PUBLIC STORAGE INC /CA, 10-Q, 2000-11-07

PUBLIC STORAGE INC /CA
10-Q, 2000-11-07
REAL ESTATE INVESTMENT TRUSTS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended September 30, 2000
------------------

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

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

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

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

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

701 Western Avenue, Glendale, California 91201-2349
---------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (818) 244-8080.
--------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

[ X ] Yes [ ] No

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 2, 2000:

Common Stock, $.10 Par Value - 124,256,974 shares
-------------------------------------------------

Class B Common Stock, $.10 Par Value - 7,000,000 shares
-------------------------------------------------------

Depositary Shares Each Representing 1/1,000 of a Share of Equity Stock, Series
--------------------------------------------------------------------------------
A, $.01 Par Value - 4,353,102 depositary shares (representing 4,353.102 shares
--------------------------------------------------------------------------------
of Equity Stock, Series A)
--------------------------

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

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

<PAGE>

PUBLIC STORAGE, INC.

INDEX

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

Item 1. Financial Statements

Condensed Consolidated Balance Sheets at
September 30, 2000 and December 31, 1999 1

Condensed Consolidated Statements of Income for the
Three and Nine Months Ended September 30, 2000 and 1999 2

Condensed Consolidated Statements of Shareholders' Equity
for the Nine Months Ended September 30, 2000 3

Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2000 and 1999 4 - 5

Notes to Condensed Consolidated Financial Statements 6 - 20

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 21 - 35

Item 3. Quantitative and Qualitative Disclosures about Market Risk 35

PART II. OTHER INFORMATION (Items 1,2,4, and 5 are not applicable)
-----------------

Item 6. Exhibits and Reports on Form 8-K 36 - 40

<PAGE>

PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- --------------
(Unaudited)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents.......................................... $ 104,599 $ 55,125
Real estate facilities, at cost:
Land.......................................................... 1,089,886 1,036,958
Buildings..................................................... 2,980,908 2,785,475
-------------- --------------
4,070,794 3,822,433
Accumulated depreciation...................................... (632,074) (533,412)
-------------- --------------
3,438,720 3,289,021
Construction in process....................................... 190,582 140,764
-------------- --------------
3,629,302 3,429,785

Investment in real estate entities................................. 465,921 457,529
Intangible assets, net............................................. 187,342 194,326
Notes receivable from affiliates................................... 31,315 18,798
Other assets....................................................... 68,199 58,822
-------------- --------------
Total assets......................................... $ 4,486,678 $ 4,214,385
============== ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Notes payable...................................................... $ 160,723 $ 167,338
Distributions payable.............................................. - 82,086
Accrued and other liabilities...................................... 106,374 89,261
-------------- --------------
Total liabilities.................................... 267,097 338,685

Minority interest:
Preferred operating partnership units......................... 365,000 -
Other......................................................... 163,406 186,600

Commitments and contingencies

Shareholders' equity:
Preferred Stock, $0.01 par value, 50,000,000 shares authorized,
11,141,100 shares issued and outstanding, at liquidation
preference.................................................. 1,155,150 1,155,150
Common Stock, $0.10 par value, 200,000,000 shares authorized,
124,285,074 shares issued and outstanding (126,697,023 at
December 31, 1999).......................................... 12,429 12,671
Equity Stock, Series A, $0.01 par value, 200,000,000 shares
authorized, 4,353.102 shares issued and outstanding (none
issued and outstanding at December 31, 1999)................ - -
Class B Common Stock, $0.10 par value, 7,000,000 shares
authorized and issued....................................... 700 700
Paid-in capital............................................... 2,490,749 2,463,193
Cumulative net income......................................... 1,312,489 1,089,973
Cumulative distributions paid................................. (1,280,342) (1,032,587)
-------------- --------------
Total shareholders' equity................................ 3,691,175 3,689,100
-------------- --------------
Total liabilities and shareholders' equity........... $ 4,486,678 $ 4,214,385
============== ==============
</TABLE>
See accompanying notes.
1

<PAGE>

PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)

(UNAUDITED)

<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
REVENUES:
Rental income:
<S> <C> <C> <C> <C>
Self-storage facilities................. $ 168,023 $ 158,596 $ 483,952 $ 437,370
Commercial properties................... 2,847 2,111 8,433 5,973
Containerized storage................... 11,045 7,387 27,834 19,263
Equity earnings of real estate entities...... 9,479 6,500 26,910 23,969
Interest and other income.................... 4,572 4,369 13,582 12,640
------------- ------------- ------------- -------------
195,966 178,963 560,711 499,215
------------- ------------- ------------- -------------
EXPENSES:
Cost of operations:
Self-storage facilities................. 54,455 47,645 156,084 133,876
Commercial properties................... 926 724 2,756 1,993
Containerized storage................... 9,429 6,621 25,931 22,146
Depreciation and amortization............... 37,731 36,640 109,509 101,565
General and administrative.................. 5,436 3,953 14,057 9,371
Interest expense............................ 626 2,136 3,293 5,870
------------- ------------- ------------- -------------
108,603 97,719 311,630 274,821
------------- ------------- ------------- -------------

Income before minority interest............. 87,363 81,244 249,081 224,394

Minority interest in income:
Preferred operating partnership units....... (8,018) - (16,354) -
Other....................................... (3,693) (4,492) (10,211) (12,149)
------------- ------------- ------------- -------------

NET INCOME..................................... $ 75,652 $ 76,752 $ 222,516 $ 212,245
============= ============= ============= =============

NET INCOME ALLOCATION:
Allocable to preferred shareholders.......... $ 25,027 $ 24,412 $ 75,110 $ 69,766
Allocable to equity shareholders, Series A... 2,666 - 7,590 -
Allocable to common shareholders............. 47,959 52,340 139,816 142,479
------------- ------------- ------------- -------------
$ 75,652 $ 76,752 $ 222,516 $ 212,245
============= ============= ============= =============

PER COMMON SHARE:
Net income per share - Basic................. $0.37 $0.41 $1.06 $1.13
============= ============= ============= =============
Net income per share - Diluted............... $0.37 $0.40 $1.06 $1.13
============= ============= ============= =============
Net income per depositary share of Equity
Stock, Series A - Basic and Diluted.......... $0.61 - $1.84 -
============= ============= ============= =============
Weighted average common shares - Basic....... 131,084 129,041 131,815 125,561
============= ============= ============= =============
Weighted average common shares - Diluted..... 131,261 129,249 131,975 125,833
============= ============= ============= =============
Weighted average depositary shares of Equity
Stock, Series A - Basic and Diluted...... 4,353 - 4,131 -
============= ============= ============= =============
</TABLE>
See accompanying notes.
2

<PAGE>

PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)

(UNAUDITED)

<TABLE>
<CAPTION>
Cumulative
Senior Class B
Preferred Common Common Paid-in
Stock Stock Stock Capital
----------- -------- ----- -----------

<S> <C> <C> <C> <C>
Balances at December 31, 1999 .......................... $1,155,150 $12,671 $700 $2,463,193

Issuance of common stock:
Exercise of stock options (232,598 shares) .......... - 22 - 4,382
Conversion of OP units (255,853 shares) ............. - 26 - 6,803

Repurchase of common stock (2,900,400 shares) .......... - (290) - (64,714)

Issuance of Equity Stock, Series A to Public (4,300.555
shares) ................................................ - - - 83,810

Issuance of Equity Stock, Series A to affiliate (52.547
shares) ................................................ - - - 1,025

Costs in connection with issuance of preferred operating
partnership units (see note 7) ......................... - - - (3,750)

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

Cash distributions:
Cumulative Senior Preferred Stock ................... - - - -
Equity Stock, Series A .............................. - - - -
Class B Common Stock ................................ - - - -
Common Stock ........................................ - - - -
----------- -------- ----- -----------
Balances at September 30, 2000 ......................... $1,155,150 $12,429 $700 $2,490,749
=========== ======== ===== ===========
</TABLE>
<TABLE>
<CAPTION>

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

<S> <C> <C> <C>
Balances at December 31, 1999 .......................... $1,089,973 $(1,032,587) $3,689,100

Issuance of common stock:
Exercise of stock options (232,598 shares) .......... - - 4,404
Conversion of OP units (255,853 shares) ............. - - 6,829

Repurchase of common stock (2,900,400 shares) .......... - - (65,004)

Issuance of Equity Stock, Series A to Public (4,300.555
shares) ................................................ - - 83,810

Issuance of Equity Stock, Series A to affiliate (52.547
shares) ................................................ - - 1,025

Costs in connection with issuance of preferred operating
partnership units (see note 7) ......................... - - (3,750)

Net income ............................................. 222,516 - 222,516

Cash distributions:
Cumulative Senior Preferred Stock ................... - (75,110) (75,110)
Equity Stock, Series A .............................. - (7,590) (7,590)
Class B Common Stock ................................ - (8,555) (8,555)
Common Stock ........................................ - (156,500) (156,500)
----------- ------------- -------------
Balances at September 30, 2000 ......................... $1,312,489 $(1,280,342) $3,691,175
=========== ============= =============

</TABLE>
See accompanying notes.
3
<PAGE>

PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)

(UNAUDITED)

<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
---------------------------------
2000 1999
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income.................................................................. $ 222,516 $ 212,245
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 109,509 101,565
Depreciation included in equity earnings of real estate entities.......... 15,522 14,405
Minority interest in income............................................... 26,565 12,149
-------------- --------------
Total adjustments..................................................... 151,596 128,119
-------------- --------------
Net cash provided by operating activities......................... 374,112 340,364
-------------- --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Principal payments received on notes receivable from affiliates........... 2,573 28,082
Notes receivable from affiliates.......................................... (11,400) (30,484)
Capital improvements to real estate facilities............................ (16,605) (18,158)
Construction in process................................................... (159,403) (76,345)
Acquisition of minority interests......................................... (29,700) (27,228)
Proceeds from the disposition of real estate facilities................... 8,652 8,552
Proceeds from the disposition of investments in real estate entities...... 21,929 -
Acquisition of investment in real estate entities......................... (63,380) (55,190)
Acquisition of real estate facilities..................................... (37,756) (6,162)
Acquisition cost of business combinations................................. (66,776) (181,034)
-------------- --------------
Net cash used in investing activities............................. (351,866) (357,967)
-------------- --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable....................................... (6,615) (9,474)
Net proceeds from the issuance of common stock............................ 4,404 8,182
Net proceeds from the issuance of preferred stock......................... - 276,933
Net proceeds from the issuance of equity stock............................ 39,800 -
Net proceeds from the issuance of preferred partnership units............. 361,250 -
Repurchase of common stock................................................ (65,004) (46,546)
Distributions paid to preferred and common shareholders................... (285,831) (154,862)
Investment by minority interests.......................................... 15,241 -
Distributions from operations to minority interests....................... (31,578) (19,501)
Net reinvestment (divestment) of minority interests....................... (7,569) 880
Other..................................................................... 3,130 (3,466)
-------------- --------------
Net cash provided by financing activities......................... 27,228 52,146
-------------- --------------

Net increase in cash and cash equivalents..................................... 49,474 34,543
Cash and cash equivalents at the beginning of the period...................... 55,125 51,225
-------------- --------------
Cash and cash equivalents at the end of the period............................ $ 104,599 $ 85,768
============== ==============
</TABLE>
See accompanying notes.
4

<PAGE>

PUBLIC STORAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)

(UNAUDITED)

(CONTINUED)

<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
------------------------------------
2000 1999
--------------- ---------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Business combinations:
<S> <C> <C>
Real estate facilities......................................... $ (82,163) $ (729,294)
Construction in process........................................ - (11,449)
Investment in real estate entities............................. - (356)
Mortgage notes receivable...................................... - (6,739)
Other assets................................................... (183) (1,697)
Accrued and other liabilities.................................. 1,177 22,387
Minority interest.............................................. - 32,201
Notes payable.................................................. - 100,000

Reduction to investment in real estate entities in connection with:
Business combinations.......................................... 14,393 66,690
Acquisitions of real estate facilities......................... 3,144 -

Disposition of real estate investment in exchange for other assets:
Investment in real estate entities............................. - -
Other assets................................................... - 14,260

Real estate acquired in exchange for equity stock and reduction to
investment in real estate entities.............................. (4,169) -

Acquisition of minority interest and real estate in exchange for common stock:
Real estate facilities......................................... (17,103) (34,192)
Minority interest.............................................. (19,426) (28,661)

Real estate facilities and accumulated depreciation disposed of in
exchange for notes receivable, minority interests and other assets 18,769 22,677

Minority interests acquired in exchange for the disposition of
real estate facilities........................................... (6,427) -

Note receivable received in exchange for the disposition of real
estate facilities................................................ (3,690) (10,460)

Issuance of Equity Stock, Series A:
In connection with special distribution to common shareholders.. 44,010 -
In connection with acquisition of real estate facilities........ 1,025 -

Decrease in distributions payable through the issuance of Equity
Stock, Series A.................................................. (44,010) -

Other assets received in connection with real estate dispositions... - (3,800)

Issuance of common stock :
In connection with business combinations....................... - 347,223
To acquire minority interest in consolidated real estate
entities....................................................... 6,829 35,625

</TABLE>
See accompanying notes.
5

<PAGE>

PUBLIC STORAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)

1. Description of the business
---------------------------

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

In 1996 and 1997, we organized Public Storage Pickup and Delivery,
Inc., as a separate corporation and partnership (the corporation and
partnership are collectively referred to as "PSPUD") to operate storage
facilities that rent portable storage containers to customers for storage
in central warehouses. At September 30, 2000, PSPUD had 40 facilities in
operation.

