Shurgard Europe manages a facility located in London,  England for
     us in exchange  for a fee of 7% of  revenues.  During each of the three and
     six months ended June 30, 2008, net of our 49% equity  interest in Shurgard
     Europe, we recorded  management  expense fees of $31,000 in connection with
     this management  agreement.  Such fees are included in cost of operations -
     self-storage  facilities in our condensed consolidated statements of income
     for the three and six months ended June 30, 2008.

              As  described  more fully in Note 2 under  "Note  Receivable  from
     Affiliate,"  Shurgard  Europe owes us an aggregate of  (euro)391.9  million
     ($618.7  million) at June 30,  2008.  This note bears  interest at 7.5% per
     annum.  During each of the three and six months ended June 30, 2008, net of
     our 49% equity interest in Shurgard Europe,  we recorded interest income of
     $5,962,000, in connection with this note. Also during each of the three and
     six months ended June 30, 2008, net of our 49% equity  interest in Shurgard
     Europe, we recorded interest income of $357,000,  in connection with the 1%
     debt arrangement fee on this note.

              We manage our wholly-owned  self-storage facilities as well as the
     facilities owned by the Consolidated  Entities and affiliated entities that
     are not  consolidated on a joint basis, in order to take advantage of scale
     and other efficiencies. As a result, significant components of self-storage
     operating  costs,  such as payroll costs,  advertising and promotion,  data
     processing,  and  insurance  expenses  are shared and  allocated  among the
     various  entities using  methodologies  meant to fairly allocate such costs
     based upon the related activities. The amount of such expenses allocated to
     Unconsolidated  Entities was approximately  $729,000 and $1,377,000 for the
     three and six months  ended June 30,  2008,  respectively,  as  compared to
     $682,000 and $1,296,000 for the same periods in 2007.

                                       40


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

              Stor-RE, a consolidated entity, and third party insurance carriers
     provided PS Canada,  the Company,  PSB, and other affiliates of the Company
     with  liability and casualty  insurance  coverage  until March 31, 2004. PS
     Canada owns a 2.2%  interest  and PSB owns a 4.1%  interest in Stor-RE.  PS
     Canada and PSB obtained their own liability and casualty insurance covering
     occurrences  after April 1, 2004.  For  occurrences  before  April 1, 2004,
     Stor-Re  continues to provide  liability  and casualty  insurance  coverage
     consistent with the relevant agreements.

              In the  second  quarter  of 2007,  we sold an  approximately  0.6%
     common  equity  interest  in  Shurgard  Europe to various  officers  of the
     Company (the "PS Officers"),  other than our chief executive  officer.  The
     aggregate  proceeds  of the sale were  $4,909,000.  The sale  price for the
     interests was based upon the pro rata net asset value computed using, among
     other sources, information provided by an independent third party appraisal
     firm of the net asset value of  Shurgard  Europe as of March 31,  2007.  In
     connection with the initial sale of these LLP Interests to our officers, we
     recorded  a  gain  of  $1,194,000   during  the  second  quarter  of  2007,
     representing  the excess of the sales  proceeds  over the book value of the
     LLP Interests sold. In connection with the acquisition by an  institutional
     investor of a 51%  interest  in  Shurgard  Europe,  Shurgard  Holdings  (an
     unconsolidated  affiliate which is the holding company of Shurgard  Europe)
     purchased, on June 20, 2008, each holder's interest in Shurgard Europe at a
     price  based on the price  paid by the  institutional  investor.  The total
     repurchase  amount  was  $7.1  million.  See  Note 5 under  "Investment  in
     Shurgard  Europe" for further  historical  information  regarding  Shurgard
     Europe.

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

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

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

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

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

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

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

                                       41


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

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

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

              The plaintiff brought this action against the Company on behalf of
     a purported class who bought insurance coverage at the Company's facilities
     alleging  that the  Company  does not have a license to offer,  sell and/or
     transact  storage  insurance.  The  action  was  originally  brought  under
     California Business and Professions Code Section 17200 and seeks retention,
     monetary damages and injunctive relief. The Company filed a demurrer to the
     complaint.  While the  demurrer  was  pending,  the  plaintiff  amended the
     complaint  to  allege a  national  class and  claims  for  unfair  business
     practices,  unjust  enrichment,  money had and received,  and negligent and
     intentional  misrepresentation.  Ultimately  all  claims  except for unjust
     enrichment  were dismissed.  A subsequent  demurrer was filed and sustained
     without  leave to amend.  The case was therefore  dismissed.  The plaintiff
     appealed  the  trial  court's  ruling  and on June 26,  2008,  the Court of
     Appeals affirmed the trial court's dismissal.

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

              Shurgard Europe holds a 20% interest in each of two joint ventures
     in Europe,  First Shurgard and Second  Shurgard,  that  collectively own 74
     self-storage properties in Europe. On August 24, 2006, the Company, through
     its affiliate, Shurgard Europe, served an exit notice on the European joint
     venture  partners  informing  them  of  its  intention  to  purchase  their
     interests in First Shurgard and Second  Shurgard  pursuant to an early exit
     procedure that the Company believes is provided for in the respective joint
     venture  agreements.  The exit  notice  offered  to pay the  joint  venture
     partners an amount for their interests in accordance with the provisions of
     the joint venture  agreements.  The joint venture  partners have  contested
     both the valuation of their interests and whether the Company has the right
     to purchase its interests under this early exit procedure.  Accordingly, it
     is uncertain as to whether the Company will acquire such interests pursuant
     to the early exit notice served. On January 17, 2007, Shurgard Europe filed
     an arbitration request with the International Chamber of Commerce to compel
     arbitration of the matter. The arbitration  proceedings  occurred from June
     30, 2008 through July 3, 2008. A decision is pending.

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

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

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

              We have historically carried  comprehensive  insurance,  including
     property, earthquake,  general liability and workers compensation,  through
     nationally  recognized insurance carriers and through our captive insurance
     programs. Our insurance programs also insure affiliates of the Company. Our
     estimated maximum annual exposure for losses that are below the deductibles
     set  forth  in  the  third-party  insurance  contracts,  assuming  multiple

                                       42


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

     significant  events occur, is approximately  $22 million.  In addition,  if
     losses exhaust the  third-party  insurers' limit of coverage of $75 million
     for property coverage  including  earthquake  coverage and $102 million for
     general liability,  our exposure could be greater.  These limits are higher
     than estimates of maximum  probable losses that could occur from individual
     catastrophic events (i.e.  earthquake and wind damage) determined in recent
     engineering and actuarial studies.

              Our tenant  insurance  program  reinsures a program that  provides
     insurance to certificate  holders against claims for property losses due to
     specific  named  perils  (earthquakes  and floods are not  covered by these
     policies) to goods  stored by tenants at our  self-storage  facilities  for
     individual limits up to a maximum of $5,000. We have third-party  insurance
     coverage  for  claims  paid  exceeding  $1,000,000  resulting  from any one
     individual  event, to a limit of $49,000,000.  At June 30, 2008, there were
     approximately  562,000 certificate holders participating in this program in
     the U.S. representing  aggregate coverage of approximately $1.3 billion. We
     rely on a  third-party  insurance  company to provide the insurance and are
     subject to licensing  requirements  and regulations in several  states.  No
     assurances  can be given that our  business can continue to be conducted in
     any given jurisdiction.  For the six months ended June 30, 2008, our tenant
     insurance  program  revenues  accounted for  approximately  3% of our total
     revenues.

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

              We  currently  have  25  projects  in  our  development  pipeline,
     consisting  of newly  developed  self-storage  facilities,  expansions  and
     enhancements to existing self-storage facilities.  The total estimated cost
     of these facilities is approximately  $110 million of which $38,614,000 has
     been spent at June 30, 2008.  These projects are subject to  contingencies.
     We expect to incur these expenditures over the next 12 - 24 months.

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

              We lease trucks,  land,  equipment  and office space.  At June 30,
     2008,  the future  minimum  rental  payments  required  under our operating
     leases  for the years  ending  December  31,  are as  follows  (amounts  in
     thousands):

  2008......................................    $    4,134
  2009......................................         9,580
  2010......................................        11,059
  2011......................................         7,375
  2012......................................         6,032
  Thereafter................................        82,417
                                                ----------
                                                $  120,597
                                                ==========


              Expenses under operating leases were approximately  $2,697,000 and
     $5,974,000 for the three and six months ended June 30, 2008,  respectively,
     as compared to $3,737,000 and $7,426,000 for the same periods in 2007.

15.  Income Taxes
     ------------

              For all taxable years  subsequent to 1980,  the Company  qualified
     and we intend to continue  to qualify the Company as a REIT,  as defined in
     Section  856 of the  Internal  Revenue  Code.  As a REIT,  we do not  incur
     federal or significant state tax on that portion of our REIT taxable income
     which is  distributed  to our  shareholders,  provided that we meet certain
     tests.  We believe we met those tests during 2007 and will continue to meet
     those tests in 2008 and, accordingly, no provision for federal income taxes
     has  been  made  in  the  accompanying   condensed  consolidated  financial
     statements  on  income  produced  and  distributed  on real  estate  rental
     operations.

                                       43


                                PUBLIC STORAGE
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2008
                                   (Unaudited)

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

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

              Based on our  evaluation,  we have  concluded  that  there  are no
     significant  uncertain tax positions requiring recognition in our financial
     statements.  Our  evaluation was performed for the tax years ended December
     31, 2004, 2005, 2006, 2007 and the six months ended June 30, 2008.

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

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

              On July 21, 2008, we acquired the  remaining  interest that we did
     not own in the Acquisition Joint Venture from our joint venture partner for
     an aggregate purchase price of $45.8 million. The Acquisition Joint Venture
     owned 12 self-storage facilities. The purchase price included the repayment
     of  approximately  $38.4  million  of  debt  due to the  investor  (bearing
     interest  at 8.5%  per  annum)  and the  acquisition  of their  equity  for
     approximately $7.4 million.  See Note 8 for further  information  regarding
     the Acquisition Joint Venture.




                                       44



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

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

     FORWARD  LOOKING  STATEMENTS:  This Quarterly  Report on Form 10-Q contains
forward-looking  statements  within the meaning of the federal  securities laws.
All statements in this document,  other than statements of historical  fact, are
forward-looking  statements  which  may be  identified  by the use of the  words
"expects,"  "believes,"   "anticipates,"   "plans,"  "would,"  "should,"  "may,"
"estimates" and similar expressions.  These  forward-looking  statements involve
known and unknown  risks and  uncertainties,  which may cause  Public  Storage's
actual results and  performance to be materially  different from those expressed
or implied in the forward-looking  statements.  As a result, you should not rely
on any  forward-looking  statements in this report, or which management may make
orally or in writing  from time to time,  as  predictions  of future  events nor
guarantees of future performance.  We caution you not to place undue reliance on
forward-looking statements, which speak only as the date of this report or as of
the dates indicated in the statements.  All of our  forward-looking  statements,
including  those  in this  report,  are  qualified  in  their  entirely  by this
statement.  We expressly disclaim any obligation to update publicly or otherwise
revise any forward-looking  statements,  whether as a result of new information,
new estimates,  or other factors, events or circumstances after the date of this
document,  except where expressly required by law.  Accordingly,  you should use
caution in relying  on past  forward-looking  statements  to  anticipate  future
results.

     Factors and risks that may impact future results and  performance  include,
but are not limited to, those described in Item 1A, "Risk Factors" in the Public
Storage  Annual  Report on Form 10-K for the year ended  December 31, 2007,  our
subsequent  filings on Form 10-Q and Form 8-K and in our other  filings with the
Securities and Exchange  Commission  ("SEC").  These risks include,  among other
things, the following:

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

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

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

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

     o    risks related to our  participation in joint ventures;

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

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

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

     o    disruptions  or shutdowns of our automated  processes  and systems;

                                       45


     o    difficulties in raising capital at a reasonable cost;

     o    delays in the development process; and

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

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

CRITICAL ACCOUNTING POLICIES

     Management's  Discussion and Analysis of Financial Condition and Results of
Operations discusses our condensed consolidated financial statements, which have
been  prepared in  accordance  with United States  ("U.S.")  generally  accepted
accounting principles ("GAAP").  The preparation of our financial statements and
related  disclosures in conformity  with GAAP and our discussion and analysis of
our financial  condition and results of operations  requires  management to make
judgments,  assumptions  and estimates  that affect the amounts  reported in our
condensed  consolidated  financial  statements and accompanying notes. Note 2 to
our June 30, 2008 condensed  consolidated  financial  statements  summarizes the
significant  accounting  policies  and methods  used in the  preparation  of our
condensed consolidated financial statements and related disclosures.

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

     QUALIFICATION AS A REIT - Income Tax Expense:  We believe that we have been
organized  and operated,  and we intend to continue to operate,  as a qualifying
REIT under the Code and  applicable  state laws.  We also believe that  Shurgard
qualified as a REIT.  A REIT  generally  does not pay  corporate  level  federal
income taxes on its REIT taxable income that is distributed to its shareholders,
and  accordingly,  we do not pay  federal  income  tax on the  share of our REIT
taxable income that is distributed to our shareholders.

     We therefore  do not estimate or accrue any federal  income tax expense for
income earned and distributed related to REIT operations. This estimate could be
incorrect,  because  due  to  the  complex  nature  of  the  REIT  qualification
requirements,   the  ongoing  importance  of  factual   determinations  and  the
possibility of future changes in our circumstances, we cannot be assured that we
actually have satisfied or will satisfy the  requirements for taxation as a REIT
for any  particular  taxable  year.  For any  taxable  year that we fail or have
failed to qualify as a REIT and for which applicable  relief  provisions did not
apply,  we would be taxed at the regular  corporate  rates on all of our taxable
income,  whether or not we made or make any  distributions to our  shareholders.
Any resulting  requirement to pay corporate income tax, including any applicable
penalties or interest,  could have a material  adverse  impact on our  financial
condition or results of  operations.  Unless  entitled to relief under  specific
statutory provisions,  we also would be disqualified from taxation as a REIT for
the four taxable  years  following  the year for which  qualification  was lost.
There can be no assurance that we would be entitled to any statutory  relief. In
addition,  if  Shurgard  failed to qualify as a REIT,  we  generally  would have
succeeded to or incurred significant tax liabilities.

