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

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

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

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

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

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

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

o risks related to our participation in joint ventures;

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

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

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

o disruptions or shutdowns of our automated processes and systems;

o difficulties in raising capital at a reasonable cost;

o delays in the development proess; and

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

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

CRITICAL ACCOUNTING POLICIES

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

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

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

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

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

ESTIMATED USEFUL LIVES OF LONG-LIVED ASSETS: Substantially all of our assets consist of depreciable or amortizable, long-lived assets. We record depreciation and amortization expense with respect to these assets based upon their estimated useful lives. Any change in the estimated useful lives of those

assets, caused by functional or economic obsolescence or other factors, could have a material adverse impact on our financial condition or results of operations.

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

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

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

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

RESULTS OF OPERATIONS

OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008:

Net income for the three months ended September 30, 2008 was $137.3 million compared to $152.8 million for the same period in 2007, representing a decrease of $15.5 million. This decline is primarily due to the impact of a $53.2 million foreign exchange loss during the quarter ended September 30, 2008 as compared to an exchange gain of $30.4 million in the same period in 2007, offset by reduced depreciation and amortization expense and improvements in operating income with respect to our domestic self-storage facilities.

The foreign currency exchange gains and losses relate primarily to intercompany loans due from Shurgard Europe. The foreign currency gains and losses were due to changes in the value of the U.S. Dollar relative to the Euro during each period when converting these Euro denominated loans to U.S. Dollars for financial reporting purposes.

Amortization expense for the quarter ended September 30, 2008, with respect to domestic intangible assets obtained in the August 22, 2006 acquisition of Shurgard Storage Centers, Inc. (the "Shurgard Merger") decreased by $27.1 million as compared to the same period in 2007.

Net operating income (before depreciation and amortization) with respect to our domestic operations increased $15.3 million in the three months ended September 30, 2008 as compared to the same period in 2007 due to an increase of $8.8 million with respect to our domestic same-store operations combined with an increase of $6.5 million with respect to our non-stabilized facilities.

For the three months ended September 30, 2008, net income allocable to our common shareholders (after allocating net income to our preferred and equity shareholders) was $71.6 million or $0.42 per common share on a diluted basis compared to $87.1 million or $0.51 per common share on a diluted basis for the same period in 2007, representing a decrease of $15.5 million or $0.09 per common share on a diluted basis. These decreases are due primarily to the impact of the factors described above with respect to the decline in our net income.

For each of the three months ended September 30, 2008 and 2007, we allocated $60.3 million of our net income to our preferred shareholders based on distributions paid during each period.

Weighted average diluted common shares were 168,919,000 and 170,085,000, respectively, for the three months ended September 30, 2008 and 2007. The decline is due to share repurchases in the first quarter of 2008.

OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008:

Net income for the nine months ended September 30, 2008 was $783.5 million compared to $289.6 million for the same period in 2007, representing an improvement of $493.9 million. This improvement is primarily due to a gain of $341.9 million recognized on the disposition of a 51% interest in Shurgard Europe on March 31, 2008 (see "Shurgard Europe" below for further information), improvements in operating income with respect to our domestic self-storage facilities and reduced amortization expense, offset by a foreign exchange loss of $12.2 million for the nine months ended September 30, 2008 as compared to a foreign exchange gain of $41.0 million in the same period in 2007.

Net operating income (before depreciation and amortization) with respect to our domestic operations increased $37.9 million in the nine months ended September 30, 2008 as compared to the same period in 2007 due to an increase of $22.1 million with respect to our domestic same-store operations combined with an increase of $15.8 million with respect to our non-stabilized facilities.

Amortization expense for the nine months ended September 30, 2008, with respect to domestic intangible assets obtained in the Shurgard Merger decreased by $103.9 million compared to the same period in 2007.