We invest in real estate facilities by acquiring wholly owned
facilities or by acquiring interests in real estate entities which own real
estate facilities. At September 30, 2000, we had direct and indirect equity
interests in 1,480 properties located in 38 states, including 1,351 storage
facilities and 129 commercial properties. We operate all of the
self-storage facilities under the "Public Storage" name.

2. Summary of significant accounting policies
------------------------------------------

Basis of presentation
---------------------

The consolidated financial statements include the accounts of the
Company and 35 controlled entities (the "Consolidated Entities").
Collectively, the Company and these entities own a total of 1,244 real
estate facilities, consisting of 1,238 storage facilities and six
commercial properties.

At September 30, 2000, we had equity investments in 11 limited
partnerships in which we do not have a controlling interest. These limited
partnerships collectively own 113 self-storage facilities, which are
managed by the Company. In addition, we own approximately 41% of the common
interest in PS Business Parks, Inc. ("PSB"), which owns and operates 123
commercial properties. We do not control these entities, accordingly, our
investments in these limited partnerships and PSB are accounted for using
the equity method.

Use of estimates
----------------

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

Income tax
----------

For all taxable years subsequent to 1980, the Company qualified
and intends to continue to qualify as a REIT, as defined in Section 856 of
the Internal Revenue Code. As a REIT, we are not taxed on that portion of
our taxable income, which is distributed to our shareholders, provided that
we meet certain tests. We believe we will meet these tests during 2000 and,
accordingly, no provision for income taxes has been made in the
accompanying financial statements.

<PAGE>

Financial instruments
---------------------

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

For purposes of financial statement presentation, we consider all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.

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

Financial assets that are exposed to credit risk consist primarily
of cash and cash equivalents, accounts receivable, and notes receivable.
Cash and cash equivalents, which consist of short-term investments,
including commercial paper and treasury securities, are only invested in
entities with an investment grade rating. Notes receivable are
substantially all secured by real estate facilities that we believe are
valued in excess of the related note receivable. Accounts receivable are
not a significant portion of total assets and are comprised of a large
number of individual customers.

Real estate facilities
----------------------

Real estate facilities are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of
the buildings and improvements, which are generally between 5 and 25 years.

Evaluation of asset impairment
------------------------------

In 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" which requires impairment losses to be
recorded on long-lived assets. We annually evaluate long-lived assets
(including goodwill), by identifying indicators of impairment and by
comparing the sum of the estimated undiscounted future cash flows for each
asset to the asset's carrying amount. When indicators of impairment are
present and the sum of the undiscounted cash flows is less than the
carrying value of such asset, an impairment loss is recorded equal to the
difference between the asset's current carrying value and its value based
upon discounting its estimated future cash flows. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be
disposed of. Such assets are to be reported at the lower of their carrying
amount or fair value, less cost to sell. Our evaluations have indicated no
impairment in the carrying amount of our assets.

Other assets
------------

Other assets primarily consist of furniture, fixtures, equipment,
and other assets, including those associated with the containerized storage
business. Included in other assets with respect to the containerized
storage business is furniture, fixtures, and equipment (net of accumulated
depreciation) of $32,454,000 and $34,704,000 at September 30, 2000 and
December 31, 1999, respectively. Included in depreciation and amortization
expense for the three months ended September 30, 2000 and 1999 is
$1,204,000 and $1,199,000, respectively, and $3,612,000 and $3,631,000 for
the nine months ended September 30, 2000 and 1999, respectively, of
depreciation of furniture, fixtures, and equipment of the containerized
storage business.

<PAGE>

Intangible assets
-----------------

Intangible assets consist of property management contracts
($165,000,000) and the cost over the fair value of net tangible and
identifiable intangible assets ($67,726,000) acquired. Intangible assets
are amortized straight-line over 25 years. At September 30, 2000 intangible
assets are net of accumulated amortization of $45,384,000 ($38,400,000 at
December 31, 1999). Included in depreciation and amortization expense for
the three and nine months ended September 30, 2000 and 1999 is $2,328,000
and $6,984,000, respectively, related to the amortization of intangible
assets.

Revenue and expense recognition
-------------------------------

Property rents are recognized as earned. Equity in earnings of
real estate entities is recognized based on our ownership interest in the
earnings of each of the unconsolidated real estate entities. Advertising
costs are expensed as incurred and included in cost of operations.

Environmental costs
-------------------

Our policy is to accrue environmental assessments and/or
remediation cost when it is probable that such efforts will be required and
the related 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 any of our facilities which individually or
in the aggregate would be material to our overall business, financial
condition, or results of operations.

Net income per common share
---------------------------

Dividends paid to our preferred shareholders totaling $25,027,000
and $24,412,000 for the three months ended September 30, 2000 and 1999,
respectively, and $75,110,000 and $69,766,000 for the nine months ended
September 30, 2000 and 1999, respectively, have been deducted from net
income to arrive at net income allocable to our common shareholders.

Net income allocated to our common shareholders has been further
allocated among our two classes of common stock; our regular common stock
and our Equity Stock, Series A. The allocation among each class was based
upon the two-class method. Under the two-class method, earnings per share
for each class of common stock is determined according to dividends
declared (or accumulated) and participation rights in undistributed
earnings. Under the two-class method, the Equity Stock, Series A for the
three and nine months ended September 30, 2000 was allocated approximately
$2,666,000 and $7,590,000, respectively, of net income and the remaining
$47,959,000 and $139,816,000, respectively, was allocated to the regular
common shares.

Diluted net income per common share is computed using the weighted
average common shares outstanding (adjusted for stock options). Commencing
January 1, 2000, the Company's 7,000,000 Class B common shares outstanding
began to participate in distributions of the Company's earnings.
Distributions per share of Class B common stock are equal to 97% of the per
share distribution paid to the Company's regular common shares. As a result
of this participation in distribution of earnings, for purposes of
computing net income per common share, we began to include 6,790,000
(7,000,000 x 97%) Class B common shares in the weighted average common
equivalent shares for the three and nine months ended September 30, 2000.
Weighted average shares for the three and nine months ended September 30,
1999 does not include any shares with respect to the Class B common stock
as these shares did not participate in distributions of the Company's
earnings prior to January 1, 2000.

<PAGE>

Stock-based compensation
------------------------

In October 1995, the Financial Accounting Standards Board issued
Statement No. 123 "Accounting for Stock-Based Compensation" which provides
companies an alternative to accounting for stock-based compensation as
prescribed under APB Opinion No. 25 (APB 25). Statement 123 encourages, but
does not require companies to recognize expense for stock-based awards
based on their fair value at date of grant. Statement No. 123 allows
companies to continue to follow existing accounting rules (intrinsic value
method under APB 25) provided that pro-forma disclosures are made of what
net income and earnings per share would have been had the new fair value
method been used. We have elected to adopt the disclosure requirements of
Statement No. 123 but will continue to account for stock-based compensation
under APB 25.

Reclassifications
-----------------

Certain reclassifications have been made to the consolidated
financial statements for 1999 in order to conform to the 2000 presentation.

3. Business combinations
---------------------

Affiliated partnership acquisition
----------------------------------

On September 15, 2000, we acquired the remaining ownership
interests in an affiliated partnership, of which we are the general
partner, for an aggregate acquisition cost of $81,169,000, consisting of
cash of $66,776,000 and the reduction of our pre-existing investment in the
amount of $14,393,000. Prior to the acquisition, we accounted for our
investment in the partnership using the equity method of accounting.

The acquisition was accounted for using the purchase method of
accounting. Accordingly, allocations of the total acquisition cost to the
net assets acquired were made based on the fair value of such assets and
liabilities assumed with respect to the transaction, as follows:

Total
----------------
Real estate facilities............... $ 82,163,000
Other assets......................... 183,000
Accrued and other liabilities........ (1,177,000)
----------------
$ 81,169,000
================

Merger with Storage Trust Realty, Inc.
--------------------------------------

On March 12, 1999, we completed a merger with Storage Trust
Realty, Inc. ("Storage Trust"). All the outstanding stock of Storage Trust
was exchanged for 13,009,485 shares of the Company's common stock and an
additional 1,011,963 shares were reserved for issuance upon conversion of
limited partnership units in Storage Trust's operating partnership. In this
merger, the Company acquired interests in 215 storage facilities located in
16 states totaling approximately 12 million net rentable square feet.

The historical operating results of the above transactions prior
to each respective acquisition date have not been included in the Company's
historical operating results. Pro forma data (unaudited) for the nine
months ended September 30, 2000 and 1999, as though the business
combinations above had been effective at the beginning of fiscal 1999 are
as follows:

<PAGE>

<TABLE>
<CAPTION>
(In thousands, except per share data) For the Nine Months Ended
-------------------------------------------- ---------------------------------------
September 30, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
Revenues.................................... $ 567,941 $ 523,404
Net income.................................. $ 220,878 $ 214,346
Net income per common share (Basic)......... $ 1.05 $ 1.11
Net income per common share (Diluted)....... $ 1.05 $ 1.11
</TABLE>

The pro forma data does not purport to be indicative either of
results of operations that would have occurred had the transactions
occurred at the beginning of fiscal 1999 or future results of operations of
the Company. Certain pro forma adjustments were made to the combined
historical amounts to reflect (i) expected reductions in general and
administrative expenses, (ii) estimated increased interest expense from
bank borrowings to finance the cash portion of the acquisition cost and
(iii) estimated increase in depreciation expense.

4. Real estate facilities
----------------------

Activity in real estate facilities during 2000 is as follows:

In thousands
------------
Operating facilities, at cost
Balance at December 31, 1999 .............................. $ 3,822,433
Developed facilities ...................................... 109,585
Property acquisitions:
Business combinations (Note 3) ........................ 82,163
Other acquisitions ..................................... 41,925
Disposition of facilities ................................. (19,020)
Acquisition of minority interest (Note 7) ................ 17,103
Capital improvements ...................................... 16,605
------------
Balance at September 30, 2000 ............................. 4,070,794
------------

Accumulated depreciation:
Balance at December 31, 1999 .............................. (533,412)
Additions during the year ................................. (98,913)
Disposition of facilities ................................. 251
------------
Balance at September 30, 2000 ............................. (632,074)
------------

Construction in progress:
Balance at December 31, 1999 .............................. 140,764
Current development ....................................... 159,403
Developed facilities ...................................... (109,585)
------------
Balance at September 30, 2000 ............................. 190,582
------------

Total real estate facilities at September 30, 2000 ........ $ 3,629,302
============

10
<PAGE>

During the nine months ended September 30, 2000, we opened 18
newly developed facilities having approximately 1,263,000 aggregate net
rentable square feet and a total cost of $87.5 million, and seven
expansions of facilities having a total cost of $22.1 million. Construction
in progress at September 30, 2000 consists primarily of 41 storage
facilities and 18 expansions of existing storage facilities.