     IMPAIRMENT OF LONG-LIVED ASSETS: Substantially all of our assets consist of
long-lived  assets,  including  real  estate and other  intangible  assets.  The
evaluation of our long-lived assets for impairment includes  determining whether
indicators  of  impairment  exist,  which  is a  subjective  process.  When  any
indicators of impairment  are found,  the evaluation of such  long-lived  assets
then entails  projections of future  operating  cash flows,  which also involves
significant  judgment.  Future events, or facts and circumstances that currently
exist, that we have not yet identified, could cause us to conclude in the future
that our long-lived  assets are impaired.  Any resulting  impairment  loss could
have a  material  adverse  impact on our  financial  condition  and  results  of
operations.

                                       46



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

     ESTIMATED  LEVEL OF RETAINED RISK AND UNPAID TENANT CLAIM  LIABILITIES:  As
described in Notes 2 and 14 to our consolidated financial statements,  we retain
certain risks with respect to property perils,  legal liability,  and other such
risks. In addition, a wholly-owned subsidiary of the Company reinsures a program
that  provides  insurance  to  certificate  holders  against  claims  for losses
(earthquakes  and floods are not covered by these  policies)  to goods stored by
tenants in our  self-storage  facilities.  In  connection  with these risks,  we
accrue losses based upon the estimated  level of losses  incurred  using certain
actuarial   assumptions   followed  in  the  insurance  industry  and  based  on
recommendations  from an  independent  actuary  that is a member of the American
Academy of  Actuaries.  While we believe that the amounts of the accrued  losses
are  adequate,  the  ultimate  liability  will be in  excess of or less than the
amounts recorded and the difference  could be material.  At June 30, 2008, there
were approximately  562,000 certificate holders participating in this program in
the U.S. representing aggregate coverage of approximately $1.3 billion.

     ACCRUALS FOR CONTINGENCIES:  We are exposed to business and legal liability
risks with respect to events that have occurred, but in accordance with GAAP, we
have not accrued for such potential  liabilities  because the loss is either not
probable  or not  estimable  or because  we are not aware of the  event.  Future
events and the  results of pending  litigation  could  result in such  potential
losses  becoming  probable and  estimable,  which could have a material  adverse
impact on our  financial  condition  or  results  of  operations.  Some of these
potential  losses,  of which we are aware,  are described in Note 14 to our June
30, 2008 condensed consolidated financial statements.

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

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

                                       47



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

OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2008:
- -----------------------------------------------------------

     Net income for the three  months  ended  June 30,  2008 was $133.8  million
compared to $77.1 million for the same period in 2007,  representing an increase
of $56.7 million. This improvement is primarily due to improvements in operating
income  with  respect  to our Same Store  facilities  and  reduced  amortization
expense,  offset in part by a reduction in foreign  exchange gains and increased
general  and   administrative   expense  due  to  $25.4   million  in  incentive
compensation incurred in the quarter ended June 30, 2008.

     Net operating income (before depreciation and amortization) with respect to
our domestic  operations  increased $14.1 million in the three months ended June
30,  2008 as  compared  to the same  period in 2007 due to an  increase  of $8.6
million with respect to our Same Store  operations  combined with an increase of
$5.5  million  with  respect to our other  domestic  facilities,  primarily  our
facilities  acquired  in 2007 and 2008 and the  continued  fill-up  of our newly
developed and expanded facilities.

     Amortization  expense for the quarter ended June 30, 2008,  with respect to
domestic  assets,  decreased by $33.8  million as compared to the same period in
2007,  primarily due to a reduction in domestic  amortization expense related to
intangible  assets  that we  obtained  in the August  22,  2006  acquisition  of
Shurgard Storage Centers, Inc. (the "Shurgard Merger").

     During the quarter ended June 30, 2008, we recognized a negligible  foreign
currency  exchange loss totaling $2,000,  as compared to a $5.6 million gain for
the same  period in 2007,  relating  primarily  to  intercompany  loans due from
Shurgard  Europe.  The foreign  currency gains and losses were due to changes in
the U.S. Dollar  relative to the Euro during each period when  converting  these
Euro denominated loans to U.S. Dollars for financial reporting purposes.

     For the three  months  ended June 30,  2008,  net income  allocable  to our
common  shareholders  (after  allocating  net income to our preferred and equity
shareholders)  was $68.1  million or $0.40 per common  share on a diluted  basis
compared to $14.4  million or $0.08 per common share on a diluted  basis for the
same period in 2007,  representing  an improvement of $53.7 million or $0.32 per
common share on a diluted  basis.  These  improvements  are due primarily to the
impact of the factors described above with respect to the improvement in our net
income.

     For the three  months  ended June 30,  2008 and 2007,  we  allocated  $60.3
million and $57.3  million of our net  income,  respectively,  to our  preferred
shareholders  based on distributions paid during each period. The year-over-year
increase is due primarily to the issuance of additional  preferred securities in
2007.

     Weighted  average diluted common shares were  168,814,000 and  170,213,000,
respectively,  for the three months ended June 30, 2008 and 2007. The decline is
due to share repurchases in the first quarter of 2008.

OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2008:
- ---------------------------------------------------------

     Net  income  for the six months  ended  June 30,  2008 was  $646.2  million
compared  to  $136.9  million  for the  same  period  in 2007,  representing  an
improvement of $509.3  million.  This  improvement is primarily due to a gain of
$341.9  million  recognized  on the  disposition  of a 51%  interest in Shurgard
Europe on March 31, 2008,  improvements in operating  income with respect to our
domestic  self-storage  facilities and reduced amortization  expense,  offset in
part by a  reduction  in  foreign  exchange  gains  and  increased  general  and
administrative  expense due to $27.9 million in incentive  compensation incurred
during the six months ended June 30, 2008.

     Net operating income (before depreciation and amortization) with respect to
our domestic operations increased $22.7 million in the six months ended June 30,
2008 as compared to the same period in 2007 due to an increase of $13.4  million
with  respect to our Same Store  operations  combined  with an  increase of $9.3
million with respect to our other domestic facilities,  primarily our facilities
acquired in 2007 and 2008 and the continued  fill-up of our newly  developed and
expanded facilities.

                                       48



     Amortization  expense for the six months ended June 30, 2008,  with respect
to domestic assets, decreased by $76.5 million as compared to the same period in
2007,  primarily due to a reduction in domestic  amortization expense related to
intangible assets that we obtained in the Shurgard Merger.

     During the six months ended June 30, 2008, we recognized a foreign currency
exchange gain totaling  $41.0  million,  as compared to a $10.6 million gain for
the same  period in 2007,  relating  primarily  to  intercompany  loans due from
Shurgard Europe. The gains in each period were due to changes in the U.S. Dollar
relative to the Euro during each period when converting  these Euro  denominated
loans to U.S. Dollars for financial reporting purposes.

     For the six months ended June 30, 2008, net income  allocable to our common
shareholders   (after   allocating  net  income  to  our  preferred  and  equity
shareholders)  was $514.8  million or $3.05 per common share on a diluted  basis
compared to $10.1  million or $0.06 per common share on a diluted  basis for the
same period in 2007,  representing an improvement of $504.7 million or $2.99 per
common share on a diluted  basis.  These  improvements  are due primarily to the
impact of the factors described above with respect to the improvement in our net
income.

     For the six  months  ended  June 30,  2008 and 2007,  we  allocated  $120.7
million and $116.1  million of our net income,  respectively,  to our  preferred
shareholders  based  on  distributions  paid  each  period.  The  year-over-year
increase is due primarily to the issuance of additional  preferred securities in
2007.

     Weighted  average diluted common shares were  169,022,000 and  170,275,000,
respectively,  for the six months  ended June 30, 2008 and 2007.  The decline is
due primarily to share repurchases in the first quarter of 2008.

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

     SELF-STORAGE OPERATIONS: Our self-storage operations are by far the largest
component of our operating activities, representing approximately 90% and 91% of
our total  revenues  generated for the three and six months ended June 30, 2008,
respectively. Rental income with respect to our self-storage operations declined
by 7.2% and 0.4% in the three and six months ended June 30, 2008,  respectively,
when compared to the same periods in 2007.  The year over year decline in rental
income is due  primarily to the  deconsolidation  of Shurgard  Europe  effective
April 1, 2008.  This was offset  partially by the addition of new  facilities to
our  portfolio,  either  through  our  acquisition  or  development  activities,
combined with increased revenues in our Same Store Facilities (defined below).

     To enhance year-over-year comparisons,  the following table summarizes, and
the ensuing  discussion  describes  the  operating  results of three groups that
management analyzes with respect to the Company's performance: i) the Same Store
group,  representing  our domestic  facilities  that we have owned and have been
stabilized  prior to January 1, 2006 as well as  certain  of the  facilities  we
acquired in the Shurgard merger on August 22, 2006 which were  stabilized  since
January 1, 2006,  ii) the  facilities  operated  by Shurgard  Europe  which were
deconsolidated  effective March 31, 2008 and iii) all other facilities  included
in our financial statements,  which are primarily those facilities that have not
been  operated at a  stabilized  basis since  January 1, 2006  because  they are
either  newly   developed  or  acquired  since  2006  or  because  of  expansion
activities.

                                       49




SELF - STORAGE OPERATIONS SUMMARY:                      Three Months Ended June 30,             Six Months Ended June 30,
- ----------------------------------                 -----------------------------------  ---------------------------------------
                                                                            Percentage                               Percentage
                                                        2008        2007      Change          2008         2007         Change
                                                   ------------ ------------ ---------  ------------  ------------   ----------
                                                                           (Dollar amounts in thousands)
Rental income:
                                                                                                        
   Same Store Facilities.......................    $   335,412  $   325,144      3.2%    $  662,193   $   642,313         3.1%
   Other Facilities............................         45,933       39,988     14.9%        89,250        78,381        13.9%
   Shurgard Europe Facilities (a)..............              -       45,840   (100.0)%       54,722        88,886       (38.4)%
                                                   ------------ ------------ ---------  ------------  ------------   ----------
     Total rental income.......................        381,345      410,972     (7.2)%      806,165       809,580        (0.4)%
                                                   ------------ ------------ ---------  ------------  ------------   ----------
Cost of operations before depreciation and
    amortization expense (b):
   Same Store Facilities.......................        112,182      110,480      1.5%       227,529       221,003         3.0%
   Other Facilities............................         16,172       15,742      2.7%        33,086        31,526         4.9%
   Shurgard Europe Facilities..................              -       22,915   (100.0)%       24,654        45,300       (45.6)%
                                                   ------------ ------------ ---------  ------------  ------------   ----------
      Total cost of operations.................        128,354      149,137    (13.9)%      285,269       297,829        (4.2)%
                                                   ------------ ------------ ---------  ------------  ------------   ----------
Net operating income before depreciation and
    amortization expense (b):
   Same Store Facilities.......................        223,230      214,664      4.0%       434,664       421,310         3.2%
   Other Facilities............................         29,761       24,246     22.7%        56,164        46,855        19.9%
   Shurgard Europe Facilities..................              -       22,925   (100.0)%       30,068        43,586       (31.0)%
                                                   ------------ ------------ ---------  ------------  ------------   ----------
   Total net operating income before
        depreciation and amortization expense (b)      252,991      261,835     (3.4)%      520,896       511,751         1.8%
                                                   ------------ ------------ ---------  ------------  ------------   ----------
Depreciation and amortization expense:
   Same Store Facilities.......................        (78,417)    (107,879)   (27.3)%     (159,630)     (223,996)      (28.7)%
   Other Facilities............................        (16,070)     (20,218)   (20.5)%      (34,587)      (41,346)      (16.3)%
   Shurgard Europe Facilities..................              -      (38,564)  (100.0)%      (21,871)      (76,836)      (71.5)%
                                                   ------------ ------------ ---------  ------------  ------------   ----------
   Total depreciation and amortization expense.        (94,487)    (166,661)   (43.3)%     (216,088)     (342,178)      (36.8)%
                                                   ------------ ------------ ---------  ------------  ------------   ----------
Net operating income (loss):
   Same Store Facilities.......................        144,813      106,785     35.6%       275,034       197,314        39.4%
   Other Facilities............................         13,691        4,028    239.9%        21,577         5,509       291.7%
   Shurgard Europe Facilities..................              -      (15,639)  (100.0)%        8,197       (33,250)     (124.7)%
                                                   ------------ ------------ ---------  ------------  ------------   ----------
   Total net operating income..................    $   158,504  $    95,174     66.5%   $   304,808   $   169,573        79.8%
                                                   ============ ============ =========  ============  ============   ==========
Data for Same Store and Other Facilities:
Weighted average square foot occupancy during
   the period..................................           90.3%        89.7%     0.7%        89.1%         88.0%         1.3%
Number of self-storage facilities (at end of
   period).....................................                                              1,988         1,974         0.7%
Net rentable square feet (in thousands, at end
   of period):.................................                                             125,286       123,721        1.3%



     (a)  Represents  the results with respect to Shurgard  Europe's  properties
          for the periods consolidated in our financial statements. As described
          in Note 3 to our  June 30,  2008  consolidated  financial  statements,
          effective  March  31,  2008,  we  commenced  deconsolidating  Shurgard
          Europe.  See also  "Equity  in  Earnings  of Real  Estate  Entities  -
          Investment in Shurgard  Europe" for further analysis of the historical
          property operations of Shurgard Europe.
     (b)  Total net operating  income before  depreciation  and  amortization or
          "NOI"  is  a  non-GAAP  (generally  accepted  accounting   principles)
          financial  measure  that  excludes  the  impact  of  depreciation  and
          amortization  expense.  See  Note 11 to our June  30,  2008  condensed
          consolidated   financial  statements,   "Segment  Information,"  which
          includes a reconciliation of net operating income before  depreciation
          and  amortization  for this  segment to our  consolidated  net income.
          Although  depreciation  and amortization  are operating  expenses,  we
          believe  that NOI is a meaningful  measure of  operating  performance,
          because we utilize  NOI in making  decisions  with  respect to capital
          allocations,   in  determining   current  property   values,   segment
          performance,   and  comparing  period-to-period  and  market-to-market
          property operating results.  NOI is not a substitute for net operating
          income after depreciation and amortization in evaluating our operating
          results.