For the nine months ended September 30, 2008, net income allocable to our common shareholders (after allocating net income to our preferred and equity shareholders) was $586.4 million or $3.47 per common share on a diluted basis compared to $97.2 million or $0.57 per common share on a diluted basis for the same period in 2007, representing an improvement of $489.2 million or $2.90 per common share on a diluted basis. These improvements are due primarily to the impact of the factors described above with respect to the improvement in our net income.

For the nine months ended September 30, 2008 and 2007, we allocated $181.0 million and $176.4 million of our net income, respectively, to our preferred shareholders based on distributions paid each period. The year-over-year increase is due primarily to the issuance of additional preferred securities in 2007.

Weighted average diluted common shares were 168,988,000 and 170,166,000, respectively, for the nine months ended September 30, 2008 and 2007. The decline is due primarily to share repurchases in the first quarter of 2008.

REAL ESTATE OPERATIONS

SELF-STORAGE OPERATIONS: Our self-storage operations are by far the largest component of our operating activities, representing approximately 90% and 91% of our total revenues generated for the three and nine months ended September 30, 2008, respectively. Rental income with respect to our self-storage operations declined by 8.1% and 3.1% in the three and nine months ended September 30, 2008, respectively, when compared to the same periods in 2007. The year over year decline in rental income is due primarily to the deconsolidation of Shurgard Europe effective April 1, 2008. This was offset partially by the addition of new facilities to our portfolio, either through our acquisition or development activities, combined with increased revenues in our Same Store Facilities (defined below).

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

SELF - STORAGE OPERATIONS SUMMARY:                   Three Months Ended September 30,        Nine Months Ended September 30,
----------------------------------                 ----------------------------------      ---------------------------------
                                                                             Percentage                              Percentage
                                                      2008         2007        Change         2008         2007        Change
                                                   -----------  -----------   ---------    ----------   -----------   ---------
                                                                           (Dollar amounts in thousands)
Rental income:
   Same Store Facilities.......................    $   344,033  $   336,117       2.4%     $1,006,226   $   978,430       2.8%
   Other Facilities............................         49,293       42,237      16.7%        138,543       120,618      14.9%
   Shurgard Europe Facilities (a)..............              -       49,444    (100.0)%        54,722       138,330     (60.4)%
                                                   ------------ ------------   ---------   -----------  ------------   ---------
     Total rental income.......................        393,326      427,798      (8.1)%     1,199,491     1,237,378      (3.1)%
                                                   ------------ ------------   ---------   -----------  ------------   ---------
Cost of operations before depreciation and
    amortization expense:
   Same Store Facilities.......................        105,814      106,668      (0.8)%       333,343       327,671       1.7%
   Other Facilities............................         16,019       15,447       3.7%         49,105        46,973       4.5%
   Shurgard Europe Facilities..................              -       21,256    (100.0)%        24,654        66,556     (63.0)%
                                                   ------------ ------------   ---------   -----------  ------------   ---------
      Total cost of operations.................        121,833      143,371     (15.0)%       407,102       441,200      (7.7)%
                                                   ------------ ------------   ---------   -----------  ------------   ---------
Net operating income before depreciation and
    amortization expense (b):
   Same Store Facilities.......................        238,219      229,449       3.8%        672,883       650,759       3.4%
   Other Facilities............................         33,274       26,790      24.2%         89,438        73,645      21.4%
   Shurgard Europe Facilities..................              -       28,188    (100.0)%        30,068        71,774     (58.1)%
                                                   ------------ ------------   ---------   -----------  ------------   ---------
   Total net operating income before
        depreciation and amortization expense (b)      271,493      284,427      (4.5)%       792,389       796,178       0.5%
                                                   ------------ ------------   ---------   -----------  ------------   ---------
Depreciation and amortization expense:
   Same Store Facilities.......................        (75,154)     (96,162)    (21.8)%      (234,784)     (320,158)    (26.7)%
   Other Facilities............................        (15,986)     (19,336)    (17.3)%       (50,573)      (60,682)    (16.7)%
   Shurgard Europe Facilities..................              -      (31,394)   (100.0)%       (21,871)     (108,230)    (79.8)%
                                                   ------------ ------------   ---------   -----------  ------------   ---------
   Total depreciation and amortization expense.        (91,140)    (146,892)    (38.0)%      (307,228)     (489,070)    (37.2)%
                                                   ------------ ------------   ---------   -----------  ------------   ---------
Net operating income (loss):
   Same Store Facilities.......................        163,065      133,287      22.3%        438,099       330,601      32.5%
   Other Facilities............................         17,288        7,454     131.9%         38,865        12,963     199.8%
   Shurgard Europe Facilities..................              -       (3,206)   (100.0)%         8,197       (36,456)   (122.5)%
                                                   ------------ ------------   ---------   -----------  ------------   ---------
   Total net operating income..................    $   180,353  $   137,535      31.1%     $  485,161   $   307,108      58.0%
                                                   ============ ============   =========   ===========  ============   =========