During the nine months ended September 30, 2000, we acquired two
commercial facilities and eight storage facilities in separate transactions
for an aggregate cost of $41,925,000. The aggregate cost consisted of
$37,756,000 cash, a reduction of $3,144,000 in investment in real estate
entities, and $1,025,000 in the issuance of the Company's Equity Stock,
Series A.

In January, 2000, we disposed of eight storage facilities for an
aggregate of $18,769,000, composed of cash ($8,652,000), a reduction of
minority interests ($6,427,000), and a note receivable ($3,690,000). There
was no gain or loss on this transaction.

Our policy is to capitalize interest incurred on debt during the
course of construction of our real estate facilities. Interest capitalized
during the three and nine months ended September 30, 2000 was $2,672,000
and $6,828,000, respectively, compared to $1,285,000 and $3,231,000,
respectively, for the same periods in 1999.

5. Investment in real estate entities:
-----------------------------------

At September 30, 2000, our investment in real estate entities
consists of (i) partnership interests in 11 partnerships, which principally
own self-storage facilities and (ii) our ownership interest in PSB. Such
interests are non-controlling interests of less than 50% and are accounted
for using the equity method of accounting. Accordingly, earnings are
recognized based upon our ownership interest in each of the entities.
During the three and nine months ended September 30, 2000 we recognized
earnings from our investments of $9,479,000 and $26,910,000, respectively,
compared to $6,500,000 and $23,969,000 for the same periods in 1999.

In April 1997, we formed a joint venture partnership with an
institutional investor (the "Joint Venture") to participate in the
development of approximately $220 million of storage facilities. The Joint
Venture has a total of 46 opened facilities with a total cost of $222.7
million at September 30, 2000, and has one project in development with an
aggregate cost incurred to date of approximately $6.0 million ($1.0 million
estimated to complete) at September 30, 2000.

Summarized combined financial data (based on historical cost) with
respect to those unconsolidated real estate entities in which the Company
had an ownership interest at September 30, 2000 are as follows:

<PAGE>

<TABLE>
<CAPTION>
For the nine months ended September 30, 2000
--------------------------------------------------------------------------
Other Equity Development
Investments Joint Venture PSB Total
-------------- -------------- -------------- --------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Rental income......................... $ 30,362 $ 18,342 $ 107,265 $ 155,969
Other income.......................... 1,536 526 5,331 7,393
-------------- -------------- -------------- --------------
Total revenues........................ 31,898 18,868 112,596 163,362
-------------- -------------- -------------- --------------

Cost of operations.................... 9,479 7,891 29,651 47,021
Depreciation.......................... 3,327 4,692 26,723 34,742
Other expenses........................ 2,492 100 4,105 6,697
-------------- -------------- -------------- --------------
Total expenses........................ 15,298 12,683 60,479 88,460
-------------- -------------- -------------- --------------
Income before minority interest....... 16,600 6,185 52,117 74,902
Minority interest .................... - - (18,391) (18,391)
-------------- -------------- -------------- --------------
Net income............................ $ 16,600 $ 6,185 $ 33,726 $ 56,511
============== ============== ============== ==============

At September 30, 2000:
----------------------
Real estate, net...................... $ 69,069 $ 218,060 $ 830,066 $ 1,117,195
Total assets.......................... 101,889 222,571 923,518 1,247,978
Total liabilities..................... 44,917 3,201 58,184 106,302
Minority interest..................... - - 304,490 304,490
Total equity.......................... 56,972 219,370 560,844 837,186

The Company's investment (book value) at
September 30, 2000.................. $ 146,920 $ 65,811 $ 253,190 $ 465,921

The Company's effective average
ownership interest at September 30,
2000................................ 46% 30% 42%

</TABLE>

6. Revolving line of credit
------------------------

The credit agreement (the "Credit Facility") has a borrowing limit
of $150 million and an expiration date of July 1, 2002. The expiration date
may be extended by one year on each anniversary of the credit agreement.
Interest on outstanding borrowings is payable monthly. At our option, the
rate of interest charged is equal to (i) the prime rate or (ii) a rate
ranging from the London Interbank Offered Rate ("LIBOR") plus 0.40% to
LIBOR plus 1.10% depending on the Company's credit ratings and coverage
ratios, as defined. In addition, the Company is required to pay a quarterly
commitment fee of 0.250% (per annum). The Credit Facility allows us, at our
option, to request the group of banks to propose the interest rate they
would charge on specific borrowings not to exceed $50 million; however, in
no case may the interest rate proposal be greater than the amount provided
by the Credit Facility. At September 30, 2000, we had no borrowings on our
line of credit.

7. Minority interest
-----------------

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

<PAGE>

In November 1999, we formed a second development joint venture
with a joint venture partner to develop $100 million of storage facilities
and to purchase $100 million of the Company's Equity Stock, Series AAA. The
joint venture is funded solely with equity capital consisting of 51% from
the Company and 49% from the joint venture partner. The joint venture is
consolidated and, accordingly, the Equity Stock, Series AAA is eliminated
in consolidation. Included in minority interest is approximately
$73,274,000 relative to the development joint venture, representing total
contributions by our joint venture partner net of distributions received by
our joint venture partner since inception of the partnership. Minority
interest has increased $15,241,000 from December 31, 1999 as a result of
contributions by our joint venture partner, and decreased by $5,414,000 as
a result of distributions to our joint venture partner.

During 2000, one of our operating partnerships issued in aggregate
$365.0 million of preferred partnership units: March 17, 2000, - $240.0
million of 9.5% Series N Cumulative Redeemable Perpetual Preferred Units,
March 29, 2000 - $75.0 million of 9.125% Series O Cumulative Redeemable
Perpetual Preferred Units, and August 11, 2000 - $50.0 million of 8.75%
Series P Cumulative Redeemable Perpetual Preferred Units. These preferred
units are not redeemable during the first 5 years, thereafter, at our
option, we can call the units for redemption at the issuance amount plus
any unpaid distributions. The units are not redeemable by the holder.
Subject to certain conditions, the Series N preferred units are convertible
into shares of 9.5% Series N Cumulative Preferred Stock, the Series O
preferred units are convertible into shares of 9.125% Series O Cumulative
Preferred Stock and the Series P preferred units are convertible into
shares of 8.75% Series P Cumulative Preferred Stock of the Company. We
incurred approximately $3,750,000 in costs in connection with the
issuances; these costs were recorded as a reduction to Paid in Capital.
These transactions had the effect of increasing minority interest by $365.0
million. For the three and nine months ended September 30, 2000, the
holders of these preferred units were paid in aggregate approximately
$8,018,000 and $16,354,000, respectively, in distributions and received an
equivalent allocation of minority interest in earnings.

In connection with the merger with Storage Trust in March 1999,
minority interest increased by approximately $27,009,000, reflecting the
fair value of operating partnership units ("OP Units") in Storage Trust's
operating partnership owned by minority interests. OP Units are convertible
on a one-for-one basis (subject to certain limitations) into common shares
of the Company at the option of the unitholder. Minority interest in income
with respect to OP Units reflects the OP Units' share of the net income of
the Company, with net income allocated to weighted average outstanding OP
Units on a per unit basis equal to diluted earnings per common share.
During the nine months ended September 30, 2000, 277,105 OP units were
redeemed in connection with the sale of real estate facilities and 255,853
OP units were converted into shares of the Company's common stock. As of
September 30, 2000, 237,934 of such units are outstanding.

During the nine months ended September 30, 2000, minority interest
was reduced by $6,427,000 in connection with the disposition of real estate
facilities. In addition, during the nine months ended September 30, 2000,
we acquired interests in the Consolidated Entities for an aggregate cost of
$36,529,000, comprised of $29,700,000 cash and issuance of common stock of
$6,829,000; these acquisitions had the effect of reducing minority interest
by $19,426,000, with the excess of cost over underlying book value
($17,103,000) allocated to real estate.

<PAGE>

8. Shareholders' equity
--------------------

Preferred stock
---------------

At September 30, 2000, we had the following series of Preferred
Stock outstanding:

Dividend Shares Carrying
Series Rate Outstanding Amount
---------------------------- ----------- ------------ -------------
(Dollar amount in thousands)
Series A 10.000% 1,825,000 $ 45,625
Series B 9.200% 2,386,000 59,650
Series C Adjustable 1,200,000 30,000
Series D 9.500% 1,200,000 30,000
Series E 10.000% 2,195,000 54,875
Series F 9.750% 2,300,000 57,500
Series G 8.875% 6,900 172,500
Series H 8.450% 6,750 168,750
Series I 8.625% 4,000 100,000
Series J 8.000% 6,000 150,000
Series K 8.250% 4,600 115,000
Series L 8.250% 4,600 115,000
Series M 8.750% 2,250 56,250
------------ -------------
Total Senior Preferred Stock 11,141,100 $ 1,155,150
============ =============

The Series A through Series M preferred stock (collectively the
"Senior Preferred Stock") have general preference rights with respect to
liquidation and quarterly distributions. Holders of the preferred stock,
except under certain conditions and as noted above, will not be entitled to
vote on most matters. In the event of a cumulative arrearage equal to six
quarterly dividends or failure to maintain a Debt Ratio, as defined, of 50%
or less, holders of all outstanding series of preferred stock (voting as a
single class without regard to series) will have the right to elect two
additional members to serve on the Company's Board of Directors until
events of default have been cured. At September 30, 2000, there were no
dividends in arrears and the Debt Ratio was 3.1%.

Except under certain conditions relating to the Company's
qualification as a REIT, the Senior Preferred Stock is not redeemable prior
to the following dates: Series A - September 30, 2002, Series B - March 31,
2003, Series C - June 30, 1999, Series D - September 30, 2004, Series E -
January 31, 2005, Series F - April 30, 2005, Series G - December 31, 2000,
Series H - January 31, 2001, Series I - October 31, 2001, Series J - August
31, 2002, Series K - January 19, 2004, Series L - March 10, 2004, Series M
- August 17, 2004. On or after the respective dates, each of the series of
Senior Preferred Stock will be redeemable at the option of the Company, in
whole or in part, at $25 per share (or depositary share in the case of the
Series G, Series H, Series I, Series J, Series K, Series L and Series M),
plus accrued and unpaid dividends.

At September 30, 2000, 9,600 shares (represented by 9,600,000
depositary shares) of 9.5% Series N Cumulative Preferred Stock, 3,000
shares (represented by 3,000,000 depositary shares) of 9.125% Series O
Cumulative Preferred Stock, and 2,000 shares (represented by 2,000,000
depositary shares) of 8.75% series P Cumulative Preferred Stock were
reserved for issuance for the conversion of our Series N, Series O and
Series P Cumulative Redeemable Perpetual Preferred Units outstanding at
September 30, 2000.

<PAGE>

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

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

In January 2000, we issued 4,300,555 depositary shares (2,200,555
shares as part of a special distribution declared on November 15, 1999 and
2,100,000 shares in a separate public offering) each representing 1/1,000
of a share of Equity Stock, Series A ("Equity Stock A"). In addition, in
the second quarter of 2000, we issued 52,547 depositary shares of Equity
Stock A to a related party in connection with the acquisition of real
estate facilities. The Equity Stock A ranks on a parity with common stock
and junior to the Senior Preferred Stock with respect to general preference
rights and has a liquidation amount which cannot exceed $24.50 per share.
Distributions with respect to each depositary share shall be the lesser of:
a) five times the per share dividend on the Common Stock or b) $2.45 per
annum (prorated for the year 2000). Except in order to preserve the
Company's federal income tax status as a REIT, we may not redeem the
depositary shares before March 31, 2005. On or after March 31, 2005, we
may, at our option, redeem the depositary shares at $24.50 per depositary
share. If the Company fails to preserve its federal income tax status as a
REIT, the depositary shares will be convertible into common stock on a one
for one basis. The depositary shares are otherwise not convertible into
common stock. Holders of depositary shares vote as a single class with our
holders of common stock on shareholder matters, but the depositary shares
have the equivalent of one-tenth of a vote per depositary share. We have no
obligation to pay distributions if no distributions are paid to common
shareholders.