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

                                       50



     Same Store Facilities

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

     We increased the number of facilities included in the Same Store Facilities
from 1,659  facilities  at  December  31,  2007  (which was  comprised  of 1,316
facilities  referred to as the "Same Store  Facilities - Public Storage" and 343
facilities   referred  to  previously  as  the  "Shurgard  Domestic  Same  Store
Facilities")  to 1,789  facilities  at June 30,  2008.  The increase in the Same
Store pool of facilities  is due to the  inclusion of 80  facilities  previously
classified as Acquired,  Developed or Expansion facilities and the removal of 23
facilities that are now classified as Expansion facilities. These facilities are
included in the Same Store  Facilities  because  they are all  stabilized  since
January  1, 2006.  The 23  facilities  that have been  classified  as  Expansion
facilities  are  facilities  that are either  currently  undergoing  repackaging
activities  or  are  expected  to  commence  such  activities  during  2008  and
accordingly  will no longer  provide  meaningful  comparative  data for 2007 and
2008.

     As a result of the  increase  in the number of Same Store  Facilities,  the
relative weighting of markets has changed.  Accordingly,  comparisons should not
be  made  between   information   presented   previously  with  respect  to  the
aforementioned  1,659 Same Store  Facilities  and the  current  1,789 Same Store
Facilities to identify trends in occupancies, realized rents per square foot, or
other operating trends.

     The Same Store Facilities contain  approximately 109.4 million net rentable
square feet,  representing  approximately  (87%) of the  aggregate  net rentable
square feet of our  consolidated  domestic  self-storage  portfolio  at June 30,
2008.  Revenues and operating  expenses with respect to this group of properties
are set forth in the above  Self-Storage  Operations  table  under the  caption,
"Same Store Facilities"

                                       51






SAME STORE FACILITIES                                        Three Months Ended June 30,              Six Months Ended June 30,
- ---------------------                                   --------------------------------------    ----------------------------------
                                                                                   Percentage                             Percentage
                                                             2008         2007       Change         2008         2007       Change
                                                        ------------- ------------ -----------    ----------- ----------- ----------

                                                               (Dollar amounts in thousands, except weighted average amounts)
                                                                                                             
Rental income......................................      $  321,605    $  311,814       3.1%      $  634,84   $  615,968       3.1%
Late charges and administrative fees collected.....          13,807        13,330       3.6%         27,346       26,345       3.8%
                                                        ------------- ------------ -----------    ----------- ----------- ----------
   Total rental income.............................         335,412       325,144       3.2%        662,193      642,313       3.1%
                                                        ------------- ------------ -----------    ----------- ----------- ----------

Cost of operations before depreciation and amortization:
     Direct property payroll.......................          21,906        22,154      (1.1)%        44,750       44,720       0.1%
     Property taxes................................          32,526        31,110       4.6%         66,231       63,428       4.4%
     Repairs and maintenance.......................           9,986         9,859       1.3%         20,708       19,850       4.3%
     Media advertising.............................           9,148         7,589      20.5%         15,514       12,409      25.0%
     Other advertising and promotion...............           4,733         5,027      (5.8)%         8,863        9,660      (8.3)%
     Utilities.....................................           7,663         7,601       0.8%         16,286       16,016       1.7%
     Property insurance............................           2,715         3,378     (19.6)%         5,709        6,827     (16.4)%
     Telephone reservation center..................           3,102         3,011       3.0%          6,016        5,868       2.5%
     Other cost of management......................          20,403        20,751      (1.7)%        43,452       42,225       2.9%
                                                        ------------- ------------ -----------    ----------- ----------- ----------
   Total cost of operations........................         112,182       110,480       1.5%        227,529      221,003       3.0%
                                                        ------------- ------------ -----------    ----------- ----------- ----------
Net operating income before depreciation and
   amortization expense (a)........................         223,230       214,664       4.0%        434,664      421,310       3.2%
Depreciation and amortization expense..............         (78,417)     (107,879)    (27.3)%      (159,630)    (223,996)    (28.7)%
                                                        ------------- ------------ -----------    ----------- ----------- ----------
 Net operating income..............................     $   144,813   $   106,785      35.6%      $ 275,034   $  197,314      39.4%
                                                        ============= ============ ===========   ============ =========== ==========
Gross margin (before depreciation and amortization
expense)...........................................          66.6%         66.0%        0.9%         65.6%        65.6%          -

Weighted average for the fiscal year:
   Square foot occupancy (b).......................          91.0%         90.9%        0.1%         89.9%        89.9%          -
   Realized annual rent per occupied square foot (c)    $    12.92    $    12.54        3.0%    $    12.91   $    12.52        3.1%
(e)................................................
   REVPAF (d) (e)..................................     $    11.75    $    11.40        3.1%    $    11.60   $    11.26        3.0%

 Weighted average at June 30:
   Square foot occupancy...........................                                                  91.7%        91.7%          -
   In place annual rent per occupied square foot (f)                                            $    14.21   $    13.84        2.7%
Total net rentable square feet (in thousands)......                                                 109,436      109,436         -
Number of facilities...............................                                                   1,789        1,789         -



     (a)  Total  net  operating  income  before  depreciation  and  amortization
          expense  or  "NOI"  is  a  non-GAAP   (generally  accepted  accounting
          principles) financial measure that excludes the impact of depreciation
          and amortization  expense, for our Same Store facilities  represents a
          portion  of our total  self-storage  segment's  net  operating  income
          before depreciation and amortization expense, and is reconciled to the
          segment total in the table "self-storage  operations summary" above. A
          reconciliation  of our  total  self-storage  segment's  net  operating
          income before  depreciation and  amortization  expense to consolidated
          net  income  is  included  in Note 11 to our June 30,  2008  condensed
          consolidated  financial statements,  "Segment  Information."  Although
          depreciation and amortization are operating expenses,  we believe that
          NOI is a  meaningful  measure  of  operating  performance,  because we
          utilize NOI in making  decisions with respect to capital  allocations,
          in determining  current  property  values,  segment  performance,  and
          comparing  period-to-period  and  market-to-market  property operating
          results.  NOI is not a  substitute  for  net  operating  income  after
          depreciation  and  amortization  expense in  evaluating  our operating
          results.

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

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

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

                                       52



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

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

     We believe  that demand for our  self-storage  spaces have been  negatively
impacted  by general  economic  conditions,  the slow down in housing  sales and
moving activity, as well as increased competition.  It is unclear to us how much
we have been  negatively  impacted by these factors,  and how much these factors
may impact us going  forward.  In order to offset the  negative  effect of these
factors,  we expanded our media advertising,  as indicated below,  increased the
level of promotional discounts and we were conservative with rental rates during
the first six months of 2008.

     Rental income  increased  approximately  3.2% and 3.1% in the three and six
months  ended June 30,  2008 as  compared  to the same  periods  in 2007.  These
increases were primarily  attributable to higher average  realized annual rental
rates per occupied square foot, which were 3.0% and 3.1% higher in the three and
six months ended June 30, 2008, respectively, as compared to the same periods in
2007.

     Cost of operations (excluding  depreciation and amortization)  increased by
1.5% and 3.0% in the three and six months ended June 30, 2008, respectively,  as
compared to the same periods in 2007.

     Payroll expense  decreased by 1.1% for the three months ended June 30, 2008
and increased 0.1% in the six months ended June 30, 2008 as compared to the same
periods in 2007. The variance for each period  includes lower  incentive pay and
stagnant  growth in average wage rates,  offset by higher hours  incurred due to
adjustments in staffing  levels.  For the remainder of 2008, we expect  moderate
growth trends in payroll.

     Property tax expense increased by 4.6% and 4.4% in the three and six months
ended June 30, 2008, respectively,  as compared to the same periods in 2007. The
main reason for the increase is due to higher estimated  assessments of property
values at rates greater than we have been experiencing in prior years.  Although
we plan on  appealing  many  these  reassessments,  we expect the  increases  in
property tax expense for the remainder of 2008 to be  consistent  with the level
experienced thus far.  Property tax expense  fluctuates on a quarterly basis, as
indicated in the table below with respect to 2007.  The  quarterly  property tax
expense for 2008 will similarly  fluctuate on a sequential basis with the fourth
quarter  being  significantly  lower.  At this  time we  expect  each  quarter's
property tax expense to be  approximately  4.0% to 5.0% higher than for the same
period in 2007.

     Repairs and maintenance  expenditures  increased 1.3% and 4.3% in the three
and six months  ended  June 30,  2008,  respectively,  as  compared  to the same
periods in 2007.  These  increases  were  primarily  due to snow removal  costs.
Excluding snow removal costs,  repairs and  maintenance  expenditures  decreased
0.9% during the three months ended June 30, 2008 and  increased  0.7% during the
six months ended June 30, 2008, respectively, as compared to the same periods in
2007. We expect repairs and  maintenance  expenditures  (other than snow removal
costs) to grow  moderately  in the  remainder  of 2008 as  compared  to the same
period in 2007.

     Media  advertising for the Same Store Facilities  increased 20.5% and 25.0%
in the three and six months  ended June 30, 2008,  respectively,  as compared to
the same periods in 2007.  The increase was due to a combination  of advertising
in more  markets  than  last  year  combined  with  increased  frequency.  Other
advertising  and promotion is comprised  principally of yellow page and Internet
advertising,  which declined 5.8% and 8.3% during the three and six months ended
June 30, 2008 as compared to the same periods in 2007.

     Our  future  spending  on yellow  page,  media,  and  Internet  advertising
expenditures will be driven in part by demand for our self-storage  spaces,  our
current occupancy levels, and the relative efficacy of each type of advertising.
While media  advertising  in particular can be volatile and increase or decrease
significantly in the short-term, our current expectation is that growth in media
advertising  should  moderate  in the third  quarter of 2008,  and in the fourth
quarter of 2008, relative to the same periods in 2007.

                                       53



     Utility expenses  increased 0.8% and 1.7% in the three and six months ended
June 30, 2008,  respectively,  as compared to the same periods in 2007. Assuming
continuance  of current  trends in petroleum  and other  energy  prices we would
expect  utility  expenses  to continue  to  increase  in the  remainder  of 2008
relative  to the  same  periods  in 2007.  However,  utility  expenses  are also
dependent  upon  changes in demand  driven by weather and  temperature,  both of
which are volatile and not predictable.

     Insurance  expense  decreased  19.6% and 16.4% in the three and six  months
ended June 30,  2008,  respectively,  as compared  to the same  periods in 2007,
reflecting  significant decreases in property insurance resulting primarily from
the  softer  insurance  markets as lack of  hurricane  activity  and  additional
competition from insurance providers has benefitted us.

     Telephone reservation center costs increased 3.0% and 2.5% in the three and
six months ended June 30, 2008, respectively, as compared to the same periods in
2007. We expect future increases in our telephone reservation center to be based
primarily  upon  general  inflation.  We  continue  to  evaluate  our  telephone
reservation  center as we evaluate the appropriate  staffing levels and location
of  personnel  relative  to our  expanded  portfolio,  and as a  result,  expect
telephone reservation center costs to remain somewhat volatile during 2008 until
we determine our appropriate ongoing level of expenses.


                                       54



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


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

Total rental income:
                                                                                  
     2008             $   326,781          $ 335,412        $                   $                   $
     2007             $   317,169          $ 325,144        $   336,117         $   327,885         $1,306,315

Total cost of operations (excluding
 depreciation and amortization expense):
     2008             $   115,347          $ 112,182
     2007             $   110,523          $ 110,480        $   106,668         $    98,557         $  426,228

Property tax expense:
     2008             $    33,705          $  32,526
     2007             $    32,318          $  31,110        $    32,340         $    26,389         $  122,157

Media advertising expense:
     2008             $     6,366          $   9,148
     2007             $     4,820          $   7,589        $     4,044         $     2,622         $   19,075

Other advertising and promotion expense:
     2008             $     4,130          $   4,733
     2007             $     4,633          $   5,027        $     4,180         $     3,874         $   17,714

REVPAF:
     2008             $    11.45           $  11.75
     2007             $    11.12           $  11.40         $    11.77          $     11.50         $   11.45

Weighted average realized annual rent
 per occupied square foot:
     2008             $    12.89          $   12.92
     2007             $    12.52          $   12.54         $    13.06          $     13.02         $   12.79

Weighted average occupancy levels for
 the period:
     2008                 88.8%              91.0%
     2007                 88.8%              90.9%               90.1%                88.3%             89.5%



                                       55



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

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



                                            Three Months Ended June 30,           Six Months Ended June 30,
                                        -----------------------------------   ---------------------------------
                                            2008        2007         Change      2008        2007        Change
                                        ------------  -----------   -------   ---------    ---------    -------

                                                  (Amounts in thousands, except for weighted average data)
Same Store Facilities Operating
Trends by Region
Rental income:
                                                                                        
   Southern California  (170              $  51,659    $  49,713      3.9%    $ 102,409    $  98,446      4.0%
   facilities)......................
   Northern California  (161                 36,801       34,997      5.2%       72,530       69,095      5.0%
   facilities)......................
   Texas  (214 facilities)..........         32,166       30,665      4.9%       63,370       60,365      5.0%
   Florida  (171 facilities)........         31,866       32,530     (2.0)%      63,417       65,011     (2.5)%
   Illinois  (118 facilities).......         22,331       21,370      4.5%       44,065       42,062      4.8%
   Georgia  (82 facilities).........         12,100       11,962      1.2%       24,011       23,711      1.3%
   All other states  (873 facilities)       148,489      143,907      3.2%      292,391      283,623      3.1%
                                        ------------  -----------   -------   ---------    ---------    -------
Total rental income.................        335,412      325,144      3.2%      662,193      642,313      3.1%