Data for Same Store and Other Facilities:
Weighted average square foot occupancy during
   the period..................................         90.0%        89.2%       0.9%          89.4%        88.8%        0.7%
Number of self-storage facilities (at end of
   period).....................................                                                1,992        1,980        0.6%
Net rentable square feet (in
thousands, at end of period):..................                                              125,701      124,402        1.0%

(a) Represents the results with respect to Shurgard Europe's properties for the periods consolidated in our financial statements. As described in Note 3 to our September 30, 2008 consolidated financial statements, effective March 31, 2008, we deconsolidated Shurgard Europe. See also "Equity in Earnings of Real Estate Entities - Investment in Shurgard Europe" for further analysis of the historical property operations of Shurgard Europe.

(b) Total net operating income before depreciation and amortization or "NOI" is a non-GAAP (generally accepted accounting principles) financial measure that excludes the impact of depreciation and amortization expense. See Note 11 to our September 30, 2008 condensed consolidated financial statements, "Segment Information," which includes a reconciliation of net operating income before depreciation and amortization for this segment to our consolidated net income. Although depreciation and amortization are operating expenses, we believe that NOI is a meaningful measure of operating performance, because we utilize NOI in making decisions with respect to capital allocations, in determining current property values, segment performance, and comparing period-to-period and market-to-market property operating results. NOI is not a substitute for net operating income after depreciation and amortization in evaluating our operating results.

In the discussion that follows, we present realized annual rent per occupied square foot, which is computed by dividing rental income, before late charges and administrative fees, by the weighted average occupied square footage for the period. We also present annualized rental income per available square foot ("REVPAF"), which represents annualized rental income, before late charges and administrative fees, divided by total available net rentable square feet.

Late charges and administrative fees are excluded to more effectively measure our ongoing level of revenue associated with the leasing of the units.

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

The Same Store Facilities, totaling 1,789 facilities contain approximately 109.4 million net rentable square feet, representing approximately (87%) of the aggregate net rentable square feet of our consolidated domestic self-storage portfolio at September 30, 2008. Revenues and operating expenses with respect to this group of properties are set forth in the above Self-Storage Operations table under the caption, "Same Store Facilities".

SAME STORE FACILITIES                                      Three Months Ended September 30,        Nine Months Ended September 30,
                                                        -----------------------------------     ----------------------------------
                                                                                   Percentage                             Percentage
                                                            2008         2007        Change        2008         2007        Change
                                                        -----------   -----------    -------    -----------   ----------    -------

                                                               (Dollar amounts in thousands, except weighted average amounts)
Rental income......................................     $   329,280   $   322,095       2.2%    $   964,127   $  938,063       2.8%
Late charges and administrative fees collected.....          14,753        14,022       5.2%         42,099       40,367       4.3%
                                                        -----------   -----------    -------    -----------   ----------    -------
   Total rental income.............................         344,033       336,117       2.4%      1,006,226      978,430       2.8%
                                                        -----------   -----------    -------    -----------   ----------    -------
. . .