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

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

<PAGE>

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

During the nine months ended September 30, 2000, the Company
issued 232,598 shares of common stock in connection with the exercise of
stock options and 255,853 shares in connection with the conversion of OP
Units.

As previously announced, the Company's Board of Directors
authorized the repurchase from time to time of up to 15,000,000 shares of
the Company's common stock on the open market or in privately negotiated
transactions. In the nine months ended September 30, 2000, we repurchased a
total of 2,900,400 shares, for a total aggregate cost of approximately
$65,004,000. From the initial authorization through September 30, 2000, the
Company has repurchased a total of 10,309,227 shares of common stock at an
aggregate cost of approximately $245,825,000. From October 1, 2000 through
October 27, 2000, we repurchased 25,000 shares at an aggregate cost of
approximately $0.6 million.

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

Commencing January 1, 2000, the Class B Common Stock participates
in distributions at the rate of 97% of the per share distributions on the
Common Stock, provided that cumulative distributions of at least $0.22 per
quarter per share have been paid on the Common Stock. The Class B Common
Stock will (i) not participate in liquidating distributions, (ii) not be
entitled to vote (except as expressly required by California law) and (iii)
automatically convert into Common Stock, on a share for share basis, upon
the later to occur of FFO per common share aggregating $3.00 during any
period of four consecutive calendar quarters or January 1, 2003.

For these purposes, FFO means net income (loss) before (i) gain
(loss) on early extinguishment of debt, (ii) minority interest in income
and (iii) gain (loss) on disposition of real estate, adjusted as follows:
(a) plus depreciation and amortization, and (b) less FFO attributable to
minority interest. FFO per common share means FFO less preferred stock
dividends and Equity Stock A dividends divided by the outstanding weighted
average shares of Common Stock assuming conversion of all outstanding
convertible securities and the Class B Common Stock.

For these purposes, FFO per share of Common Stock (as defined
above) was $2.58 for the four consecutive calendar quarters ended September
30, 2000.

<PAGE>

Dividends
---------

The following summarizes dividends during the first nine months of
2000:

Distributions
Per Share or
Depositary Total
Share Distributions
-------------- -------------
Series A.............................. $1.875 $3,422,000
Series B.............................. $1.725 4,116,000
Series C.............................. $1.289 1,547,000
Series D.............................. $1.782 2,137,000
Series E.............................. $1.875 4,116,000
Series F.............................. $1.828 4,205,000
Series G.............................. $1.665 11,482,000
Series H.............................. $1.584 10,694,000
Series I.............................. $1.617 6,469,000
Series J.............................. $1.500 9,000,000
Series K ............................. $1.547 7,116,000
Series L ............................. $1.547 7,116,000
Series M ............................. $1.640 3,690,000
-------------
75,110,000
Equity Stock, Series A................ $1.840 7,590,000
Common................................ $1.260 156,500,000
Common, Series B...................... $1.222 8,555,000
-------------
Total dividends.................... $247,755,000
=============

For each of the first three quarters of fiscal 2000, we paid
regular quarterly distributions to our common shareholders equal to $0.22
per common share. In addition to the regular quarterly distribution, on
September 29, 2000, we paid a special cash distribution of $0.60 per common
share. This special distribution combined with accumulated distributions
paid throughout fiscal 2000 will enable the Company to meet its estimated
distribution requirements to maintain its REIT status.

At December 31, 1999, we accrued distributions totaling
$82,086,000 ($0.64 per share) of the common dividend for 1999, of which
$38,076,000 was paid on January 14, 2000 in cash and $44,010,000 was paid
in the issuance of depositary shares of Equity Stock A.

The dividend rate on the Series C Preferred Stock for each of the
three quarters of 2000 was equal to 6.897%, 6.974% and 6.750%,
respectively, per annum. The dividend rate per annum will be adjusted
quarterly and will be equal to the highest of one of three U.S. Treasury
indices (Treasury Bill Rate, Ten Year Constant Maturity Rate, or Thirty
Year Constant Maturity Rate) multiplied by 110%. However, the dividend rate
for any dividend period will neither be less than 6.75% per annum nor
greater than 10.75%. The dividend rate for the quarter ending December 31,
2000 will be equal to 6.75% per annum.

10. Segment information
-------------------

In July 1997, the Financial Accounting Standards Board issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("FAS 131"), which establishes standards for the way that
public business enterprises report information about operating segments.
This statement is effective for financial statements for periods beginning
after December 15, 1997. We adopted this standard effective for the year
ended December 31, 1998.

<PAGE>

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

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

The self-storage segment comprises the direct ownership,
development, and operation of traditional storage facilities and the
ownership of equity interests in entities that own storage properties. The
containerized storage operations reflect the containerized storage
operations of PSPUD. The commercial property segment reflects our interest
in the ownership and operation of commercial properties. The vast majority
of the commercial property operations are conducted through PSB, and to a
much lesser extent the Company and certain of its unconsolidated
subsidiaries own commercial space, managed by PSB, in facilities that
combine storage and commercial space for rent.

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

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

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

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

No segment data relative to assets or liabilities is presented,
because we do not evaluate performance based upon the assets or liabilities
of the segments. We believe that the historical cost of the Company's real
property does not have any significant bearing upon the performance of the
commercial property and storage segments. In the same manner, management
believes that the book value of investment in real estate entities as
having no bearing upon the results of those investments. The only other
types of assets that might be allocated to individual segments are trade
receivables, payables, and other assets which arise in the ordinary course
of business, but they are also not a significant factor in the measurement
of segment performance. We perform post-acquisition analysis of various
investments; however, such evaluations are beyond the scope of FAS 131.

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

<PAGE>

Self storage
------------
<S> <C> <C> <C> <C> <C> <C>
Self-storage property rentals........................ $ 168,023 $ 158,596 $ 9,427 $ 483,952 $ 437,370 $ 46,582
Equity in earnings - self storage property operations 5,006 4,364 642 15,988 15,483 505
Equity in earnings - Depreciation (self storage) .... (1,989) (1,817) (172) (5,015) (5,784) 769
---------- ---------- ---------- ---------- ---------- ----------
Self storage segment revenues.................... 171,040 161,143 9,897 494,925 447,069 47,856
---------- ---------- ---------- ---------- ---------- ----------

Containerized storage ................................. 11,045 7,387 3,658 27,834 19,263 8,571
--------------------- ---------- ---------- ---------- ---------- ---------- ----------

Commercial properties
----------------------
Commercial property rentals.......................... 2,847 2,111 736 8,433 5,973 2,460
Equity in earnings - commercial property operations.. 10,878 9,231 1,647 31,436 26,531 4,905
Equity in earnings - Depreciation (commercial
properties)....................................... (3,403) (3,014) (389) (10,507) (8,621) (1,886)
---------- ---------- ---------- ---------- ---------- ----------
Commercial properties segment revenues.......... 10,322 8,328 1,994 29,362 23,883 5,479
---------- ---------- ---------- ---------- ---------- ----------

Total revenues................................... $ 195,966 $ 178,963 $ 17,003 $ 560,711 $ 499,215 $ 61,496
========== ========== ========== ========== ========== ==========
</TABLE>
19

<PAGE>

<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2000 1999 Change 2000 1999 Change
---------- ---------- ---------- ---------- ---------- ----------
(Dollar amounts in thousands)
RECONCILIATION OF NET INCOME BY SEGMEN

Self storage
------------
<S> <C> <C> <C> <C> <C> <C>
Self-storage properties ............................. $ 113,568 $ 110,951 $ 2,617 $ 327,868 $ 303,494 $ 24,374
Depreciation and amortization - self storage......... (35,957) (35,006) (951) (104,122) (96,645) (7,477)
Equity in earnings - self storage property operations 5,006 4,364 642 15,988 15,483 505
Equity in earnings - depreciation (self-storage) .... (1,989) (1,817) (172) (5,015) (5,784) 769
---------- ---------- ---------- ---------- ---------- ----------
Total self storage segment net income............ 80,628 78,492 2,136 234,719 216,548 18,171
---------- ---------- ---------- ---------- ---------- ----------

Containerized storage..................................
---------------------
Containerized Storage Operations..................... 1,616 766 850 1,903 (2,883) 4,786
Containerized Storage Depreciation................... (1,204) (1,199) (5) (3,612) (3,631) 19
---------- ---------- ---------- ---------- ---------- ----------
Total containerized storage segment net income... 412 (433) 845 (1,709) (6,514) 4,805
---------- ---------- ---------- ---------- ---------- ----------

Commercial properties
---------------------
Commercial properties................................ 1,921 1,387 534 5,677 3,980 1,697
Depreciation and amortization - commercial properties (570) (435) (135) (1,775) (1,289) (486)
Equity in earnings - commercial property operations.. 10,878 9,231 1,647 31,436 26,531 4,905
Equity in earnings - depreciation (commercial
properties) ...................................... (3,403) (3,014) (389) (10,507) (8,621) (1,886)
---------- ---------- ---------- ---------- ---------- ----------
Total commercial property segment net income..... 8,826 7,169 1,657 24,831 20,601 4,230
---------- ---------- ---------- ---------- ---------- ---------

Other items not allocated to segments
-------------------------------------
Equity in earnings - general and administrative and
other............................................. (1,013) (2,264) 1,251 (4,992) (3,640) (1,352)
Interest and other income............................ 4,572 4,369 203 13,582 12,640 942
General and administrative........................... (5,436) (3,953) (1,483) (14,057) (9,371) (4,686)
Interest expense..................................... (626) (2,136) 1,510 (3,293) (5,870) 2,577
Minority interest in income.......................... (11,711) (4,492) (7,219) (26,565) (12,149) (14,416)
---------- ---------- ---------- ---------- ---------- ----------
Total other items not allocated to segments...... (14,214) (8,476) (5,738) (35,325) (18,390) (16,935)
---------- ---------- ---------- ---------- ---------- ----------

Total net income ................................ $ 75,652 $ 76,752 $ (1,100) $ 222,516 $ 212,245 $ 10,271
========== ========== ========== ========== ========== ==========
</TABLE>

11. Recently issued accounting standards
------------------------------------

In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities," as amended in June 2000 by Statement of Financial
Accounting Standards No. 138 ("SFAS 138"), "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," which requires
companies to recognize all derivatives as either assets or liabilities in
the balance sheet and measure such instruments at fair value. As amended by
Statement of Financial Accounting Standards No. 137 ("SFAS 137"),
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133," the provisions of SFAS 133
will require adoption no later than the beginning of the Company's fiscal
year ending December 31, 2001. Adoption of SFAS 133, as amended by SFAS
138, is not expected to have a material impact on the Company's
consolidated financial statements.

<PAGE>

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

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

FORWARD LOOKING STATEMENTS: When used within this document, the words
"expects," "believes," "anticipates," "should," "estimates," and similar
expressions are intended to identify "forward-looking statements" within the
meaning of that term in Section 27A of the Securities Exchange Act of 1933, as
amended, and in Section 21F of the Securities Exchange Act of 1934, as amended.
Such forward-looking statements involve known and unknown risks, uncertainties,
and other factors, which may cause our actual results and performance to be
materially different from those expressed or implied in the forward looking
statements. Such factors include the impact of competition from new and existing
self-storage and commercial facilities which could impact rents and occupancy
levels at our facilities; our ability to evaluate, finance, and integrate
acquired and developed properties into our existing operations; our ability to
effectively compete in the markets that it does business in; the impact of the
regulatory environment as well as national, state, and local laws and
regulations including, without limitation, those governing Real Estate
Investment Trusts; the acceptance by consumers of the Pickup and Delivery
concept; the impact of general economic conditions upon rental rates and
occupancy levels at our facilities; and the availability of permanent capital at
attractive rates.