Cost of operations before depreciation and amortization
 expense:
   Southern California..............         11,454       11,286      1.5%       22,692       22,705     (0.1)%
   Northern California..............          9,672        9,580      1.0%       19,443       19,220      1.2%
   Texas............................         12,908       13,232     (2.4)%      25,977       26,119     (0.5)%
   Florida..........................         11,890       11,494      3.4%       23,432       22,395      4.6%
   Illinois.........................         10,271        9,662      6.3%       21,321       19,536      9.1%
   Georgia..........................          4,122        4,038      2.1%        8,132        7,971      2.0%
   All other states.................         51,865       51,188      1.3%      106,532      103,057      3.4%
                                        ------------  -----------   -------   ---------    ---------    -------
Total cost of operations............        112,182      110,480      1.5%      227,529      221,003      3.0%

Net operating income before depreciation and amortization
 expense:
   Southern California..............         40,205       38,427      4.6%       79,717       75,741      5.2%
   Northern California..............         27,129       25,417      6.7%       53,087       49,875      6.4%
   Texas............................         19,258       17,433     10.5%       37,393       34,246      9.2%
   Florida..........................         19,976       21,036     (5.0)%      39,985       42,616     (6.2)%
   Illinois.........................         12,060       11,708      3.0%       22,744       22,526      1.0%
   Georgia..........................          7,978        7,924      0.7%       15,879       15,740      0.9%
   All other states.................         96,624       92,719      4.2%      185,859      180,566      2.9%
                                        ------------  -----------   -------   ---------    ---------    -------
Total net operating income before
   depreciation and amortization
   expense..........................      $ 223,230    $ 214,664      4.0%$     434,664    $ 421,310      3.2%

Weighted average occupancy:
   Southern California..............         90.8%        90.8%         -         90.5%        90.5%      0.0%
   Northern California..............         91.1%        90.2%       1.0%        90.0%        89.4%      0.7%
   Texas............................         92.0%        91.7%       0.3%        91.0%        90.5%      0.6%
   Florida..........................         89.4%        90.2%      (0.9)%       88.4%        90.0%     (1.8)%
   Illinois.........................         90.4%        90.0%       0.4%        88.9%        88.6%      0.3%
   Georgia..........................         90.6%        91.2%      (0.7)%       89.5%        90.3%     (0.9)%
   All other states.................         91.2%        91.1%       0.1%        90.0%        89.8%      0.2%
                                        ------------  -----------   -------   ---------    ---------    -------
Total weighted average occupancy....         91.0%        90.9%       0.1%        89.9%        89.9%        -

REVPAF:
   Southern California..............      $  17.89    $  17.21        4.0%     $  17.72   $   17.04       4.0%
   Northern California..............         15.36       14.60        5.2%        15.13       14.42       4.9%
   Texas............................          8.97        8.53        5.2%         8.83        8.40       5.1%
   Florida..........................         11.53       11.81       (2.4)%       11.47       11.79      (2.7)%
   Illinois.........................         11.65       11.13        4.7%        11.50       10.97       4.8%
   Georgia..........................          8.97        8.88        1.0%         8.90        8.79       1.3%
   All other states.................         10.88       10.54        3.2%        10.71       10.39       3.1%
                                        ------------  -----------   -------   ---------    ---------    -------
Total REVPAF........................      $  11.75    $  11.40        3.1%     $  11.60   $   11.26       3.0%


                                       56






   Same Store Facilities Operating
   Trends by Region (Continued)
                                            Three Months Ended June 30,           Six Months Ended June 30,
                                        -----------------------------------   ---------------------------------
                                            2008         2007       Change       2008         2007       Change
                                        ------------  -----------   -------   ---------    ---------    -------
                                                   (Amounts in thousands, except for weighted average data)
                                                                                        
Realized annual rent per occupied square foot:
   Southern California..............      $  19.70    $  18.95        4.0%     $  19.58    $  18.82       4.0%
   Northern California..............         16.87       16.19        4.2%        16.81       16.13       4.2%
   Texas............................          9.75        9.30        4.8%         9.70        9.28       4.5%
   Florida..........................         12.90       13.09       (1.5)%       12.98       13.11      (1.0)%
   Illinois.........................         12.88       12.37        4.1%        12.94       12.37       4.6%
   Georgia..........................          9.91        9.73        1.8%         9.95        9.73       2.3%
   All other states.................         11.92       11.57        3.0%        11.90       11.57       2.9%
                                        ------------  -----------   -------   ---------    ---------    -------
Total realized rent per square foot.      $  12.92    $  12.54        3.0%     $  12.91    $  12.52       3.1%
                                        ============  ===========   =======   =========    =========    =======

In place annual rent per occupied square foot at June 30:
Southern California.................                                           $  21.59    $  20.79       3.8%
Northern California.................                                              18.77       17.98       4.4%
Texas...............................                                              10.67       10.26       4.0%
Florida.............................                                              14.09       14.35      (1.8)%
Illinois............................                                              14.17       13.74       3.1%
Georgia.............................                                              10.98       10.82       1.5%
All other states....................                                              13.13       12.81       2.5%
                                                                              ---------    ---------    -------
Total in place rent per occupied
  square foot:......................                                           $  14.21    $  13.84       2.7%
                                                                              =========    =========    =======


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

     The Northern  California  market consists  principally of San Francisco and
related  peripheral areas.  While this area has a vibrant economy and relatively
strong population growth, it has been subject to periodic  turbulence in general
economic  conditions,   particularly  associated  with  the  technology  sector.
Currently, revenue growth in this area has been on the upper end relative to our
other markets.

     The Texas  market  principally  includes  Dallas,  Houston,  Austin and San
Antonio.  This market has historically been subject to volatility due to minimal
regulatory restraint upon building,  which results in cycles of overbuilding and
absorption.

     The Florida market  principally  includes Miami,  Orlando,  Tampa, and West
Palm Beach.  Florida has suffered  negative  growth trends in the year,  and has
been one of our weakest  markets.  We believe  that the  absence of  hurricanes,
which created unusual demand following the hurricanes and the rebuilding period,
has adversely impacted growth in Florida.  In addition,  the Florida economy has
slowed down recently to a level where it is underperforming the U.S. economy for
the past year.  Over the long term we believe that this market will benefit from
continued strong population growth and barriers to entry.

                                       57



     OTHER FACILITIES
     ----------------

     In  addition  to the Same  Store  facilities,  at June 30 2008,  we had 199
facilities that were not classified  into this pool.  These  properties  include
recently acquired facilities,  recently developed facilities and facilities that
were recently  expanded by adding  additional  storage units. In general,  these
facilities are not stabilized  with respect to occupancies or rental rates. As a
result of the fill-up  process and timing of when the  facilities  were put into
place, year-over-year changes can be significant.

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




OTHER FACILITIES                                          Three Months Ended June 30,            Six Months Ended June 30,
- ----------------                                        --------------------------------   ------------------------------------
                                                           2008        2007      Change        2008        2007         Change
                                                        ----------  ----------   -------   -----------  ----------   ----------
                                                                 (Dollar amounts in thousands, except square foot amounts)
Rental income:
                                                                                                
   Facilities put in place in 2008...............       $     355   $       -    $   355    $     355    $     -     $     355
   Facilities put in place in 2007...............           1,548         370      1,178        2,901         390        2,511
   Facilities put in place prior to 2007 (a).....          21,647      19,152      2,495       42,291      37,968        4,323
   Expansion facilities..........................          22,383      20,466      1,917       43,703      40,023        3,680
                                                        ----------  ----------   -------   -----------  ----------   ----------
   Total rental income...........................          45,933      39,988      5,945       89,250      78,381       10,869
                                                        ----------  ----------   -------   -----------  ----------   ----------

Cost of operations before depreciation and amortization expense:
   Facilities put in place in 2008...............       $     166   $      -     $   166    $     166    $     -     $     166
   Facilities put in place in 2007...............             681         173        508        1,463         217        1,246
   Facilities put in place prior to 2007.........           8,023       8,135       (112)      16,264      16,700         (436)
   Expansion facilities..........................           7,302       7,434       (132)      15,193      14,609          584
                                                        ----------  ----------   -------   -----------  ----------   ----------
   Total cost of operations......................          16,172      15,742        430       33,086      31,526        1,560
                                                        ----------  ----------   -------   -----------  ----------   ----------

Net operating income before depreciation and
    amortization expense:
   Facilities put in place in 2008...............       $     189   $      -     $   189    $     189    $     -     $     189
   Facilities put in place in 2007...............             867         197        670        1,438         173        1,265
   Facilities put in place prior to 2007.........          13,624      11,017      2,607       26,027      21,268        4,759
   Expansion facilities..........................          15,081      13,032      2,049       28,510      25,414        3,096
                                                        ----------  ----------   -------   -----------  ----------   ----------
   Total net operating income before depreciation and
     amortization expense (b) ...................          29,761      24,246      5,515       56,164      46,855        9,309
Depreciation and amortization expense............         (16,070)    (20,218)     4,148      (34,587)    (41,346)       6,759
                                                        ----------  ----------   -------   -----------  ----------   ----------
   Net operating income..........................       $  13,691   $   4,028    $ 9,663    $  21,577    $  5,509    $  16,068
                                                        ==========  ==========   =======    ==========  ==========   ==========

Weighted average square foot occupancy during the
period:
   Facilities put in place in 2008...............           77.8%          -          -         77.8%          -           -
   Facilities put in place in 2007...............           69.3%       70.3%      (1.4)%       63.6%       65.2%       (2.5)%
   Facilities put in place prior to 2007.........           87.6%       80.2%       9.2%        85.8%       78.4%        9.4%
   Expansion facilities..........................           84.5%       81.3%       3.9%        82.5%       79.6%        3.6%
                                                        ----------  ----------   -------   -----------  ----------   ----------
                                                            85.2%       80.6%       5.7%        83.2%       78.9%        5.4%
                                                        ==========  ==========   =======    ==========  ==========   ==========



                                       58






OTHER FACILITIES                                           The Months Ended June 30,             Six Months Ended June 30,
                                                        --------------------------------   ------------------------------------
                                                            2008       2007       Change        2008       2007         Change
                                                        ----------  ----------   -------   -----------  ----------   ----------
Weighted average realized annual rent per occupied
square foot for the period:
                                                                                                       
   Facilities put in place in 2008...............       $   11.44   $      -          -     $   11.44    $   -           -
   Facilities put in place in 2007 (c)...........           12.49       15.21     (17.9)%       12.72       14.34      (11.3)%
   Facilities put in place prior to 2007.........           11.80       11.20       5.4%        12.03       11.46        5.0%
   Expansion facilities..........................           11.61       11.56       0.4%        11.83       11.75        0.7%
                                                        ----------  ----------   -------   -----------  ----------   ----------
                                                        $   11.73   $   11.41       2.8%    $   11.95    $  11.62        2.8%
                                                        ==========  ==========   =======   ===========  ==========   ==========
In place annual rent per occupied square foot at
June 30:
   Facilities put in place in 2008...............                                           $   14.31    $   -            -
   Facilities put in place in 2007 (c)...........                                               14.64       20.20      (27.5)%
   Facilities put in place prior to 2007.........                                               14.79       14.25        3.8%
   Expansion facilities..........................                                               14.60       14.75       (1.0)%
                                                                                           -----------  ----------   ----------
                                                                                            $   14.69    $  14.53        1.1%
                                                                                           ===========  ==========   ==========
At June 30:
    Number of Facilities:
      Facilities put in place in 2008............                                                 3            -          3
      Facilities put in place in 2007............                                                10            3          7
      Facilities put in place prior to 2007......                                                95           90          5
      Expansion facilities.......................                                                91           92         (1)
                                                                                           -----------  ----------   ----------
                                                                                                199          185         14
                                                                                           ===========  ==========   ==========
    Net rentable square feet (in thousands):
      Facilities put in place in 2008............                                               260            -        260
      Facilities put in place in 2007............                                               679          175        504
      Facilities put in place prior to 2007......                                             7,215        6,947        268
      Expansion facilities.......................                                             7,696        7,163        533
                                                                                           -----------  ----------   ----------
                                                                                             15,850       14,285      1,565
                                                                                           ===========  ==========   ==========


     (a)  Includes 65 domestic  facilities,  and one facility located in London,
          England,  which we  acquired  in the  Shurgard  Merger,  along with 29
          facilities that were otherwise acquired or developed.  We discontinued
          consolidation  of 11 of these  facilities  effective  May 24, 2007. On
          November  15, 2007,  we  recommenced  consolidation  of five of the 11
          properties.  The  operations  for these 11 facilities  from January 1,
          2007 through May 24, 2007,  combined  with the  operations of the five
          facilities that we recommenced  consolidation after November 15, 2007,
          are  included  in this table under  "facilities  put in place prior to
          2007."

     (b)  Total net operating  income before  depreciation  and  amortization or
          "NOI"  is  a  non-GAAP  (generally  accepted  accounting   principles)
          financial  measure  that  excludes  the  impact  of  depreciation  and
          amortization  expense,  for our self-storage  facilities  represents a
          portion  of our total  self-storage  segment's  net  operating  income
          before  depreciation and amortization  expense,  and is denoted in the
          table "self-storage operations summary" above. A reconciliation of our
          total self-storage  segment's net operating income before depreciation
          and  amortization  expense to  consolidated  net income is included in
          Note  11  to  our  June  30,  2008  condensed  consolidated  financial
          statements,   "Segment   Information."   Although   depreciation   and
          amortization expense are operating expenses,  we believe that NOI is a
          meaningful measure of operating performance, because we utilize NOI in
          making decisions with respect to capital  allocations,  in determining
          current   property   values,   segment   performance,   and  comparing
          period-to-period and market-to-market  property operating results. NOI
          is not a substitute for net operating  income after  depreciation  and
          amortization in evaluating our operating results.

