The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. The Company makes certain statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this report entitled "Forward-Looking Statements." Certain risk factors may cause actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk factors, see the section entitled "Risk Factors" in the Company's Annual Report on the Form 10-K for the year ended December 31, 2008.

Overview

The Company is an integrated self-storage real estate company, which means that it has in-house capabilities in the operation, design, development, leasing, and acquisition of self-storage facilities. The Company has elected to be taxed as a REIT for federal tax purposes. At March 31, 2009 and December 31, 2008, the Company owned 386 and 387 self-storage facilities, respectively, totaling approximately 24.9 million square feet and 25.0 million square feet, respectively.

The Company derives revenues principally from rents received from our customers who rent units at our self-storage facilities under month-to-month leases. Therefore, our operating results depend materially on our ability to retain our existing customers and lease our available self-storage units to new customers while maintaining and, where possible, increasing our pricing levels. In addition, our operating results are affected by the ability of our customers to make required rental payments to us. We believe that our decentralized approach to the management and operation of our facilities allows us to respond quickly and effectively to changes in local market conditions. Emphasis on local, market level oversight and control enhances our ability to optimize occupancy and pricing levels.

Currently, the United States is in a recession that has resulted in higher unemployment, shrinking demand for products, large-scale business failures and tight credit markets. Our results of operations may be sensitive to changes in overall economic conditions that impact consumer spending, including discretionary spending, as well as to increased bad debts due to recessionary pressures. A continuation of ongoing adverse economic conditions affecting disposable consumer income, such as employment levels, business conditions, interest rates, tax rates, fuel and energy costs, and other matters could reduce consumer spending or cause consumers to shift their spending to other products and services. A general reduction in the level of discretionary spending or shifts in consumer discretionary spending could adversely affect our growth and profitability.

In the future, the Company intends to focus on increasing our internal growth and selectively pursuing targeted dispositions and selective acquisitions and developments of self-storage facilities. We intend to incur additional debt in connection with any such future acquisitions or developments.

The Company's self-storage facilities are located in major metropolitan areas as well as rural areas and have numerous tenants per facility. No single tenant represents 1% or more of our revenues. The facilities in Florida, California, Texas and Illinois provided approximately 18%, 16%, 9% and 7%, respectively, of total revenues during the three months ended March 31, 2009.

Summary of Critical Accounting Policies and Estimates

Set forth below is a summary of the accounting policies and estimates that management believes are critical to an understanding of the unaudited consolidated financial statements included in this report. These policies require the application of judgment and assumptions by management and, as a result, are subject to a degree of uncertainty. Due to this uncertainty, actual results could differ from estimates calculated and utilized by management.

Self-Storage Facilities

The Company records self-storage facilities at cost less accumulated depreciation. Depreciation on the buildings and equipment is recorded on a straight-line basis over their estimated useful lives, which range from 5 to 39 years. Expenditures for significant renovations or improvements that extend the useful lives of assets are capitalized. Repairs and maintenance costs are expensed as incurred.

When facilities are acquired, the purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on estimated fair values. When a portfolio of facilities is acquired, the purchase price is allocated to the individual facilities based upon an income approach or a cash flow analysis using appropriate risk adjusted capitalization rates, which take into account the relative size, age and location of the individual facility along with current and projected occupancy and rental rate levels or appraised values, if available. Allocations to the individual assets and liabilities are based upon comparable market sales information for land, buildings and improvements and estimates of depreciated replacement cost of equipment.

In allocating the purchase price, the Company determines whether the acquisition includes intangible assets or liabilities. Substantially all of the leases in place at acquired facilities are at market rates, as the majority of the leases are month-to-month contracts. Accordingly, to date no portion of the purchase price has been allocated to above- or below-market lease intangibles. To date, no intangible asset has been recorded for the value of tenant relationships, because the Company does not have any concentrations of significant tenants and the average tenant turnover is fairly frequent.

Long-lived assets classified as "held for use" are reviewed for impairment when events and circumstances indicate that there may be an impairment. The carrying values of these long-lived assets are compared to the undiscounted future net operating cash flows attributable to the assets. An impairment loss is recorded if the net carrying value of the asset exceeds the undiscounted future net operating cash flows attributable to the asset and circumstances indicate that the carrying value of the real estate asset may not be recoverable. The impairment loss recognized equals the excess of net carrying value over the related fair value of the asset. 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.

The Company considers long-lived assets to be "held for sale" upon satisfaction of the following criteria: (a) management commits to a plan to sell a facility (or group of facilities), (b) the facility is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such facilities, (c) an active program to locate a buyer and other actions required to complete the plan to sell the facility have been initiated,
(d) the sale of the facility is probable and transfer of the asset is expected to be completed within one year, (e) the facility is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and
(f) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Typically these criteria are all met when the relevant assets are under contract, significant non-refundable deposits have been made by the potential buyer, the assets are immediately available for transfer and there are no contingencies related to the sale that may prevent the transaction from closing. In most transactions, these contingencies are not satisfied until the actual closing of the transaction; and, accordingly, the facility is not identified as held for sale until the closing actually occurs. However, each potential transaction is evaluated based on its separate facts and circumstances.