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

Net income for the three months ended September 30, 2000 was
$75,652,000 compared to $76,752,000 for the same period in 1999, representing a
decrease of $1,100,000 or 1.4%. The decrease in net income was primarily due to
an increased allocation of income to minority interests. During the nine months
ended September 30, 2000, we issued approximately $365.0 million in preferred
operating partnership units. Unlike distributions to preferred shareholders,
distributions to preferred unitholders are presented as minority interest in
income and a reduction to the Company's net income. As a result, minority
interest in income increased $8,018,000 for the three months ended September 30,
2000 as compared to the same period in 1999.

Net income for the nine months ended September 30, 2000 was
$222,516,000 compared to $212,245,000 for the same period in 1999, representing
an increase of $10,271,000 or 4.8%. The increase in net income was primarily the
result of improved property operations, additional real estate investments,
reduced operating losses from the containerized storage business, and the
acquisition of additional real estate investments during 1999 and 2000
(including the acquisition of Storage Trust). The impact of these items was
offset partially by an increased allocation of income to minority interests.
Minority interest in income increased $16,354,000 in the nine months ended
September 30, 2000 as compared to the same period in 1999 as a result of the
aforementioned issuance of $365.0 million of preferred partnership units.

Net income allocable to common shareholders was $47,959,000 or $0.37
per common share on a diluted basis (based on 131,261,000 weighted average
diluted common equivalent shares) for the three months ended September 30, 2000.
For the same period in 1999, net income allocable to common shareholders was
$52,340,000 or $0.40 per common share on a diluted basis (based on 129,249,000
weighted average diluted common equivalent shares). The decrease in net income
per common share reflects the inclusion of 6,790,000 common equivalent shares
related to the Company's Class B common shares in 2000, but not in 1999, as
described more fully below. The decrease in net income per share also includes
increased dilution from uninvested proceeds from the Company's issuance of
fixed-rate preferred securities, increased dilution from development activities,
increased general and administrative expense, and the impact of the Company's
issuance of the Equity Stock, Series A. These factors were offset partially by
improved property operations and reduced operating losses from the containerized
storage business.

<PAGE>

Net income allocable to common shareholders was $139,816,000 or $1.06
per common share on a diluted basis (based on 131,975,000 weighted average
diluted common equivalent shares) for the nine months ended September 30, 2000.
For the same period in 1999, net income allocable to common shareholders was
$142,479,000 or $1.13 per common share on a diluted basis (based on 125,833,000
weighted average diluted common equivalent shares). The decrease in net income
per common share reflects the inclusion of 6,790,000 common equivalent shares
related to the Company's Class B common shares in 2000, but not in 1999, as
described more fully below. The decrease in net income per share also includes
increased dilution from uninvested proceeds from the Company's issuance of
fixed-rate preferred securities, increased dilution from development activities,
and the impact of the Company's issuance of the Equity Stock, Series A. These
factors were offset partially by improved property operations and reduced
operating losses from the containerized storage business.

In computing net income allocable to common shareholders for each
period, aggregate dividends paid to the holders of the Equity Stock, Series A
and preferred equity securities have been deducted in determining net income
allocable to the common shareholders.

Commencing January 1, 2000, the Company's 7,000,000 Class B common
shares outstanding began to participate in distributions of the Company's
earnings. Distributions per share of Class B common stock are equal to 97% of
the per share distribution paid to the Company's regular common shares. As a
result of this participation in distributions of earnings, for purposes of
computing net income per common share, the Company began to include 6,790,000
(7,000,000 x 97%) Class B common shares in the weighted average common
equivalent shares for the three months ended March 31, 2000. Weighted average
diluted shares for the three and nine months ended September 30, 1999 does not
include any shares with respect to the Class B common stock as these shares did
not participate in distributions of the Company's earnings prior to January 1,
2000.

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

Rental income and cost of operations have increased for the three and
nine months ended September 30, 2000 compared to the same period in 1999 due to
our merger, development, and acquisition activities throughout 1999 and 2000. As
a result of these items, the number of facilities included in the consolidated
financial statements has increased from 951 at December 31, 1998 to 1,244 at
September 30, 2000.

SELF-STORAGE OPERATIONS: The following table summarizes the operating
results (before depreciation) of (i) the 946 stabilized self-storage facilities
(56.1 million net rentable square feet) that we owned as of December 31, 1998
(the "Consistent Group") and (ii) all other facilities for which operations were
not reflected in the Company's financial statements throughout the three and
nine months ended September 30, 2000 and the same periods in 1999 (the "Other
Facilities"):

<PAGE>

SUMMARY OF SELF-STORAGE OPERATIONS

<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
Percentage Percentage
2000 1999 Change 2000 1999 Change
---------- ---------- ---------- ---------- ---------- ----------
(Amounts in thousands, except per square foot data)

Rental income (a)
<S> <C> <C> <C> <C> <C> <C>
Consistent Group............. $ 139,264 $ 134,519 3.5% $ 404,577 $ 389,961 3.7%
Other Facilities............. 28,759 24,077 19.4% 79,375 47,409 67.4%
---------- ---------- ---------- ---------- ---------- ----------
168,023 158,596 5.9% 483,952 437,370 10.7%
---------- ---------- ---------- ---------- ---------- ----------

Cost of Operations
Consistent Group............. 41,514 38,270 8.5% 122,777 115,785 6.0%
Other Facilities............. 12,941 9,375 38.0% 33,307 18,091 84.1%
---------- ---------- ---------- ---------- ---------- ----------
54,455 47,645 14.3% 156,084 133,876 16.6%
---------- ---------- ---------- ---------- ---------- ----------

Net operating income
Consistent Group............. 97,750 96,249 1.6% 281,800 274,176 2.8%
Other Facilities............. 15,818 14,702 7.6% 46,068 29,318 57.1%
---------- ---------- ---------- ---------- ---------- ----------
113,568 110,951 2.4% 327,868 303,494 8.0%

Depreciation and amortization 33,629 32,678 2.9% 97,138 89,661 8.3%
---------- ---------- ---------- ---------- ---------- ----------
Operating income $ 79,939 $ 78,273 2.1% $ 230,730 $ 213,833 7.9%
========== ========== ========== ========== ========== ==========
Consistent Group data
Gross margin........................ 70.2% 71.6% (1.2)% 69.7% 70.3% (0.6)%
Weighted average :
Occupancy........................ 92.7% 93.1% (0.4)% 92.3% 92.3% -
Realized annual rent per square
foot.(b)......................... $10.35 $9.93 4.2% $10.05 $9.67 3.9%
Scheduled annual rent per square
foot............................. $11.50 $10.32 11.4% $11.03 $10.30 7.1%

Number of facilities at end of period:
Consistent group.................... 946 946 - 946 946 -
Other Facilities.................... 292 255 14.5% 292 255 14.5%

Net rentable sq. ft. at end of period
(in thousands):
Consistent group.................... 56,050 56,050 - 56,050 56,050 -
Other Facilities.................... 17,835 15,087 18.2% 17,835 15,087 18.2%

</TABLE>

(a) Rental income includes late charges and administrative fees. For the
Consistent Group late charges and administrative fees in aggregate totaled
$5,141,000 and $5,077,000 for the three months ended September 30, 2000 and
1999, respectively, and $14,969,000 and $15,042,000 for the nine months
ended September 30, 2000 and 1999, respectively.

(b) Realized annual rent per square foot is computed by annualizing rental
income before late charges and administrative fees divided by the weighted
average occupied square footage for the period.

Rental income for the Consistent Group facilities for the quarter ended
September 30, 2000 was approximately 3.5% higher than the same period in the
prior year. Over the past several months we have increased scheduled rents
(rental rates charged to new customers) throughout the portfolio. Scheduled
rental rates for the Consistent Group of facilities are approximately 11.4%
higher than they were last year. We are currently evaluating the impact of
higher rental rates to our move-in activity. In addition, we are evaluating
market supply and demand factors and based on these analysis we may adjust
rental rates further, either increasing or decreasing them.

<PAGE>

As indicated above, the scheduled rental rates are the rates being
charged to new customers, however, the rental rates charged to our existing
customer base, is on average, less than the current scheduled rates. For the
three months ended September 30, 2000, the average realized rate per square foot
was approximately $10.35 or 11.1% below current scheduled rents. Our rental
agreements are generally on a month-by-month basis giving us the flexibility to
increase rates to our existing customers. During the second quarter of fiscal
2001, we anticipate implementing higher rental rates to our existing customer
base. The amount of increase will depend on a number of factors and may not
result in rental rates equal to the level of scheduled rental rates. There can
be no assurance that higher rental rates will not adversely affect our
occupancies.

Cost of operations includes both direct costs and indirect cost of
operating and managing the facilities. Payroll, property taxes, repairs and
maintenance, advertising and the telephone reservation center in aggregate
account for approximately 77% of the total cost of operations. With respect to
the Consistent Group of facilities, cost of operations for the quarter ended
September 30, 2000 increased approximately 8.5% compared to the same period of
last year. This increase was primarily a result of increases in repairs and
maintenance (up 37.6%), yellow page advertising (up 24.5%) and telephone
reservation center expenses (up 20.8%). The increase in yellow page advertising
is the result of expansion into other yellow page directories combined with
increased rates in existing directories, primarily due to the expansion of the
size of our ads. The increase in the telephone reservation center is primarily
due to the opening of our new center in Plano, Texas.

During fiscal 1999 and for the nine months ended September 30, 2000, we
have opened 24 newly developed facilities with a total cost of approximately
$115.6 million. Included in the above table, under the caption "Other
Facilities", are revenues of $1,457,000 and $2,426,000 for the three and nine
months ended September 30, 2000, respectively, and cost of operations of
$924,000 and $1,839,000 for the three and nine months ended September 30, 2000,
respectively, with respect to these facilities. We also completed expansions of
storage facilities of $22.1 million in the nine months ended September 30, 2000.

Due to the fill-up nature of a newly developed self-storage facility,
our earnings have been negatively impacted by our development activities. Unlike
many other types of real estate, we do not pre-lease our storage space prior to
the opening of a newly developed facility. Generally, it takes approximately 24
months for a newly developed facility to reach a stabilized occupancy level of
90%. At this stabilized occupancy level, operating costs represent approximately
30% of stabilized rental revenues. Since the operating costs are substantially
fixed in nature, a newly developed facility will not reach a break-even
operating cash flow until it achieves an occupancy level of approximately 30%.
At September 30, 2000, the 24 newly developed facilities had an average
occupancy level of approximately 49%. We expect that over at least the next
twelve months our development activities will continue to have a negative impact
to our earnings as additional newly developed facilities are opened. See
"Liquidity and Capital Resources - Acquisition and Development of Facilities."

During the nine months ended September 30, 2000, the Company acquired
eight self-storage facilities for an aggregate cost of $35,995,000. Included in
the above table, under the caption "Other Facilities", are revenues of $772,000
and $1,101,000 for the three and nine months ended September 30, 2000,
respectively, and cost of operations of $199,000 and $294,000 for the three and
nine months ended September 30, 2000, respectively, with respect to these
facilities.

As described in Note 3 to the financial statements, on September 15,
2000, we acquired the remaining ownership interests in a partnership of which we
are the general partner, for an aggregate acquisition cost of $81,169,000,
consisting of cash of $66,776,000 and the reduction of our pre-existing
investment in the amount of $14,393,000. Included in the above table, under the
caption "Other Facilities", are revenues of $484,000 for the three and nine
months ended September 30, 2000, respectively, and cost of operations of
$114,000 for the three and nine months ended September 30, 2000, respectively,
with respect to these facilities.

<PAGE>

COMMERCIAL PROPERTY OPERATIONS: Commercial property operations included
in the consolidated financial statements include commercial space owned by the
Company and Consolidated Entities. Our investment in PSB is accounted for on the
equity method of accounting, and accordingly our share of PSB's earnings is
reflected as "Equity in earnings of real estate entities."