     (c)  Realized rent per occupied  square foot,  and in place annual rent per
          occupied  square foot,  for the facilities put in place in 2007 varies
          significantly  between  the periods in 2007 and 2008 due to the timing
          of when the specific facilities were put in place.

     The  properties  denoted under  "Facilities  put in place in 2008" were put
into  operation  within the  Public  Storage  system at  various  dates in 2008.
Accordingly,  rental  income,  cost of operations,  depreciation,  net operating
income,  weighted  average square foot occupancies and realized rents per square
foot  represent the operating  results for the partial  period that we owned the
facilities  during the year acquired.  In addition,  in place rents per occupied

                                       59



square foot at June 30, 2008 and 2007,  reflect the amounts for those facilities
we  owned  at each of those  respective  dates.  The  properties  denoted  under
"Facilities put in place prior to 2007" include the domestic facilities acquired
in the merger with Shurgard  which are not included in the Same Store group,  as
well as other newly developed and acquired facilities.

     During  the first six  months of 2008,  in the U.S.  we  completed  a newly
developed  facility with 49,000 net rentable square feet at a total cost of $5.6
million and three  expansions  to existing real estate  facilities  (166,000 net
rentable square feet) for an aggregate cost of $12.8 million.  At June 30, 2008,
our development  pipeline includes two newly developed  self-storage  facilities
located in the U.S. adding 119,000 net rentable square feet at an aggregate cost
of $17.6  million,  22 projects to expand our  existing  real estate  facilities
located in the U.S. by 926,000 net rentable  square feet at an aggregate cost of
$85.5  million  and one project to expand an  existing  real estate  facility in
London,  England by 21,000 net rentable square feet at an aggregate cost of $6.6
million.  These  projects  are  subject  to  contingencies  including  obtaining
governmental approvals, but we expect completion of these projects over the next
12 - 24 months.

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

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

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

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

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


                                       60



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

     The following table sets forth our ancillary operations:



                                                   Three Months Ended June 30,                Six Months Ended June 30,
                                              ------------------------------------   ---------------------------------------
                                                2008          2007       Change           2008         2007        Change
                                              ------------ ----------- -----------   -----------   -----------  ------------
                                                                         (Amounts in thousands)
Revenues:
                                                                                               
    Tenant reinsurance premiums.........       $  14,186   $  12,544    $  1,642      $  28,008    $   24,359    $   3,649
    Merchandise sales...................           8,106       8,347        (241)        14,695        15,291         (596)
    Shurgard Europe ancillary operations               -       4,304      (4,304)         4,913         8,064       (3,151)
    Containerized storage ..............           3,188       3,186           2          6,276         6,389         (113)
    Truck rentals.......................           1,881       3,479      (1,598)         3,856         6,155       (2,299)
    Commercial property operations......           3,744       3,720          24          7,801         7,470           331
    Property management.................             674         682          (8)         1,330         1,359          (29)
                                              ------------ ----------- -----------   -----------   -----------  ------------
       Total revenues...................          31,779      36,262      (4,483)        66,879        69,087       (2,208)
                                              ------------ ----------- -----------   -----------   -----------  ------------
Cost of operations:
    Tenant reinsurance..................           3,919       4,374        (455)         6,937         8,446       (1,509)
    Merchandise sales...................           6,458       6,845        (387)        11,672        13,248       (1,576)
    Shurgard Europe ancillary operations               -       1,353      (1,353)         1,409         2,690       (1,281)
    Containerized storage...............           2,680       2,701         (21)         5,365         5,316           49
    Truck rentals.......................           3,365       3,560        (195)         6,844         6,965         (121)
    Commercial property operations......           1,629       1,459         170          3,234         2,878          356
    Property management.................              58          60          (2)           116           118           (2)
                                              ------------ ----------- -----------   -----------   -----------  ------------
       Total cost of operations.........          18,109      20,352      (2,243)        35,577        39,661       (4,084)
                                              ------------ ----------- -----------   -----------   -----------  ------------
Depreciation:
    Tenant reinsurance..................               -           -           -              -             -            -
    Merchandise sales...................               -           -           -              -             -            -
    Shurgard Europe ancillary operations               -           -           -              -             -            -
    Containerized storage..............              244         207          37            477           414           63
    Truck rentals.......................               -           -           -              -             -            -
    Commercial property operations......             652         642          10          1,304         1,284           20
    Property management.................               -           -           -              -             -            -
                                              ------------ ----------- -----------   -----------   -----------  ------------
       Total depreciation...............             896         849          47          1,781         1,698           83
                                              ------------ ----------- -----------   -----------   -----------  ------------
Net income (loss):
    Tenant reinsurance..................          10,267       8,170       2,097         21,071        15,913        5,158
    Merchandise sales...................           1,648       1,502         146          3,023         2,043          980
    Shurgard Europe ancillary operations               -       2,951      (2,951)         3,504         5,374       (1,870)
    Containerized storage...............             264         278         (14)           434           659         (225)
    Truck rentals.......................          (1,484)        (81)     (1,403)        (2,988)         (810)      (2,178)
    Commercial property operations......           1,463       1,619        (156)         3,263         3,308          (45)
    Property management.................             616         622          (6)         1,214         1,241          (27)
                                              ------------ ----------- -----------   -----------   -----------  ------------
       Total net income.................       $  12,774   $  15,061    $ (2,287)     $  29,521    $   27,728    $   1,793
                                              ===========  =========== ===========   ===========   ===========  ============


     Tenant  reinsurance  operations:  We reinsure  policies  offered  through a
non-affiliated  insurance  broker  against  losses to goods  stored by  tenants,
primarily in our domestic self-storage  facilities.  The revenues that we record
are based upon premiums,  which are originally  paid by the customer,  which are
then paid to us by the broker in accordance with our  reinsurance  arrangements.
Cost of operations  primarily  includes  claims paid that are not covered by our
outside third-party insurers, as well as claims adjusting expenses.

                                       61



     Our  increase in tenant  reinsurance  revenues was  attributable  to higher
rates, and an increase in the percentage of our existing tenants  retaining such
policies,  with respect to our ongoing tenant  insurance  activities in the U.S.
Approximately  53.0% and 45.7% of our tenants had such policies at June 30, 2008
and 2007, respectively.

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

     The future cost of operations will be dependent primarily upon the level of
losses incurred, including the level of catastrophic events, such as hurricanes,
that occur and affect our properties.

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

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

     Our truck revenues have declined  significantly in the three and six months
ended June 30, 2008 as compared to the same periods in 2007.  These declines are
due partially to our  termination,  in the latter part of the fourth  quarter of
2007, of our agency  relationship with Penske,  and the  implementation of a new
relationship  with Budget  Truck  Rental.  While  revenues  with  Penske  ceased
immediately,  our agency  locations with Budget Truck Rental at our self-storage
locations have been gradually  ramping up over the last six months. As a result,
during this  transition  period our aggregate level of truck agency revenues has
been less than under the Penske relationship.

     Further  contributing  to the decline in revenues is that we now have fewer
Public Storage  wholly-owned  rental trucks,  in favor of using the Budget Truck
Rental fleet,  as well as reduced  overall truck rental  activity as a result of
the decline in moving activity.

     It is difficult to estimate  what our ultimate  revenues will be under this
new strategy relative to the Penske  relationship,  because of a) differences in
the geographic  focus and types of equipment used by the Penske and Budget Truck
Rental systems, b) differing commission structures,  as well as c) the uncertain
impact that the  continued  general  slump in housing and moving  activity  will
have.

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

     Shurgard Europe ancillary  operations:  Shurgard Europe offers  merchandise
and tenant  insurance to its tenants,  similar to the business model in the U.S.
As described  in Note 3 to our June 30, 2008  condensed  consolidated  financial
statements,   Shurgard  Europe's  operations  are  no  longer  included  in  our
consolidated  financial  statements after March 31, 2008. Instead,  our pro-rata
share of the  operating  results  of these  facilities  and the other  operating
results of  Shurgard  Europe are  included in "equity in earnings of real estate
entities." As a result, no further amounts are included in ancillary revenues or
ancillary cost of operations for the Shurgard Europe facilities.

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

                                       62



     Rental and other income  includes  monthly  rental charges to customers for
storage of the  containers,  service  fees  charged  for pickup and  delivery of
containers to customers'  homes and  businesses  and certain  non-core  services
which were eliminated,  such as handling and packing  customers' goods from city
to city.  Direct operating costs principally  includes payroll,  equipment lease
expense, utilities and vehicle expenses (fuel and insurance).

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

     There  can be no  assurance  as to the level of the  containerized  storage
business's  operations  or  profitability,  and  we  continue  to  evaluate  the
business's operations.  Based upon these evaluations,  we have closed certain of
these  facilities  in recent years,  including two  facilities in the six months
ended June 30, 2008 which are included in  "discontinued  operations" and we may
decide to close additional facilities in the future.

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

     Our commercial  operations  are comprised of 1,469,000 net rentable  square
feet of  commercial  space,  which is  principally  operated  at  certain of the
self-storage facilities.

     Our commercial property operations consist primarily of facilities that are
at a stabilized level of operations, and generally reflect the conditions in the
markets in which they operate.  We do not expect any  significant  growth in net
operating income from this segment of our business for the remainder of 2008.

     EQUITY IN EARNINGS OF REAL ESTATE ENTITIES: In addition to our ownership of
equity  interests  in PSB  and  Shurgard  Europe,  we had  general  and  limited
partnership  interests in five limited partnerships at June 30, 2008. 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,  2008  and  2007,   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:

                                       63







Historical summary:                                Three Months Ended June 30,             Six Months Ended June 30,
- -------------------                            ------------------------------------    -------------------------------------
                                                   2008        2007        Change        2008          2007        Change
                                               -----------  ----------  -----------    ----------   ----------   ------------
                                                                        (Amounts in thousands)
Property operations:
                                                                                                
  PSB                                          $  22,119    $  20,373   $   1,746      $  43,898    $  40,062     $   3,836
  Shurgard Europe (1)....................         13,757            -      13,757         13,757            -        13,757
  Other Investments (2)..................          1,101        1,072          29          2,250        1,838           412
                                               -----------  ----------  -----------    ----------   ----------   ------------
                                                  36,977       21,445      15,532         59,905       41,900        18,005
                                               -----------  ----------  -----------    ----------   ----------   ------------
Depreciation:
  PSB....................................        (11,412)     (10,934)       (478)       (23,003)     (20,430)       (2,573)
  Shurgard Europe (1)....................        (10,856)           -     (10,856)       (10,856)           -       (10,856)
  Other Investments (2)..................           (553)        (345)       (208)        (1,134)        (604)         (530)
                                               -----------  ----------  -----------    ----------   ----------   ------------
                                                 (22,821)     (11,279)    (11,542)       (34,993)     (21,034)      (13,959)
                                               -----------  ----------  -----------    ----------   ----------   ------------
Other: (3)
  PSB (4)................................         (7,860)      (7,215)       (645)       (15,703)     (13,918)       (1,785)
  Shurgard Europe (1)....................         (1,444)           -      (1,444)        (1,444)           -        (1,444)
  Other Investments (2)..................           (220)        (169)        (51)          (404)        (189)         (215)
                                               -----------  ----------  -----------    ----------   ----------   ------------
                                                  (9,524)      (7,384)     (2,140)       (17,551)     (14,107)       (3,444)
                                               -----------  ----------  -----------    ----------   ----------   ------------
Total equity in earnings of real estate entities:
  PSB....................................          2,847        2,224         623          5,192        5,714          (522)
  Shurgard Europe (1)....................          1,457            -       1,457          1,457            -         1,457
  Other Investments (2)..................            328          558        (230)           712        1,045          (333)
                                               -----------  ----------  -----------    ----------   ----------   ------------
                                                $  4,632     $  2,782   $   1,850       $  7,361     $  6,759     $     602
                                               ===========  ==========  ===========    ==========   ==========   ============


     (1)  In addition to $1,457,000 in equity  earnings that we recognized  with
          respect to our  investment  in  Shurgard  Europe,  we also  recognized
          $6,319,000  in interest  income on our note  receivable  from Shurgard
          Europe  and  $213,000  in  trademark  license  income.   See  Note  5,
          "Investment   in  Shurgard   Europe"  for  further   analysis  of  the
          presentation of our equity earnings and interest and other income from
          Shurgard Europe.

     (2)  Amounts  primarily reflect equity in earnings recorded for investments
          that have been held consistently  throughout each of the three and six
          months ended June 30, 2008 and 2007,  including our  investment in two
          facilities  owned by the Acquisition  Joint Venture that are accounted
          for on the  equity  method of  accounting  (see Note 8 to our June 30,
          2008 condensed consolidated financial statements).

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

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

Investment in PS Business Parks
- -------------------------------

     Throughout  each of the three and six months  ended June 30, 2008 and 2007,
we owned  5,418,273  common shares and  7,305,355  operating  partnership  units
(units which are  convertible  into common shares on a one-for-one  basis) in PS
Business Parks, Inc., a public REIT (Amex: PSB). Our percentage ownership of PSB
increased  in the first six months of 2008 as PSB  repurchased  a portion of its
common stock. At June 30, 2008, PSB owned and operated 19.6 million net rentable
square  feet of  commercial  space  located in eight  states.  PSB also  manages
commercial  space owned by the Company and affiliated  entities at June 30, 2008
pursuant to property management agreements.

     Our future  equity  income from PSB will be dependent  entirely  upon PSB's
operating results.  Our investment in PSB provides us with some  diversification
into another asset type. We have no plans of disposing of our investment in PSB.

                                       64



PSB's filings and selected  financial  information  can be accessed  through the
Securities and Exchange Commission, and on its website, www.psbusinessparks.com.