During the nine months ended September 30, 2000, we acquired two
commercial facilities (which are expected to be converted into storage
facilities) for an aggregate cost of $5,930,000. Included within commercial
property operations with respect to these facilities was revenues of $222,000
and $651,000 for the three and nine months ended September 30, 2000,
respectively and cost of operations of $67,000 and $166,000 for the three and
nine months ended September 30, 2000, respectively. The following table sets
forth the historical commercial property amounts included in the financial
statements:

COMMERCIAL PROPERTY OPERATIONS

<S> <C> <C> <C> <C> <C> <C>
Rental income............. $ 2,847 $ 2,111 34.9% $ 8,433 $ 5,973 41.2%
Cost of operations........ 926 724 27.9% 2,756 1,993 38.3%
--------- --------- --------- --------- --------- ---------

Net operating income..... 1,921 1,387 38.5% 5,677 3,980 42.6%

Depreciation expense...... 570 435 31.0% 1,775 1,289 37.7%
--------- --------- --------- --------- --------- ---------

Operating income.......... $ 1,351 $ 952 41.9% $ 3,902 $ 2,691 45.0%
========= ========= ========= ========= ========= =========

</TABLE>

CONTAINERIZED STORAGE OPERATIONS: At September 30, 2000, our
containerized storage business operated 40 facilities. For the three months
ended September 30, 2000, the containerized storage operations generated
operating income of $412,000 compared to an operating loss of $433,000 for the
same period in 1999. For the nine months ended September 30, 2000 and 1999, we
experienced operating losses of $1,709,000 and $6,514,000, respectively.

CONTAINERIZED STORAGE

<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
2000 1999 Change 2000 1999 Change
--------- --------- --------- --------- --------- ---------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Rental and other income ......... $ 11,045 $ 7,387 $ 3,658 $ 27,834 $ 19,263 $ 8,571
--------- --------- --------- --------- --------- ---------
Cost of operations:
Direct operating costs......... 7,289 4,364 2,925 19,312 14,583 4,729
Facility lease expense......... 2,140 2,257 (117) 6,619 7,563 (944)
--------- --------- --------- --------- --------- ---------
Total cost of operations..... 9,429 6,621 2,808 25,931 22,146 3,785

Operating income (loss) prior to
depreciation................... 1,616 766 850 1,903 (2,883) 4,786

Depreciation .................. 1,204 1,199 5 3,612 3,631 (19)
--------- --------- --------- --------- --------- ---------
Operating income (losses)........ $ 412 $ (433) $ 845 $ (1,709) $ (6,514) $ 4,805
========= ========= ========= ========= ========= =========
</TABLE>

<PAGE>

Rental and other income includes monthly rental charges to customers
for storage of the containers and service fees charged for pickup and delivery
of containers to customers' homes. For the three months ended September 30,
2000, rental income increased to $11,045,000 compared to $7,387,000 for the same
period in 1999 principally as a result in increases in the number of occupied
containers. At September 30, 2000, there were approximately 64,300 occupied
containers compared to 56,000 containers at September 30, 1999.

At September 30, 2000, 28 of the 40 containerized storage facilities
are leased from third parties. We are currently developing 38 combination
facilities (which includes 14 storage facilities that are being converted to
combination facilities) that combine self-storage and containerized storage
space in the same location. These facilities are expected to replace 25 of the
leased facilities. We expect that an increasing part of the containerized
storage business will be operated from this type of facility. To the extent that
these developed combination facilities replace existing third-party leased
facilities, lease expense should continue to be reduced.

Although the containerized storage facilities generated operating
income in the quarter ended September 30, 2000, the containerized storage
operations may adversely impact the Company's future earnings and cash flows.
There can be no assurance as to the level of the containerized storage
business's expansion, level of gross rentals, level of move-outs or
profitability.

EQUITY IN EARNINGS OF REAL ESTATE ENTITIES: In addition to our
ownership of equity interests in PSB, we had general and limited partnership
interests in 11 limited partnerships at September 30, 2000. (PSB and the limited
partnerships are collectively referred to as the "Unconsolidated Entities.") Due
to our limited ownership interest and 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 year ended September
30, 2000 consists of our pro rata share of the Unconsolidated Entities based
upon our ownership interest for the period. Similar to the Company, the
Unconsolidated Entities (other than PSB) generate substantially all of their
income from their ownership of storage facilities, which we manage. In the
aggregate, the Unconsolidated Entities (including PSB) own a total of 236 real
estate facilities, 113 of which are storage facilities. The following table sets
forth the significant components of equity in earnings of real estate entities:

<PAGE>

HISTORICAL SUMMARY

<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
2000 1999 Change 2000 1999 Change
---------- ---------- ---------- ---------- ---------- ----------
(Amounts in thousands)
Property operations:
<S> <C> <C> <C> <C> <C> <C>
PSB...................... $ 10,878 $ 9,231 $ 1,647 $ 31,436 $ 26,531 $ 4,905
Development Joint Venture 1,197 690 507 3,169 1,605 1,564
Other partnerships....... 3,809 3,674 135 12,819 13,878 (1,059)
---------- ---------- ---------- ---------- ---------- ----------
15,884 13,595 2,289 47,424 42,014 5,410
---------- ---------- ---------- ---------- ---------- ----------

Depreciation:
PSB...................... (3,403) (3,014) (389) (10,507) (8,621) (1,886)
Development Joint Venture (479) (335) (144) (1,407) (900) (507)
Other partnerships....... (1,510) (1,482) (28) (3,608) (4,884) 1,276
---------- ---------- ---------- ---------- ---------- ----------
(5,392) (4,831) (561) (15,522) (14,405) (1,117)
---------- ---------- ---------- ---------- ---------- ----------
Other: (1)
PSB...................... (1,678) (1,479) (199) (5,117) (3,362) (1,755)
Development Joint Venture 65 8 57 80 51 29
Other partnerships....... 600 (793) 1,393 45 (329) 374
---------- ---------- ---------- ---------- ---------- ----------
(1,013) (2,264) 1,251 (4,992) (3,640) (1,352)
---------- ---------- ---------- ---------- ---------- ----------

Total equity in earnings of
real estate entities....... $ 9,479 $ 6,500 $ 2,979 $ 26,910 $ 23,969 $ 2,941
========== ========== ========== ========== ========== ==========
</TABLE>

(1) "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.

Equity in earnings of PSB represents our pro rata share (approximately
42% ownership) of earnings of PS Business Parks, Inc., a publicly traded real
estate investment trust. As of September 30, 2000, we owned approximately
5,370,000 common shares and 7,354,000 operating partnership units (units which
are convertible in common shares on a one-for-one basis) in PSB.

Equity in earnings with respect to the Development Joint Venture
represents our pro rata share of the operating results of an unconsolidated
joint venture formed in April 1997 in which we have a 30% ownership interest.
The joint venture was formed for the purpose of developing approximately $220
million of self-storage facilities. As of September 30, 2000, 46 of the joint
venture's 47 properties are completed and operating, substantially all of which
are in the fill-up process and have not reached stabilized occupancy levels.

During the first nine months of fiscal 2000, we acquired controlling
interests in certain entities. As a result of our ownership and control, we
began to consolidate the accounts of these entities into our financial
statements. Since we no longer account for our investment using the equity
method, equity in earnings with respect to the "Other partnerships" has
decreased for the nine months ended September 30, 2000 as compared to the same
period in the prior year.

<PAGE>

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

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

Interest and other income has increased in the three and nine months
ended September 30, 2000 as compared to the same periods in 1999 as a result of
higher cash balances invested in interest bearing accounts. Higher cash balances
are primarily due to our issuance of preferred operating partnership units in
2000.

DEPRECIATION AND AMORTIZATION: Depreciation and amortization expense
has increased $1,091,000 to $37,731,000 for the three months ended September 30,
2000 as compared to $36,640,000 for the same period in 1999. Depreciation and
amortization expense has increased $7,944,000 to $109,509,000 for the nine
months ended September 30, 2000 as compared to $101,565,000 for the same period
in 1999. These increases are principally due to the acquisition of additional
real estate facilities during 1999 and 2000. Included in depreciation and
amortization expense is amortization expense with respect to intangible assets
of $2,328,000 and $6,984,000 for the three and nine months ended September 30,
2000 and 1999. Included in depreciation and amortization expense for the three
months ended September 30, 2000 and 1999 is $1,204,000 and $1,199,000,
respectively, and $3,612,000 and $3,631,000 for the nine months ended September
30, 2000 and 1999, respectively, of depreciation of furniture, fixtures, and
equipment of the containerized storage business.

GENERAL AND ADMINISTRATIVE: General and administrative expense has
increased $1,483,000 to $5,436,000 for the three months ended September 30, 2000
as compared to $3,953,000 for the same period in 1999. General and
administrative expense has increased $4,686,000 to $14,057,000 for the nine
months ended September 30, 2000 as compared to $9,371,000 for the same period in
1999. The increase includes an expansion in our product research and development
efforts, as well as costs associated with lease terminations on leased
containerized storage facilities which were replaced by newly-developed
facilities, and increased consulting fees. The total amount of such expenses was
approximately $2,208,000 and $3,979,000 for the three and nine months ending
September 30, 2000 as compared to $662,000 and $912,000, respectively, for the
same periods in 1999.

MINORITY INTEREST IN INCOME: Minority interest in income represents the
income allocable to equity interests in the Consolidated Entities, which are not
owned by us. Minority interest in income was $11,711,000 and $26,565,000,
respectively, for the three and nine months ended September 30, 2000, compared
to $4,492,000 and $12,149,000, respectively, for the same periods in 1999.

In November 1999, we formed a joint venture partnership for the purpose
of developing approximately $100 million of self-storage facilities and to
purchase $100 million of our Equity Stock, Series AAA. The venture, which has
been consolidated, is funded solely with equity capital consisting of 51% from
us and 49% from the joint venture partner. Minority interest in income includes
approximately $167,000 of income allocated to our joint venture partner.

On March 17, 2000, one of our operating partnerships issued $240.0
million of 9.5% Series N Cumulative Redeemable Perpetual Preferred Units. On
March 29, 2000, the operating partnership issued $75.0 million of 9.125% Series
O Cumulative Redeemable Perpetual Preferred Units and on August 11, 2000, issued
$50.0 million of 8.75% Series P Cumulative Redeemable Perpetual Preferred Units.
The issuance of preferred partnership units had the effect of increasing
minority interest by $365 million. For the nine months ended September 30, 2000,
these preferred units were paid in aggregate approximately $16,354,000 in
distributions and received a corresponding allocation of minority interest in
earnings for the partial period in which the units were outstanding. On March
30, 2000, we acquired the remaining minority interest in one of our consolidated
partnerships. The aggregate cost of the acquisition was approximately $23.6
million in cash. Minority interest in income for the three months ended March
31, 2000, includes income allocated to these interests of approximately
$602,000.

<PAGE>

SUPPLEMENTAL PROPERTY DATA AND TRENDS
--------------------------------------------------------------------------------

At September 30, 2000, there were approximately 46 ownership entities
owning in aggregate 1,351 storage facilities, including the facilities which we
own and/or operate. At September 30, 2000, 113 of these facilities were owned by
Unconsolidated Entities, entities in which we have an ownership interest and use
the equity method for financial statement presentation. The remaining 1,238
facilities are owned by the Company and Consolidated Entities.

The following table summarizes our investment in real estate facilities
as of September 30, 2000:

<TABLE>
<CAPTION>
Number of Facilities in which the Net Rentable Square Footage
Company has an ownership interest (in thousands)
-------------------------------------- --------------------------------------
Self-Storage Commercial Self-Storage Commercial
Facilities Properties Total Facilities Properties Total
---------- ---------- ------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Wholly-owned facilities.................... 618 6 624 37,813 394 38,207
Facilities owned by Consolidated Entities.. 620 - 620 36,072 - 36,072
---------- ---------- ------- ---------- ---------- --------
Total consolidated facilities.......... 1,238 6 1,244 73,885 394 74,279
Facilities owned by Unconsolidated Entities 113 123 236 6,657 12,105 18,762
---------- ---------- ------- ---------- ---------- --------
Total facilities in which the Company
has an ownership interest............ 1,351 129 1,480 80,542 12,499 93,041
========== ========== ======= ========== ========== ========
</TABLE>

In order to evaluate how our overall portfolio has performed,
management analyzes the operating performance of a consistent group of
self-storage facilities representing 950 (55.3 million net rentable square feet)
of the 1,351 self-storage facilities (herein referred to as "Same Store"
self-storage facilities). The 950 facilities represent a pool of properties,
which have been operated under the "Public Storage" name, at a stabilized level,
by the Company since January 1, 1994. From time to time, the Company removes
facilities from the "Same Store" pool as a result of expansions or other
activities, which make such facilities' results not comparable to previous
periods. The Same Store group of properties includes 885 consolidated facilities
and 65 facilities owned by Unconsolidated Entities. The following table
summarizes the pre-depreciation historical operating results of the Same Store
self-storage facilities:

<PAGE>

SAME STORE STORAGE FACILITIES (950 FACILITIES)
----------------------------------------------
(historical property operations)

<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
---------------------------------------- ----------------------------------------
2000 1999 Change 2000 1999 Change
----------- ----------- ----------- ----------- ----------- -----------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Rental income (1)........... $ 140,891 $ 135,752 3.8% $ 408,961 $ 392,899 4.1%
Cost of operations (includes
an imputed 6% property
management fee) (2)....... 47,473 44,923 5.7% 141,731 134,750 5.2%
----------- ----------- ----------- ----------- ----------- -----------
Net operating income........ $ 93,418 $ 90,829 2.9% $ 267,230 $ 258,149 3.5%
=========== =========== =========== =========== =========== ===========

Gross profit margin (3)..... 66.3% 66.9% (0.6)% 65.3% 65.7% (0.4)%

Weighted Average:
----------------
Occupancy during the
period................. 93.0% 93.4% (0.4)% 92.7% 92.6% 0.1%
Annualized realized rent
per sq. ft. for period.(4) $10.95 $10.51 4.2% $10.63 $10.23 3.9%
Annualized scheduled rent
per sq. ft. for period (4) $11.79 $10.50 12.3% $11.28 $10.49 7.5%

</TABLE>

1. Rental income includes late charges and administrative fees that in
aggregate totaled $5,165,000 and $5,070,000 for the three months ended
September 30, 2000 and 1999, respectively, and $15,005,000 and $15,013,000
for the nine months ended September 30, 2000 and 1999, respectively.

2. Cost of operations includes both direct and indirect costs of ownership,
management and operation of the properties. Cost of operations includes a
6% management fee on all facilities, including those facilities owned by
the Company for which no fee is paid. The 5.7% increase in cost of
operations for the three months ended September 30, 2000 as compared to the
same period in 1999 includes increases in advertising and promotion, repair
and maintenance expense, and payroll.

3. Gross profit margin is computed by dividing property net operating income
(before depreciation expense) by rental revenues. The gross profit margin
includes an imputed 6% property management fee; the actual cost of
management is somewhat less.

4. Realized rent per square foot represents the actual revenue (including late
charges and administrative fees) earned per occupied square foot.
Management believes this is a more relevant measure than the scheduled
rental rates, since scheduled rates can be discounted through the use of
promotions.

Scheduled rental rates are the rates being charged to new customers,
however, the rental rates charged to our existing customer base, is on average,
less than the current scheduled rates. For the three months ended September 30,
2000, the average realized rate per square foot was approximately $10.95 or 7.7%
below current scheduled rents (excluding late charges and administrative fees,
which are not included in scheduled rents, the average realized rate per square
foot was approximately $10.55 or 11.8% below currently scheduled rents). Our
rental agreements are generally on a month-by-month basis giving us the
flexibility to increase rates to our existing customers. During the second
quarter of fiscal 2001, we anticipate implementing higher rental rates to our
existing customer base. The amount of increase will depend on a number of
factors and may not result in rental rates equal to the level of scheduled
rental rates. There can be no assurance that higher rental rates will not
adversely affect our occupancies.

Cost of operations includes both direct costs and an imputed 6%
management fee. Payroll, property taxes, repairs and maintenance, advertising
and the telephone reservation center in aggregate account for approximately 66%
of the total cost of operations. With respect to the Same Store facilities, cost
of operations for the quarter ended September 30, 2000 increased approximately
5.7% compared to the same period of last year. This increase was primarily a
result of increases in repairs and maintenance (up 36.2%), yellow page
advertising (up 21.8%) and telephone reservation center expenses (up 20.5%). The
increase in yellow page advertising is the result of expansion into other yellow
page directories combined with increased rates in existing directories,
primarily due to the expansion of the size of our ads. The increase in the

<PAGE>

telephone reservation center is primarily due to the opening of our new center
in Plano, Texas.

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

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

Operating as a real estate investment trust ("REIT"), our ability to
retain cash flow for reinvestment is restricted. In order for us to maintain our
REIT status, a substantial portion of our operating cash flow must be used to
make distributions to our shareholders (see "REIT STATUS" 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 make the minority interests' distributions, dividend payments to
the preferred shareholders and capital improvements to maintain the facilities
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.

<TABLE>
<CAPTION>
For the nine months ended
September 30,
--------------------------
2000 1999
---------- ----------
(Amounts in thousands)
<S> <C> <C>
Net income........................................................................... $ 222,516 $ 212,245
Depreciation and amortization........................................................ 109,509 101,565
Less: Depreciation with respect to non-real estate assets........................... (3,612) (3,631)
Depreciation from Unconsolidated Entities............................................ 15,522 14,405
Minority interest in income.......................................................... 26,565 12,149
---------- ----------
Net cash provided by operating activities.......................................... 370,500 336,733

Distributions to Minority Interests:
Preferred operating partnership units............................................. (16,354) -
Other............................................................................. (15,224) (19,501)
---------- ----------
Cash from operations allocable to the Company's shareholders......................... 338,922 317,232

Less: preferred stock dividends...................................................... (75,110) (69,766)
Less: equity stock, Series A dividends............................................... (7,590) -
---------- ----------
Cash from operations available to common shareholders................................ 256,222 247,466

Capital improvements to maintain facilities.......................................... (16,605) (18,158)
Add back: minority interest share of capital improvements to maintain facilities..... 385 888
---------- ----------
Funds available for principal payments on debt, common dividends and reinvestment.... 240,002 230,196

Cash distributions to common shareholders (A)........................................ (165,055) (85,096)
---------- ----------

Funds available for principal payments on debt and reinvestment (A).................. $ 74,947 $ 145,100
========== ==========
</TABLE>

(A) Cash distributions for both periods include regular common distributions of
$0.22 per share per quarter as well as special distributions, as follows.
For the nine months ended September 30, 2000, a special distribution in the
amount of $0.60 per common share (an aggregate of $78.7 million) was
declared and paid. The amounts for the nine months ended September 30, 1999
do not reflect any special distribution, as a special distribution was
declared on November 15, 1999 in the amount of $0.65 per share in Equity
Stock A or $0.62 in cash (an aggregate of $82.1 million) and reflected in
distributions for the fourth quarter of 1999. The Company has declared a
regular distribution payable on December 29, 2000 at $0.22 per share, and
does not expect to make any additional special distributions in calendar
2000. However, assuming a continuation of the Company's increasing level of
taxable income in 2001 and beyond, the Company expects that it will
continue to make a combination of regular and special distributions in cash
or securities throughout each year at a rate comparable to or exceeding the
amounts paid and declared in 2000 and 1999.

<PAGE>

We expect to fund our growth strategies with cash on hand at September
30, 2000, internally generated retained cash flows, proceeds from issuing equity
securities and borrowings under our $150 million credit facility. We intend to
repay amounts borrowed under the credit facility from undistributed operating
cash flow or, as market conditions permit and are determined to be advantageous,
from the public or private placement of equity securities.

Our portfolio of real estate facilities remains substantially
unencumbered. At September 30, 2000, we had mortgage debt outstanding of $27.1
million and had consolidated real estate facilities with a book value of $3.6
billion. We have not financed our acquisitions with debt and generally our
borrowings have increased through the assumption of pre-existing debt on
acquired real estate facilities, including $100 million in debt assumed in
connection with the merger with Storage Trust.

During the first quarter of 2000, one of our operating partnerships
issued $240.0 million of 9.5% Series N Cumulative Redeemable Perpetual Preferred
Units (issued March 17, 2000) and $75.0 million of 9.125% Series O Cumulative
Redeemable Perpetual Preferred Units (issued March 29, 2000). During the third
quarter of 2000, the partnership issued $50.0 million of 8.75% Series P
Cumulative Redeemable Perpetual Preferred Units (issued August 11, 2000). The
units are not redeemable during the first 5 years, thereafter, at our option, we
can call the units for redemption at the issuance amount plus any unpaid
distributions. The units are not redeemable by the holder. Subject to certain
conditions, the Series N preferred units are convertible into shares of 9.5%
Series N Cumulative Preferred Stock, the Series O preferred units are
convertible into shares of 9.125% Series O Cumulative Preferred Stock of the
Company and the Series P preferred units are convertible into shares of 8.75%
Series P Cumulative Preferred Stock of the Company.

DISTRIBUTION REQUIREMENTS: Our conservative distribution policy has
been the principal reason for the Company's ability to retain significant
operating cash flows which have been used to make additional investments and
reduce debt.

During the nine months ended September 30, 2000 and 1999, we
distributed to common shareholders approximately 64.4% and 34.4% of our cash
available from operations allocable to common shareholders, respectively.
Distributions for both periods include regular common distributions of $0.22 per
share per quarter. In addition, for the nine months ended September 30, 2000, a
special distribution in the amount of $0.60 per common share (an aggregate of
$78.4 million) was declared and paid. The amounts for the nine months ended
September 30, 1999 do not reflect any special distribution, as a special
distribution was declared in November 1999 in the amount of $0.65 in Equity
Stock A or $0.62 in cash (an aggregate of $82.1 million was paid in the form of
cash and our Equity Stock A) and reflected in distributions for the fourth
quarter of 1999.

The Company has declared a regular distribution payable on December 29,
2000 at $0.22 per common share, and does not expect to make any additional
special distributions in calendar 2000. However, we expect to increase our
common distribution in 2001 and beyond from the level of our regularly quarterly
distribution level of $0.22 per common share assuming a continuation of our
increasing level of taxable income. These increased distributions will be in the
form of special distributions of cash or securities, an increase in the regular
quarterly common distribution, or a combination thereof.

During the nine months ended September 30, 2000, we paid cash dividends
totaling $75,110,000 to the holders of our Senior Preferred Stock and $7,590,000
to the holders of Equity Stock, Series A. We estimate the regular distribution
requirements for fiscal 2000 with respect to Senior Preferred Stock outstanding
at September 30, 2000 to be approximately $100.2 million. With respect to the
Equity Stock, Series A, the prorated annual distribution for 2000 (assuming at
least $0.49 is paid per common share) is approximately $10.3 million.

During the nine months ended September 30, 2000, we paid dividends
totaling $247,141,000 to the holders of our common stock which includes a
special distribution of approximately $82,086,000 related to fiscal 1999. The
special distribution was paid on January 14, 2000 to our common shareholders and
consisted of $38,076,000 in cash and $44,010,000 in the issuance of depositary
shares of Equity Stock, Series A. As of September 30, 2000 we paid cash
dividends totaling $156,500,000 to common shareholders and $8,555,000 to Class B
common shareholders. Distributions with respect to the classes of common stock
will be determined based upon our REIT distribution requirements after taking
into consideration distributions to the Company's preferred shareholders.

<PAGE>

PREFERRED OPERATING PARTNERSHIP UNIT DISTRIBUTION REQUIREMENTS: For the
three and nine months ended September 30, 2000, the holders of these preferred
units were paid in aggregate approximately $8,018,000 and $16,354,000,
respectively, in distributions, which represented a pro rated dividend for the
period the units were outstanding. We estimate that the annual distribution
requirement for the preferred operating partnership units outstanding at
September 30, 2000 will be approximately $34.0 million.

CAPITAL IMPROVEMENT REQUIREMENTS: During 2000, we have budgeted
approximately $26.5 million for capital improvements. During the nine months
ended September 30, 2000, we incurred capital improvements of approximately
$16,605,000.