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

     The "Other  Investments" are comprised  primarily of our equity in earnings
from entities that own 28 self-storage facilities. On July 21, 2008, we acquired
the remaining  interest we did not own in the Acquisition  Joint Venture,  which
owned two of these facilities.  As a result,  equity in earnings with respect to
two of these properties will cease as of that acquisition date,  because we will
commence consolidating these properties on our financial statements.  Our future
earnings  with respect to the other 26  facilities  will be  dependent  upon the
operating results of the facilities that these entities own.

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

     As  described  in  Note 3 to  our  June  30,  2008  condensed  consolidated
financial  statements,  due to the  disposition  of a 51%  interest  in Shurgard
Europe,  our pro-rata  share of the operating  results of Shurgard  Europe after
March 31, 2008 is  included  in "equity in  earnings  of real estate  entities."
Included  in  Note 5 to our  June  30,  2008  condensed  consolidated  financial
statements is selected  financial data for Shurgard Europe for the three and six
months ended June 30, 2008 and 2007.

     At June 30, 2008, Shurgard Europe's operations comprise 178 facilities with
an aggregate of 9,339,000 net rentable  square feet.  The portfolio  consists of
104 wholly owned  facilities  and 74  facilities  owned by the two joint venture
partnerships, in which Shurgard Europe has a 20% equity interest.

     Our equity in earnings of Shurgard  Europe for the three  months ended June
30,  2008  totaling  $1,457,000  is  comprised  of  (i) a  loss  of  $4,819,000,
representing our 49% equity share of Shurgard  Europe's  $9,834,000 net loss for
the three months ended June 30, 2008,  (ii) income of  $6,071,000  and $205,000,
respectively,  representing  our  pro-rata  share  of the  interest  income  and
trademark license fees received from Shurgard during the three months ended June
30, 2008 (our pro-rata share of such amounts received are presented as equity in
earnings of real estate  entities  rather than interest and other  income).  Our
future  equity  income will be dependent  upon the future  operating  results of
Shurgard Europe.

     In evaluating the  operations of Shurgard  Europe,  management  reviews the
operating  results of 96 of the  facilities,  all of which are  wholly  owned by
Shurgard  Europe,  which have been  operated on a  stabilized  basis by Shurgard
Europe since  January 1, 2006.  The operating  data  presented in the table with
respect to these  facilities is reflected  utilizing the average  exchange rates
for the three and six months  ended  June 30,  2008,  respectively  for the same
periods in 2007,  rather than the  respective  exchange rates in effect for each
period. We present this data on such a "constant exchange rate" basis because we
believe it allows  comparability of the various periods, and isolates the impact
of exchange rates with respect to the trends in revenues and cost of operations.
As a result,  the data  presented  below does not  reflect  the  actual  results
included in our operations,  or the operations of Shurgard Europe, for the three
and six months ended June 30, 2008 and 2007.

                                       65


 SELECTED OPERATING DATA FOR THE 96 FACILITIES OPERATED BY SHURGARD EUROPE
 -------------------------------------------------------------------------
 ON A STABILIZED BASIS SINCE JANUARY 1, 2006 ("EUROPE  SAME  STORE
 -----------------------------------------------------------------
 FACILITIES"):
 -------------



                                                               Three Months Ended June 30,           Six Months Ended June 30,
                                                         ---------------------------------------   ---------------------------------
                                                                                    Percentage                          Percentage
                                                             2008          2007       Change         2008        2007      Change
                                                         ----------   ------------   ----------   ---------- ----------- ----------
                                                                    (Dollar amounts in thousands, except weighted average data,
                                                                                  utilizing constant exchange rates) (a)
Revenues:
                                                                                                            
    Rental income.................................       $   35,714   $    34,703      2.9%       $   70,145  $   67,352      4.2%
    Late charges and administrative fees collected              632           356     77.5%            1,220         670     82.1%
                                                         ----------   ------------   ----------   ---------- ----------- ----------
    Total revenues (b)............................           36,346        35,059      3.7%           71,365      68,022      4.9%
                                                         ----------   ------------   ----------   ---------- ----------- ----------
 Cost of operations (excluding depreciation
    and amortization expense):
    Property taxes ...............................            1,659         1,609      3.1%            3,242       2,935     10.5%
    Direct property payroll.......................            4,068         4,128     (1.5)%           7,967       8,146     (2.2)%
    Advertising and promotion.....................            1,307         1,487    (12.1)%           2,206       2,854    (22.7)%
    Utilities.....................................              838           820      2.2%            1,714       1,767     (3.0)%
    Repairs and maintenance.......................              962           839     14.7%            1,892       1,761      7.4%
    Property insurance............................              228           389    (41.4)%             444         789    (43.7)%
    Other costs of management.....................            4,904         5,575    (12.0)%           9,819      10,695     (8.2)%
                                                         ----------   ------------   ----------   ---------- ----------- ----------
  Total cost of operations (b)....................           13,966        14,847     (5.9)%          27,284      28,947     (4.5)%
                                                         ----------   ------------   ----------   ---------- ----------- ----------
   Net operating income (excluding depreciation and
   amortization expense) (c)......................       $   22,380   $    20,212     10.7%       $   44,081  $   39,075     12.8%
                                                         ==========   ============   ==========   ========== =========== ==========
Gross margin (before depreciation and amortization
expense)..........................................            61.6%         57.7%      6.8%            61.8%       57.4%      7.7%
Weighted average for the period:
  Square foot occupancy (d).......................            87.0%         89.9%     (3.2)%           87.5%       89.2%     (1.9)%
  Realized annual rent per occupied square foot (e)          $31.06        $29.21      6.3%           $30.33      $28.57      6.2%
  REVPAF (f) (g)..................................           $27.03        $26.26      2.9%           $26.54      $25.48      4.2%

Weighted average at June 30:
  Square foot occupancy...........................                                                     87.6%       91.1%     (3.8)%
  In place annual rent per occupied square foot (h)                                                   $32.77      $30.72      6.7%
Total net rentable square feet (in thousands).....                                                     5,286       5,286       -



     (a)  The majority of Shurgard Europe's operations are denominated in Euros.
          For comparative purposes,  amounts for 2007 and 2008 are translated at
          constant  exchange rates  representing  the average exchange rates for
          the three and six months  ended June 30,  2008.  The average  exchange
          rates for the Euro were  approximately  1.5628 and  1.5296  during the
          three and six months  ended June 30, 2008,  respectively.  The amounts
          that are included in our condensed  consolidated  financial statements
          are based upon the actual exchange rate for each period.
     (b)  Revenues and cost of operations do not include ancillary  revenues and
          expenses   generated  at  the   facilities   with  respect  to  tenant
          reinsurance and retail sales. "Other costs of management"  included in
          cost of  operations  principally  represents  all the  indirect  costs
          incurred  in  the  operations  of  the   facilities.   Indirect  costs
          principally  include  supervisory  costs and  corporate  overhead cost
          incurred to support the operating activities of the facilities.
     (c)  Net operating income (excluding depreciation and amortization expense)
          or "NOI" is a  non-GAAP  (generally  accepted  accounting  principles)
          financial  measure  that  excludes  the  impact  of  depreciation  and
          amortization  expense.  Although  depreciation  and  amortization  are
          operating  expenses,  we believe that NOI is a  meaningful  measure of
          operating performance, because we utilize NOI in making decisions with
          respect  to  capital  allocations,  in  determining  current  property
          values,  segment  performance,   and  comparing  period-to-period  and
          market-to-market  property operating results.  NOI is not a substitute
          for net operating income after  depreciation and amortization  expense
          in evaluating our operating results.
     (d)  Square foot occupancies  represent  weighted average  occupancy levels
          over the entire period.
     (e)  Realized   annual  rent  per  occupied  square  foot  is  computed  by
          annualizing  the  result of  dividing  rental  income by the  weighted
          average  occupied square footage for the period.  Realized annual rent
          per  occupied  square  foot  takes  into   consideration   promotional
          discounts   and  other  items  that  reduce  rental  income  from  the
          contractual amounts due.

                                       66



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

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

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

     The Europe Same Store properties  continue to reflect above average growth.
With  occupancy  stabilized  at above 85%, we believe that  Shurgard  Europe has
pricing  power  and we expect  Shurgard  Europe to  generate  additional  growth
through rental rate  increases.  The properties are also benefiting from expense
control,  resulting in negative expense growth. The European team is selectively
adapting various operating  strategies we use in the U.S. and incorporating them
into their operating model.



                                       67



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

     INTEREST AND OTHER INCOME:  Interest and other income was  $11,014,000  and
$13,858,000 for the three and six months ended June 30, 2008,  respectively,  as
compared to $955,000 and  $3,080,000 for the three and six months ended June 30,
2007,  respectively.  These  increases are principally as a result of (i) higher
average cash balances  invested in interest  bearing  accounts and (ii) interest
income with respect to notes receivable from Shurgard Europe (described below).

     On March 31, 2008,  we  completed a  transaction  whereby an  institutional
investor  acquired a 51% interest in Shurgard Europe (see Note 3 to our June 30,
2008  condensed  consolidated  financial  statements).  In connection  with this
transaction,   we  received  net  proceeds   totaling   $609.1   million   which
significantly  increased our average cash on-hand  throughout  the three and six
months ended June 30, 2008 as compared to the same periods in 2007, resulting in
approximately $3.3 million of additional  interest income in 2008 as compared to
2007.

     In addition, a part of the transaction, we also have a note receivable from
Shurgard  Europe totaling $618.7 million as of June 30, 2008 that bears interest
at the rate of 7.5% per annum.  Interest  income with respect to this receivable
was  approximately  $12.4  million  for the three and six months  ended June 30,
2008,  however,  for  financial  reporting  purposes,  51% of this amount  ($6.3
million) was recorded as interest  income and the remaining  49% ($6.1  million)
was recorded as additional equity in earnings.

     The  level  of  interest  income  recorded  in  connection  with  our  note
receivable  from  Shurgard  Europe will be dependent  upon the balances due from
Shurgard Europe as well as the exchange rate of the Euro versus the U.S. Dollar.
The level of interest income  recorded on outstanding  cash balances will depend
upon the  ultimate  timing of the  investment  or other  disposition  of the net
proceeds.

     DEPRECIATION AND  AMORTIZATION:  Depreciation and amortization  expense was
$95,383,000 and  $217,869,000  for the three and six months ended June 30, 2008,
respectively, as compared to $167,510,000 and $343,876,000 for the three and six
months ended June 30, 2007, respectively.

     The decrease in depreciation and amortization  expense in the three and six
months  ended  June 30,  2008 as  compared  to the same  periods  in 2007 is due
principally to a decline of $33.8 million and $76.5 million, respectively,  with
respect  to  domestic   assets  due  primarily  to  reduced  tenant   intangible
amortization  with respect to domestic assets  acquired in the Shurgard  Merger.
These  intangible  assets  represent  the  estimated  fair value of the  storage
tenants in place at the time of the merger,  and are being amortized relative to
the expected  future  benefit of the tenants in place to each period.  We expect
the  amortization  expense  with  respect to these  intangibles  to  approximate
$10,581,000 for the remainder of 2008.  Effective  March 31, 2008,  depreciation
and amortization  ceased on the facilities  owned by Shurgard Europe,  which was
deconsolidated  effective  March 31,  2008.  Included  in our  depreciation  and
amortization  on Shurgard  Europe's  facilities  was  $21,871,000  for the three
months ended March 31, 2008, and  $38,564,000  and $76,836,000 for the three and
six months ended June 30, 2007, respectively.

     GENERAL  AND  ADMINISTRATIVE:   General  and  administrative   expense  was
$33,173,000,  and  $48,089,000 for the three and six months ended June 30, 2008,
respectively,  as compared to $21,465,000  and $37,981,000 for the three and six
months ended June 30, 2007,  respectively.  General and  administrative  expense
principally  consists of state income taxes,  investor relations  expenses,  and
corporate  and  executive  salaries.  In  addition,  general and  administrative
expenses includes expenses that vary depending on the Company's  activity levels
in  certain  areas,  such  as  overhead  associated  with  the  acquisition  and
development  of real  estate  facilities,  certain  expenses  related to capital
raising  and  merger  and  acquisition  activities,   employee  severance,   and
stock-based compensation.

     General and  administrative  expense includes the following items that vary
depending upon our  activities:  a) costs and expenses  totaling  $1,300,000 and
$5,300,000,  respectively,  during  the three and months  ended  June 30,  2007,
incurred in connection with the  integration of Shurgard and Public Storage,  b)
$25,400,000 and $27,900,000,  respectively, in additional incentive compensation
in the three and six months ended March 31, 2008 related to the  disposition  of
an interest in Shurgard  Europe,  c)  $9,600,000  in costs  associated  with our
proposed  offering of shares in Shurgard  Europe during the three and six months
ended June 30, 2007 and d) $2,000,000 in costs associated with reorganizing as a

                                       68



Maryland  REIT during the three and six months ended June 30,  2007.  Certain of
these amounts were incurred by Shurgard Europe and included in our  consolidated
financial statements.

     General and  administrative  expense also  excludes  the ongoing  levels of
general and administrative expense incurred by Shurgard Europe for periods after
March 31, 2008.

     INTEREST  EXPENSE:  Interest expense was $9,601,000 and $26,088,000 for the
three  and six  months  ended  June  30,  2008,  respectively,  as  compared  to
$16,707,000  and  $33,515,000  for the three and six months ended June 30, 2007,
respectively. See also Notes 7 and 8 to our June 30, 2008 condensed consolidated
financial  statements for a schedule of our debt balances,  principal  repayment
requirements, and average interest rates.

     Capitalized  interest expense totaled $434,000 and $1,182,000 for the three
and six months ended June 30, 2008,  respectively,  as compared to $973,000, and
$1,714,000  for the three and six months ended June 30, 2007,  respectively,  in
connection with our development activities.