DEBT SERVICE REQUIREMENTS: We do not believe we have any significant
refinancing risks with respect to our notes payable, all of which is fixed rate.
At September 30, 2000, we had total outstanding notes payable of $160,723,000.
Approximate principal maturities of notes payable at September 30, 2000 are as
follows:

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

2000 (remainder of).......... $ 4,375 $ 382 $ 4,757
2001......................... 9,500 2,910 12,410
2002......................... 24,450 3,530 27,980
2003......................... 35,900 3,585 39,485
2004......................... 25,800 15,063 40,863
Thereafter................... 33,600 1,628 35,228
------------ ------------- ------------
$ 133,625 $ 27,098 $ 160,723
============ ============= ============
Weighted average rate........ 7.4% 10.3% 7.9%
============ ============= ============

REPURCHASES OF THE COMPANY'S COMMON STOCK: As previously announced, the
Company's Board of Directors authorized the repurchase from time to time of up
to 15,000,000 shares of the Company's common stock on the open market or in
privately negotiated transactions. In the quarter ended September 30, 2000, the
Company repurchased a total of 60,300 shares, for a total aggregate cost of
approximately $1.4 million. From the initial authorization through September 30,
2000, the Company repurchased a total of 10,309,227 shares of common stock at an
aggregate cost of approximately $245.8 million. From October 1, 2000 through
October 27, 2000, the Company repurchased 25,000 shares at an aggregate cost of
approximately $0.6 million.

ACQUISITION AND DEVELOPMENT OF FACILITIES: In the nine months ended
September 30, 2000, we have acquired two commercial facilities and eight storage
facilities at an aggregate cost of approximately $41.9 million. In addition, on
September 15, 2000, we acquired the remaining ownership interests in an
affiliated partnership, of which we are the general partner, for an aggregate
acquisition cost of $81,169,000, consisting of cash of $66,776,000 and the
reduction of our pre-existing investment in the amount of $14,393,000. This
affiliated partnership owned 13 self-storage facilities.

As previously announced, in April 1997, we formed a joint venture
partnership with an institutional investor for the purpose of developing up to
$220 million of self-storage facilities. The joint venture is funded solely with
equity capital consisting of 30% from us and 70% from the institutional
investor. Our share of the cost of the real estate in the joint venture is
approximately $68.6 million at September 30, 2000.

As of September 30, 2000, the joint venture had 46 operating
facilities, with 2,787,000 net rentable square feet and total development costs
of approximately $222.7 million. As of September 30, 2000, the joint venture is
developing one additional project (approximately 93,000 net rentable square
feet) that was in process, with total costs incurred of $6.0 million and
estimated remaining costs to complete of $1.0 million.

In November 1999, we formed a second joint venture partnership for the
development of approximately $100 million of self-storage facilities. The
venture is funded solely with equity capital consisting of 51% from us and 49%
from the joint venture partner. At September 30, 2000, the second development
joint venture was committed to develop 14 facilities (approximately 932,000 net

<PAGE>

rentable sq. ft.) with an estimated development cost of approximately $64.4
million, of which 10 facilities (approximately 632,000 net rentable sq. ft.)
were completed at an aggregate cost of approximately $45.3 million. As of
September 30, 2000, the second development joint venture is developing four
additional projects (approximately 300,000 net rentable square feet) that were
in process, with total costs incurred of $11.6 million and estimated remaining
costs to complete of $7.6 million. We have submitted 10 additional facilities
for approval with total estimated costs of approximately $47.4 million; we have
incurred approximately $20.9 million through September 30, 2000 with respect to
these 10 projects. Upon approval, these projects will be transferred to the
joint venture and the joint venture partner will contribute its 49% share.

We currently have a development "pipeline" of 94 self storage
facilities, combination facilities, and expansions to existing self storage
facilities with an aggregate estimated cost of approximately $533 million.
Approximately $191 million of development cost is incurred as of September 30,
2000. We have acquired the land for 59 of these projects, which have an
aggregate estimated cost of approximately $335 million, and costs incurred as of
September 30, 2000 of approximately $185 million.

The development and fill-up of these storage facilities is subject to
significant contingencies. However, we estimate that the total remaining
spending of these projects of approximately $342 million will be incurred over
the next 24 - 28 months. The following table sets forth our development pipeline
and a range of estimated opening dates for these projects:

<TABLE>
<CAPTION>
Number Total Estimated Total Cost Incurred Estimated Time
of Cost of through September Frames of Facility
Facilities Development 30, 2000 Openings
---------- --------------- -------------------- ------------------
Development - Land Acquired at
---------------------------------
9/30/00
-------
<S> <C> <C> <C> <C> <C>
Self-storage facilities........ 22 $127,214,000 $73,137,000 Q4 `00 - Q4 `01
Expansions of existing
self-storage facilities.... 18 51,568,000 20,094,000 Q4 `00 - Q4 `01
Combination facilities......... 19 155,798,000 91,830,000 Q4 `00 - Q4 `01
---------- --------------- --------------------
Total..................... 59 334,580,000 185,061,000
---------- --------------- --------------------
Potential Development - Land to
--------------------------------
be Acquired After 9/30/00
-------------------------
Self-storage facilities -
development starts estimated
by 6/30/01................. 22 $131,641,000 $4,428,000
Self-storage facilities -
development starts estimated
after 6/30/01.............. 3 24,642,000 201,000 After Q2 `02
Expansions of existing
self-storage facilities.... 5 10,143,000 184,000 Q1 `02 - Q2 `02
Combination facilities......... 5 32,035,000 708,000 Q1 `02 - Q2 `02
---------- --------------- --------------------
Total..................... 35 198,461,000 5,521,000
---------- --------------- --------------------
Totals.................... 94 $533,041,000 $190,582,000
========== =============== ====================
</TABLE>

REIT STATUS: We believe that we have operated, and intend to continue
to operate, in such a manner as to qualify as a REIT under the Internal Revenue
Code of 1986, but no assurance can be given that we will at all times so
qualify. To the extent that we continue to qualify as a REIT, we will not be
taxed, with certain limited exceptions, on the taxable income that is
distributed to our shareholders, provided that at least 95% of our taxable
income is so distributed prior to filing of our tax return. We have satisfied
the REIT distribution requirement since 1980.

<PAGE>

FUNDS FROM OPERATIONS: Total funds from operations or "FFO" increased
to $338,922,000 for the nine months ended September 30, 2000 compared to
$317,232,000 for the same period in 1999. FFO available to common shareholders
(after deducting preferred stock dividends but before deducting Equity Stock A
dividends) increased to $263,812,000 for the nine months ended September 30,
2000 compared to $247,466,000 for the same period in 1999. FFO means net income
or (loss) (computed in accordance with generally accepted accounting principles)
before: (i) gain or (loss) on early extinguishment of debt, (ii) minority
interest in income and (iii) gain or (loss) on the disposition of real estate,
adjusted as follows: (a) plus depreciation and amortization (including our
pro-rata share of depreciation and amortization of unconsolidated equity
interests and amortization of assets acquired in a merger, including property
management agreements and goodwill), and (b) less FFO attributable to minority
interest.

FFO is a supplemental performance measure for equity REITs as defined
by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT").
The NAREIT definition does not specifically address the treatment of minority
interest in the determination of FFO or the treatment of the amortization of
property management agreements and goodwill. In our case, FFO represents amounts
attributable to our shareholders after deducting amounts attributable to the
minority interests and before deductions for the amortization of property
management agreements and goodwill. FFO is presented because management, as well
as many industry analysts, consider FFO to be one measure of our performance and
it is used in establishing the terms of the Class B Common Stock. FFO does not
take into consideration capital improvements, scheduled principal payments on
debt, distributions and our other obligations. Accordingly, FFO is not a
substitute for cash flow or net income (as discussed above) as a measure of our
liquidity or operating performance. FFO is not comparable to similarly entitled
items reported by other REITs that do not define it exactly as we have defined
it.

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------

To limit our exposure to market risk, we principally finance our
operations and growth with permanent equity capital, consisting of either common
or preferred stock. At September 30, 2000, our debt as a percentage of total
shareholders' equity (based on book values) was 4.4%.

Our preferred stock is not redeemable by the holders. Except under
certain conditions relating to our qualification as a REIT, we may not redeem
the Senior Preferred Stock prior to the following dates: Series A - September
30, 2002, Series B - March 31, 2003, Series C - June 30, 1999, Series D -
September 30, 2004, Series E - January 31, 2005, Series F - April 30, 2005,
Series G - December 31, 2000, Series H - January 31, 2001, Series I - October
31, 2001, Series J - August 31, 2002, Series K - January 19, 2004, Series L -
March 10, 2004 and Series M - August 17, 2004. On or after the respective dates,
each of the series of Senior Preferred Stock will be redeemable at the our
option, in whole or in part, at $25 per share (or depositary share in the case
of the Series G, Series H, Series I, Series J, Series K, Series L and Series M),
plus accrued and unpaid dividends.

Our preferred operating partnership units are not redeemable by the
holders. Five years after issuance, we can call the units for redemption at the
issuance amount plus any unpaid distributions.

Our market risk sensitive instruments include notes payable, which
totaled $160.7 million at September 30, 2000. Substantially all of the Company's
notes payable bear interest at fixed rates. See Item 2 - Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources for approximate principal maturities of the notes payable as
of September 30, 2000.

<PAGE>

PART II. OTHER INFORMATION

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

(a) Exhibits:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

3.26 Certificate of Determination for 8.75% Cumulative Preferred Stock,
Series M. Filed with Registrant's Form 8-A/A Registration Statement
relating to the Depositary Shares Each Representing 1/1000 of a Share
of 8.75% Cumulative Preferred Stock, Series M and incorporated herein
by reference.

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

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

3.29 Certification of Determination for 9.125% Cumulative Preferred Stock,
Series O. Filed with Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2000 and incorporated herein by
reference.

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

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

<PAGE>

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

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

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

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

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

3.37 Amendment to Bylaws adopted on May 6, 1999. Filed with Registrant's
Form 10-Q for the quarterly period ended March 31, 1999 and
incorporated herein by reference.

10.1 Second Amended and Restated Management Agreement by and among
Registrant and the entities listed therein dated as of November 16,
1995. Filed with PS Partners, Ltd.'s Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference.

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

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

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

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

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

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

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

10.9 Registrant's 1996 Stock Option and Incentive Plan. Filed with
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997 and incorporated herein by reference.

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

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Depositary Shares Each Representing 1/1000th of a Share of 8-7/8
Cumulative Preferred Stock, Series G and incorporated herein by
reference.

10.11 Deposit Agreement dated as of January 25, 1996, among Registrant, The
First National Bank of Boston, and the holders of the depositary
receipts evidencing the Depositary Shares Each Representing 1/1,000 of
a Share of 8.45% Cumulative Preferred Stock, Series H. Filed with
Registrant's Form 8-A/A Registration Statement relating to the
Depositary Shares Each Representing 1/1000th of a Share of 8.45%
Cumulative Preferred Stock, Series H and incorporated herein by
reference.

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

10.13 Deposit Agreement dated as of November 1, 1996, among Registrant, The
First National Bank of Boston, and the holders of the depositary
receipts evidencing the Depositary Shares Each Representing 1/1,000 of
a Share of 8-5/8% Cumulative Preferred Stock, Series I. Filed with
Registrant's Form 8-A/A Registration Statement relating to the
Depositary Shares Each Representing 1/1000th of a Share of 8-5/8%
Cumulative Preferred Stock, Series I and incorporated herein by
reference.

10.14 Limited Partnership Agreement of PSAF Development Partners, L. P.
between PSAF Development, Inc. and the Limited Partner dated as of
April 10, 1997. Filed with Registrant's Form 10-Q for the quarterly
period ended March 31, 1997 and incorporated herein by reference.

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

10.16 Agreement and Plan of Reorganization between Registrant and Public
Storage Properties XX, Inc. dated as of December 13, 1997. Filed with
Registrant's Registration Statement No. 333-49247 and incorporated
herein by reference.

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

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

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

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

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

39
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10.22 Storage Trust Realty 1994 Share Incentive Plan. Filed with Storage
Trust Realty's Annual Report on Form 10-K for the year ended December
31, 1997 and incorporated herein by reference.

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

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

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

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

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

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

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

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

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

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

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

27. Financial Data Schedule. Filed herewith.

(b) Reports on Form 8-K

None.

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SIGNATURES

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

DATED: November 6, 2000

PUBLIC STORAGE, INC.

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