     Interest  expense  excludes amounts incurred by Shurgard Europe after March
31,  2008.  Included  in our  condensed  consolidated  financial  statements  is
interest  expense  incurred by Shurgard  Europe of $6,597,000 for the six months
ended June 30,  2008  (none  during the three  months  ended June 30,  2008) and
$5,381,000  and  $10,470,000  for the three and six months  ended June 30, 2007,
respectively, relative to third-party debt (excluding the debt payable to Public
Storage).  Interest  expense incurred by Shurgard Europe after March 31, 2008 is
longer reflected on our financial statements.

     GAIN ON DISPOSITION OF AN INTEREST IN SHURGARD  EUROPE:  On March 31, 2008,
an institutional  investor acquired a 51% interest in Shurgard European Holdings
LLC, a newly formed Delaware limited  liability  company and the holding company
for Shurgard Europe ("Shurgard Holdings"). Public Storage owns the remaining 49%
interest and is the managing  member of Shurgard  Holdings.  In exchange for the
51%  interest  in  Shurgard  Holdings,   the  investor  paid  Shurgard  Holdings
approximately  (euro)383,200,000  ($605,627,000)  on March 31, 2008.  During the
three   months  ended  June  30,  2008,   the   investor   paid  an   additional
(euro)4,797,000  ($7,574,000)  based upon the  operating  results  (as  defined)
generated by Shurgard Europe during the three months ended March 31, 2008.

     Our net proceeds from the transaction aggregated $609,059,000, comprised of
$613,201,000  paid by the  institutional  investor  less  $4,142,000  in  legal,
accounting, and other expenses incurred in connection with the transaction. As a
result of the  disposition,  we reduced our  investment  in  Shurgard  Europe by
approximately  $305,048,000  for the pro rata  portion  of our  March  31,  2008
investment  that  was  sold,  and  recognized  a  gain  of   $304,011,000   upon
disposition,  representing the difference  between the net proceeds  received of
$609,059,000 and the pro rata portion of our investment sold of $305,048,000.

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

     The gain upon disposition of $304,011,000 and associated  realized currency
exchange gain totaling  $37,854,000 are both included in the gain on disposition
of an interest in Shurgard Europe of $341,865,000 in our condensed  consolidated
statement of income for the six months ended June 30, 2008.

     FOREIGN  EXCHANGE GAIN (LOSS):  At June 30, 2008,  Shurgard  Europe owed us
approximately (euro)391.9 million ($618.7 million). We expect Shurgard Europe to
obtain external  financing in the next 12 to 24 months, but not later than March
31,  2010,  which  will fund the  repayment  of the  loans.  These  amounts  are
denominated in Euros but have not been hedged.  The amount of U.S.  Dollars that
will be received on repayment  will depend upon the exchange  rates at the time.
Based  upon the  change in  estimated  U.S.  Dollars  to be  received  caused by

                                       69



fluctuation  in currency  rates  during the three months ended June 30, 2008 and
2007,  foreign currency  translation  losses of $2,000 and gains $5,553,000 were
recorded in those  periods,  respectively.  During the six months ended June 30,
2008 and 2007, we recorded foreign currency translation gains of $41,012,000 and
$10,593,000,  respectively.  The U.S.  Dollar exchange rate relative to the Euro
was  approximately  1.579 at both June 30, 2008 and March 31, 2008, and 1.472 at
December 31, 2007.

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

     INCOME  (EXPENSE) FROM  DERIVATIVES,  NET: This  represents the net gain or
loss as recognized for the changes in the fair market values of those derivative
financial  instruments that do not qualify for hedge accounting  treatment under
SFAS No.  133,  combined  with net  payments  from  derivative  instruments.  We
recognized  net  expense of $43,000 in the six months  ended June 30,  2008,  as
compared to net income of $1,771,000  and net expense of $1,009,000 for the same
periods in 2007. We do not expect any further  activity in  derivatives  because
all such  derivatives  are owned by Shurgard  Europe,  which was  deconsolidated
effective March 31, 2008.

     MINORITY  INTEREST IN INCOME:  Minority  interest in income  represents the
income  allocable to equity  interests in Consolidated  Entities,  which are not
owned by the Company. The following table summarizes minority interest in income
for the three and six months ended June 30, 2008 and 2007:



                                                     Three Months Ended June 30,                  Six Months Ended June 30,
                                                ---------------------------------------     -------------------------------------
                                                    2008           2007       Change             2008         2007        Change
                                                ------------  ------------  ----------      ------------- ----------  -----------
                                                                                (Amounts in thousands)
                                                                                                      
        Preferred partnership interests.......  $     5,403    $    5,403    $      -        $   10,806   $  10,806     $     -
        Existing European Joint Ventures (a)..            -        (2,065)       2,065           (2,142)     (5,819)       3,677
        Other minority interests (b)..........        4,739         4,186          553            9,077       8,320          757
                                                ------------  ------------  ----------      ------------- ----------  -----------
            Total minority interests in income  $    10,142    $    7,524    $   2,618       $   17,741   $  13,307     $  4,434
                                                ============  ============  ==========      ============= ==========  ===========


     (a)  These amounts  reflect  income  allocated to minority  interests  from
          entities we acquired in the Shurgard Merger.  These interests  include
          the 80%  partner's  interests in the European  joint  ventures,  First
          Shurgard and Second Shurgard.  Included in minority interest in income
          is  $3,184,000 in  depreciation  expense for the six months ended June
          30, 2008, as compared to $2,774,000  and  $5,607,000 for the three and
          six  months  ended  June 30,  2007,  respectively.  As a result of the
          deconsolidation  of  Shurgard  Europe on March 31,  2008,  no minority
          interest in income was  recognized  for the  Existing  European  Joint
          Ventures during the three months ended June 30, 2008.

     (b)  The other minority interests include  depreciation expense of $210,000
          and  $994,000  for the  three  and six  months  ended  June 30,  2008,
          respectively,  as  compared to $578,000  and  $1,168,000  for the same
          periods in 2007.

     Future minority  interest will no longer include minority  interest for the
Existing  European Joint Ventures,  because  Shurgard Europe was  deconsolidated
effective March 31, 2008.  Such future  minority  interest in income for periods
after March 31, 2008 is not included in our financial statements.

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

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

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

                                       70



through the use of cash provided by operating  activities.  The  remaining  cash
flow  generated  is  available to make both  scheduled  and  optional  principal
payments on debt and for reinvestment.




                                                                              For the Six Months Ended
                                                                                      June 30,
                                                                            ----------------------------
                                                                               2008             2007
                                                                            ------------    ------------
                                                                               (Amount in thousands)
                                                                                      
Net cash provided by operating activities (a).........................      $   502,595     $   468,765
Allocable to minority interests (Preferred Units).....................          (10,806)        (10,806)
                                                                            ------------    ------------
Cash from operations allocable to our shareholders....................          491,789         457,959
Capital improvements to maintain our facilities.......................          (31,571)        (28,807)
                                                                            ------------    ------------
Remaining operating cash flow available for distributions to our                460,218         429,152
   shareholders.......................................................
Distributions paid:
   Preferred share dividends..........................................         (120,666)       (116,091)
   Equity Shares, Series A dividends..................................          (10,712)        (10,712)
   Common shareholders ($1.10 per share for the six months ended June 30,
   2008 and $1.00 per share for the same period in 2007) .............         (185,602)       (170,018)
                                                                            ------------    ------------
Cash from operations available for principal payments on debt and
   reinvestment (b)...................................................      $   143,238     $   132,331
                                                                            ============    ============


     (a)  Represents net cash provided from operating activities for each of the
          respective six month periods ended June 30, 2008 and 2007 as presented
          in our condensed consolidated statements of cash flows.

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

     Cash  from  operations   available  for  principal  payments  on  debt  and
reinvestment increased from $132.3 million in the six months ended June 30, 2007
to $143.2  million in the six months ended June 30, 2008.  In addition,  we have
unrestricted cash on hand at June 30, 2008 totaling $775.0 million.

     Our  financial  profile is  characterized  by a low level of  debt-to-total
capitalization  and a  conservative  dividend  payout  ratio with respect to the
common shares. We expect to fund our growth strategies and debt obligations with
(i) cash on hand at June 30, 2008, (ii) internally generated retained cash flows
and (iii)  proceeds  from issuing  equity  securities.  In general,  our current
strategy is to continue to finance  our growth with  permanent  capital,  either
common or preferred  equity to the extent that market  conditions are favorable,
not withstanding  current market  conditions with respect to preferred stock are
unfavorable.

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

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

                                       71



     On March 27, 2007, we entered into a five-year  revolving  credit agreement
(the "Credit  Agreement")  with an aggregate  limit with respect to  borrowings,
letters of credit and foreign currency  borrowings in Euros or British pounds of
$300 million.  Amounts drawn under the Credit  Agreement bear an annual interest
rate ranging from the London  Interbank  Offered  Rate  ("LIBOR")  plus 0.35% to
LIBOR plus 1.00%  depending on our credit  ratings (LIBOR plus 0.35% at June 30,
2008). In addition, we are required to pay a quarterly facility fee ranging from
0.10% per annum to 0.25% per annum  depending on our credit  ratings  (0.10% per
annum  at  June  30,  2008).  We had no  outstanding  borrowings  on our  Credit
Agreement at June 30, 2008 or August 8, 2008.

     At June 30, 2008, we had undrawn  standby  letters of credit,  which reduce
our  borrowing  capacity with respect to our line of credit by the amount of the
standby letters of credit, totaling $17.7 million.

     The Credit Agreement  includes various  covenants,  the more significant of
which require us to (i) maintain a leverage  ratio (as defined  therein) of less
than 0.55 to 1.00,  (ii)  maintain  certain  fixed charge and interest  coverage
ratios  (as  defined  therein)  of not  less  than  1.5 to 1.0 and  1.75 to 1.0,
respectively,  and (iii)  maintain  a minimum  total  shareholders'  equity  (as
defined  therein).  We were in  compliance  with  all  covenants  of the  Credit
Agreement at June 30, 2008.

     EXISTING  CASH  BALANCES:  At June 30, 2008, we retained  significant  cash
balances totaling $775.0 million. These cash balances were generated principally
due to the net proceeds we received  from the  disposition  of a 51% interest in
Shurgard  Europe  to  an  institutional  investor.  While  these  cash  balances
represent a significant amount of liquidity,  they do dilute our cash flows from
operations  because they are invested  generally in short-term cash  investments
earning  nominal rates of interest of  approximately  2.2% for the quarter ended
June 30, 2008.  This  dilution  will not be rectified  until,  and if, we invest
these proceeds in real estate assets.

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

     We believe  that our size and  financial  flexibility  enables us to access
capital when appropriate.  Since the beginning of 2005 through June 30, 2008, we
have  raised  approximately  $2.6  billion  of  preferred  securities  and  used
approximately   $1.2   billion  of  these  net   proceeds  in  order  to  redeem
higher-coupon  preferred  securities.  Over the past several  months,  accessing
capital through the credit markets has become very difficult, in part due to the
lack of  liquidity,  particularly  with respect to real estate  companies.  As a
result, our ability to raise additional capital by issuing preferred  securities
is not currently a viable option.

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

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

     REQUIREMENT TO PAY DISTRIBUTIONS:  We have operated, and intend to continue
to  operate,  in such a manner as to qualify  as a REIT  under the Code,  but no
assurance can be given that we will at all times so qualify.  To the extent that
the Company  continues to qualify as a REIT, we will not be taxed,  with certain
limited  exceptions,  on the REIT  taxable  income  that is  distributed  to our
shareholders, provided that at least 90% of our taxable income is so distributed
to our  shareholders.  We  believe  we  have  satisfied  the  REIT  distribution
requirement since 1981.

     Aggregate  dividends paid during the six months ended June 30, 2008 totaled
$120.7 million to the holders of our Cumulative Preferred Shares, $185.6 million
to the  holders of our common  shares  and $10.7  million to the  holders of our

                                       72



Equity Shares,  Series A. Although we have not finalized the  calculation of our
2007 taxable income, we believe that the aggregate dividends paid in 2007 to our
shareholders enable us to continue to meet our REIT distribution requirements.

     During the six months ended June 30, 2008, we paid  distributions  totaling
$10.8 million with respect to our Preferred  Partnership  Units. We estimate the
2008 distribution  requirements with respect to the preferred  partnership units
outstanding at June 30, 2008, to be approximately $21.6 million. In addition, we
estimate the 2008 distribution requirements with respect to our preferred shares
outstanding at June 30, 2008, to be  approximately  $241.3 million,  assuming no
additional preferred share issuances or redemptions during 2008.

     For 2008,  distributions  with  respect  to the  common  shares  and Equity
Shares,   Series  A  will  be  determined  based  upon  our  REIT   distribution
requirements  after taking into  consideration  distributions  to the  preferred
shareholders.  We anticipate  that, at a minimum,  quarterly  distributions  per
common share for 2008 will be $0.55 per common  share.  For the third quarter of
2008, a quarterly  distribution  of $0.55 per common share has been  declared by
our Board and will be payable on September 30, 2008 to shareholders of record as
of September  15, 2008.  Based upon shares  outstanding  as of June 30, 2008, we
estimate a dividend  payment with respect to our common shares of  approximately
$92.4 million for the third  quarter of 2008.  Notwithstanding  the  significant
gain  recognized  for book  purposes  as a result of our  disposition  of 51% of
Shurgard  Europe,  we currently do not expect an increase to be necessary to our
2008 distributions to meet our REIT distribution requirements.

     With  respect to the  depositary  shares  representing  the Equity  Shares,
Series A, we have no obligation to pay  distributions  if no  distributions  are
paid  to  the  common  shareholders.  To  the  extent  that  we  do  pay  common
distributions  in any year, the holders of the depositary  shares receive annual
distributions  equal to the lesser of (i) five times the per share  dividend  on
the common shares or (ii) $2.45. The depositary shares are  non-cumulative,  and
have  no  preference  over  our  Common  Shares  either  as to  dividends  or in
liquidation.

     CAPITAL   IMPROVEMENT   REQUIREMENTS:   During  2008,   we  have   budgeted
approximately $92 million for capital  improvements for our facilities.  Capital
improvements include major repairs or replacements to the facilities, which keep
the  facilities in good  operating  condition and maintain  their visual appeal.
Capital  improvements  do not  include  costs  relating  to the  development  or
expansion of facilities.  During the six months ended June 30, 2008, we incurred
capital improvements of approximately $31.6 million.

     EUROPEAN  ACTIVITIES:  Pursuant  to our  disposition  of a 51%  interest in
Shurgard  Europe on March 31,  2008 (see Note 3 to our June 30,  2008  condensed
consolidated  financial  statements),  the intercompany notes receivable owed by
Shurgard Europe to Public Storage were modified, principally to fix the interest
rate to 7.5% per annum and extend the maturity date to March 31, 2009 (March 31,
2010 if Shurgard Europe exercises its option to extend one additional year). The
note totaled approximately $618.7 million at June 30, 2008.

     We are committed to provide additional loans to Shurgard Europe,  under the
same terms as the existing loans, for up to (euro)305 million ($481.5 million as
of June 30,  2008) to fund  Shurgard  Europe's  obligations  with respect to its
existing joint venture  partnerships.  We are also committed to fund up to $88.2
million of additional  equity  contributions  to Shurgard Europe to fund certain
investing activities.

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

     DEBT SERVICE REQUIREMENTS: At June 30, 2008, we have total outstanding debt
of  approximately  $690  million.  We do not  believe  we have  any  significant
refinancing risks with respect to our debt.

                                       73



     Our portfolio of real estate facilities remains substantially unencumbered.
At June 30, 2008,  we have secured debt  outstanding  of $242.7  million,  which
encumbers  89  self-storage  facilities  with an  aggregate  net  book  value of
approximately $604.6 million.

     We  anticipate  that our retained  operating  cash flow will continue to be
sufficient to enable us to make scheduled  principal and interest payments.  See
Notes 7 and 8 to our June 30, 2008 condensed  consolidated  financial statements
for  approximate  principal  maturities  of such  borrowings.  It is our current
intention to fully  amortize our  outstanding  debt as opposed to refinance debt
maturities with additional debt.  Alternatively,  we may prepay debt and finance
such prepayments with retained operating cash flow or proceeds from the issuance
of preferred securities.

     ACQUISITION  OF REAL  ESTATE  ASSETS:  During  2008,  we  have  significant
interest in acquiring real estate facilities, as well as related mortgage loans.
However,  it is difficult to estimate  the amount of such  acquisitions  we will
undertake.  During  the  six  months  ended  June  30,  2008,  we  acquired  two
self-storage facilities (approximately 211,000 net rentable square feet) located
in California from third parties for an aggregate cost of $31.2 million.

     EXERCISE OF PURCHASE OPTION ON ACQUISITION JOINT VENTURE: On July 21, 2008,
pursuant to the purchase  option that we retained under the related  partnership
agreements,  we acquired our partner's interest in the Acquisition Joint Venture
for approximately $45,799,000. Of this amount, $38,398,000 will be accounted for
as a reduction to Debt to Joint Venture  Partner on our balance sheet,  with the
remainder of the payment  accounted for as the acquisition cost of the remaining
interest we do not own in the two  facilities  that we currently  account for on
the  equity  method.  See  Note 8 to our June 30,  2008  consolidated  financial
statements for further  discussion  regarding the terms of the Acquisition Joint
Venture.

     DEVELOPMENT  OF  FACILITIES:  At  June  30,  2008,  we  have a  development
"pipeline"  of 24  projects in the U.S.  and one project in the United  Kingdom,
consisting of newly developed  self-storage  facilities,  conversion of space at
facilities that was previously used for containerized  storage and expansions to
existing  self-storage  facilities.  At June 30, 2008, we have acquired the land
for all of these projects.

     The  development  and  fill-up of these  storage  facilities  is subject to
significant  contingencies such as obtaining appropriate governmental approvals.
We estimate that the amount remaining to be spent to complete  development to be
approximately  $71.1 million and will be incurred  over the next 24 months.  The
following table sets forth certain  information  with respect to our development
pipeline.

DEVELOPMENT PIPELINE SUMMARY
AS OF JUNE 30, 2008



                                                                            Total
                                                    Number     Net        estimated         Costs incurred
                                                      of     rentable     development           through          Costs to
                                                   projects   sq. ft.        cost               06/30/08         complete
                                                   --------   -------     -----------       ---------------     ----------
                                                           (Amounts in thousands, except number of projects)
                                                                                                 
    Under construction                                10          496     $    53,503        $    32,388        $  21,115
    In development                                    15          570          56,174              6,226           49,948
                                                   --------   -------     -----------       ---------------     ----------
   Total Development Pipeline                         25        1,066     $   109,677        $    38,614        $  71,063
                                                   ========   =======     ===========       ===============     ==========



     The  development  and  fill-up of these  storage  facilities  is subject to
significant  contingencies such as obtaining appropriate governmental approvals.
The future costs with respect to all other  development  projects will be funded
by us.

     CONTRACTUAL OBLIGATIONS

     Our significant  contractual  obligations at June 30, 2008 and their impact
on our cash  flows and  liquidity  are  summarized  below  for the years  ending
December 31 (amounts in thousands):

                                       74






                                   Total          2008            2009         2010         2011          2012       Thereafter
                                 -----------  -----------   ------------   -----------  ------------   ------------  ------------
                                                                                                 
Long-term debt (1) ............  $  794,930    $  38,877     $   47,511     $  48,895    $  250,354     $   74,549    $  334,744
Operating leases (2)...........     120,597        4,134          9,580        11,059         7,375          6,032        82,417
Construction commitments (3)...      21,115       19,004          2,111             -             -              -             -
                                 -----------  -----------   ------------   -----------  ------------   ------------  ------------
Total..........................  $  936,642    $  62,015     $   59,202     $  59,954    $  257,729     $   80,581    $  417,161
                                 ===========  ===========   ============   ===========  ============   ============  ============


     (1)  Amounts include interest  payments on our notes payable based on their
          contractual  terms.  See  Note  7  to  our  June  30,  2008  condensed
          consolidated  financial  statements for additional  information on our
          notes payable. Debt to Joint Venture Partner is not reflected since we
          have not exercised our option to acquire our partner's interest.

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

     (3)  Includes  obligations for facilities  currently under  construction at
          June 30, 2008 as described above under "Acquisition and Development of
          Facilities."

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

     OFF-BALANCE  SHEET  ARRANGEMENTS:  At  June  30,  2008  we had no  material
off-balance sheet arrangements as defined under Regulation S-K 303(a)(4) and the
instructions thereto.

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

     During 2004 and 2005, we repurchased 529,700 shares.  During 2006 and 2007,
we did not  repurchase  any shares.  During 2008  (through  August 8, 2008),  we
repurchased   1,520,196  shares  for  approximately  $111.9  million.  From  the
inception of the repurchase  program through August 8, 2008, we have repurchased
a total of 23,721,916 common shares at an aggregate cost of approximately $679.1
million.

     Future levels of repurchases will be dependent upon our available  capital,
investment alternatives, and the trading price of 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  common  stock and
preferred  shares.  At  June  30,  2008,  our  debt  as a  percentage  of  total
shareholders' equity (based on book values) was 7.7%.

     Our preferred  shares are not redeemable at the option of the holders.  Our
Series V shares are currently  redeemable by us. Except under certain conditions
relating to the Company's  qualification as a REIT, the preferred shares are not
redeemable by the Company prior to the  following  dates:  Series W - October 6,
2008, Series X - November 13, 2008, Series Y - January 2, 2009, Series Z - March
5, 2009,  Series A - March 31, 2009,  Series B - September 30, 2009,  Series C -
September  13, 2009,  Series D - February  28, 2010,  Series E - April 27, 2010,
Series F - August 23, 2010, Series G - December 12, 2010, Series H - January 19,
2011,  Series I - May 3, 2011, Series K - August 8, 2011, Series L - October 20,
2011,  Series M - January 9, 2012 and  Series N - July 2, 2012.  On or after the

                                       75



respective  dates,  each of the series of preferred shares will be redeemable at
the option of the Company,  in whole or in part, at $25 per depositary share (or
share in the case of the Series Y), plus  accrued and unpaid  dividends  through
the redemption date.

     Our market risk sensitive  instruments  include notes payable and borrowing
on bank credit facilities, which totaled $651,941,000 and none, respectively, at
June 30, 2008.

     We have foreign  currency  exposures  related to our investment in Shurgard
Europe,  which has a book value of $315.6 million at June 30, 2008. We also have
a note receivable from Shurgard Europe, which is denominated in Euros,  totaling
(euro)391.9 million ($618,724,000) at June 30, 2008. We also have an obligation,
in  certain  circumstances,  to loan up to an  additional  (euro)305  million to
Shurgard Europe.

     The table below  summarizes  annual debt  maturities  and  weighted-average
interest rates on our  outstanding  debt at the end of each year and fair values
required to evaluate  our  expected  cash-flows  under debt  agreements  and our
sensitivity  to  interest  rate  changes  at June 30,  2008  (dollar  amounts in
thousands).




                            2008       2009        2010          2011        2012     Thereafter      Total     Fair Value
                         ---------   --------   -----------  -----------  ----------  -----------  ----------  --------------
                                                                                        
Fixed rate debt........  $  20,925   $ 12,730   $   14,843   $  227,129   $ 55,336    $ 320,978    $  651,941   $ 651,941
Average interest rate..      6.73%      6.72%        6.71%        6.01%      5.80%        5.50%
- -----------------------------------------------------------------------------------------------------------------------------
Variable rate debt (1).  $      -   $      -    $       -    $       -    $     -     $      -     $        -   $       -
Average interest rate..
- -----------------------------------------------------------------------------------------------------------------------------


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


                                       76



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

     The Company maintains  disclosure controls and procedures that are designed
to ensure that information required to be disclosed in reports the Company files
and submits under the  Securities  Exchange Act of 1934,  as amended  ("Exchange
Act"), is recorded,  processed,  summarized and reported within the time periods
specified  in  accordance  with SEC  guidelines  and that  such  information  is
communicated to the Company's management,  including its Chief Executive Officer
and Chief  Financial  Officer,  to allow  timely  decisions  regarding  required
disclosure  based on the definition of "disclosure  controls and  procedures" in
Rules  13a-15(e) and 15d-15(e) of the Exchange Act. In designing and  evaluating
the disclosure controls and procedures,  management recognized that any controls
and  procedures,  no matter how well  designed  and  operated,  can provide only
reasonable  assurance of achieving the desired control objectives and management
necessarily  was required to apply its judgment in evaluating  the  cost-benefit
relationship  of possible  controls  and  procedures  in reaching  that level of
reasonable   assurance.   Also,   the   Company  has   investments   in  certain
unconsolidated  entities.  As the  Company  does not  control  or  manage  these
entities,  its disclosure  controls and procedures with respect to such entities
are  substantially  more  limited  than those it  maintains  with respect to its
consolidated subsidiaries.

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

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

                                       77



PART II.   OTHER INFORMATION

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

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

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

     As of June 30, 2008,  no material  changes had occurred in our risk factors
as discussed in Item 1A of the Public Storage  Quarterly Report on Form 10-Q for
the quarter ended March 31, 2008.

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

     On June 12, 1998, our Board  authorized the repurchase from time to time of
up to  10,000,000  common  shares on the open market or in privately  negotiated
transactions.   On  subsequent   dates  our  Board   increased  the   repurchase
authorization,  and on May 8, 2008,  the Board  increased  the total  repurchase
authorization by 10,000,000  common shares to 35,000,000  common shares.  During
2008 (through August 8, 2008), we repurchased 1,520,196 shares for approximately
$111.9 million.  From the inception of the repurchase  program through August 8,
2008, we have  repurchased  a total of 23,721,916  common shares at an aggregate
cost of approximately $679.1 million.

     Our share repurchase  program does not have an expiration date.  During the
six months ended June 30, 2008, we did not  repurchase  any of our common shares
outside our publicly announced  repurchase  program,  except shares withheld for
payment of tax  withholding  in connection  with our various stock option plans.
Due to the Board's authorized increase in the total repurchase  authorization on
May 8, 2008,  there are  11,278,084  common  shares that may yet be  repurchased
under our repurchase program as of August 8, 2008.

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

     The Company held its annual meeting of shareholders on May 8, 2008, and the
following matters were voted on at the meeting:

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

                                         Total Votes
                               -------------------------------------
          Name                 Total Votes For  Total Votes Withheld
- -----------------              ---------------  --------------------
B. Wayne Hughes                  149,651,971             3,593,730
Ronald L. Havner, Jr.            149,217,234             4,028,467
Dann V. Angeloff                 147,407,261             5,838,440
William C. Baker                 140,928,817            12,316,884
John T. Evans                    151,130,404             2,115,297
Uri P. Harkham                   150,423,512             2,822,189
B. Wayne Hughes, Jr.             138,420,921            14,824,780
Harvey Lenkin                    145,537,255             7,708,446
Gary E. Pruitt                   141,260,037            11,985,664
Daniel C. Staton                 151,200,431             2,045,270

     2. The Company's  shareholders  approved ratification of the appointment of
        Ernst & Young LLP as the Company's independent auditors for the fiscal
        year ended   December  31, 2008.  There were  139,349,857   votes  cast
        for ratification; 13,074,767  votes cast against ratification;  821,077
        votes abstained; and no broker nonvotes.


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

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

                                       78



                              SIGNATURES

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

                              DATED: August 8, 2008

                              PUBLIC STORAGE

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



                                       79


                                 PUBLIC STORAGE

                              INDEX TO EXHIBITS (1)

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10.34*  Agreement dated April 16, 2008 between  Registrant and executive.  Filed
        as Exhibit 10.1 to  Registrant's  Current Report on Form 8-K dated April
        22, 2008 and incorporated herein by reference.

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

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

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

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

32      Section 1350 Certifications. Filed herewith.

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

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