Revenue Recognition

Management has determined that all our leases with tenants are operating leases. Rental income is recognized in accordance with the terms of the lease agreements or contracts, which generally are month-to-month. Revenues from long-term operating leases are recognized on a straight-line basis over the term of the lease. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is included in deferred revenue, and contractually due but unpaid rents are included in other assets.

Share-Based Payments

We apply the fair value method of accounting for contingently issued shares and share options issued under our equity incentive plans. Accordingly, share compensation expense is recorded ratably over the vesting period relating to such contingently issued shares and options. The Company has elected to recognize compensation expense on a straight-line method over the requisite service period.

Recent Accounting Pronouncements

In June 2008, the Financial Accounting Standards Board ("FASB") issued FASB Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities ("EITF 03-6-1"). EITF 03-6-1 requires that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and should be included in the computation of earnings per share pursuant to the two-class

method. EITF 03-6-1 became effective for the Company on January 1, 2009. The adoption of EITF 03-6-1 in 2009 did not have a material effect on the consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities - an Amendment of FASB Statement No. 133("SFAS 161"). SFAS 161 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 and the impact of derivative instruments and related hedged items on an entity's financial position, financial performance and cash flows. SFAS 161 became effective for the Company on January 1, 2009. The adoption of SFAS 161 in 2009 did not have a material effect on the consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements ("SFAS 160"). SFAS 160 requires that ownership interests in subsidiaries held by parties other than the parent be clearly identified. In addition, it requires that the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the income statement. SFAS 160 became effective on January 1, 2009 and resulted in the elimination of minority interests, and the inclusion of noncontrolling interests in the mezzanine level of our Consolidated Balance Sheets. Additionally, certain Statement of Operations captions were reclassified to conform to the required format of SFAS 160.

Results of Operations

The following discussion of our results of operations should be read in conjunction with the unaudited consolidated financial statements and the accompanying notes thereto. Historical results set forth in the consolidated statements of operations reflect only the existing facilities and should not be taken as indicative of future operations.

Acquisition and Development Activities

The comparability of the Company's results of operations is affected by acquisition and disposition activities in 2009 and 2008. At March 31, 2009 and 2008, the Company owned 386 and 408 self-storage facilities and related assets, respectively. The following table summarizes the change in number of self-storage facilities from January 1, 2008 through March 31, 2009 (unaudited):

                                                   2009   2008
                     Balance - Beginning of year    387    409
                     Facilities acquired              -      1
                     Facilities consolidated          -      -
                     Facilities sold                 (1 )  (23 )
                     Balance - End of period        386    387

The facility acquired in January 2008 was purchased for a gross purchase price of $13.3 million, is located in Washington, DC and is commonly referred to as the Uptown asset. Results of operations for the Uptown asset from and after the acquisition date are included in the consolidated statements of operations.

Comparison of the Three Months Ended March 31, 2009 to the Three Months Ended March 31, 2008

The following table and subsequent discussion provides information pertaining to our portfolio for the three months ended March 31, 2009 and 2008 (dollars in thousands):

                                                                      Properties            Other/
                             Same Store Property Portfolio             Acquired          Eliminations                    Total Portfolio
                                              Increase/      %                                                                     Increase/      %
                        2009        2008     (Decrease)    Change    2009    2008      2009        2008       2009       2008     (Decrease)    Change

REVENUES:
Rental income         $  52,996   $ 53,705   $      (709 )     -1 % $  817   $ 653   $      -    $      -   $ 53,813   $ 54,358   $      (545 )     -1 %
Other property
related income            3,516      3,265           251        8 %    347     272          -           -      3,863      3,537           326        9 %
Total revenues           56,512     56,970          (458 )     -1 %  1,164     925          -           -     57,676     57,895          (219 )      0 %

OPERATING EXPENSES:
Property operating
expenses                 22,088     22,134           (46 )      0 %    621     646      1,748       1,734     24,457     24,514           (57 )      0 %
Subtotal                 22,088     22,134           (46 )      0 %    621     646      1,748       1,734     24,457     24,514           (57 )      0 %

NET OPERATING
INCOME:                  34,424     34,836          (412 )     -1 %    543     279     (1,748 )    (1,734 )   33,219     33,381          (162 )      0 %
Depreciation and
amortization                                                                                                  18,736     19,536          (800 )     -4 %
General and
administrative                                                                                                 5,474      5,495           (21 )      0 %
Subtotal                                                                                                      24,210     25,031          (821 )     -3 %
Operating income                                                                                               9,009      8,350           659        8 %
Other Income
(Expense):
Interest:
Interest expense on
loans                                                                                                        (11,353 )  (13,827 )      (2,474 )    -18 %
Loan procurement
amortization
expense                                                                                                         (483 )     (471 )          12        3 %
Interest income                                                                                                   44         59           (15 )    -25 %
Other                                                                                                            (12 )       68           (80 )   -118 %
Total other expense                                                                                          (11,804 )  (14,171 )      (2,367 )    -17 %
LOSS FROM
CONTINUING
OPERATIONS                                                                                                    (2,795 )   (5,821 )       3,026       52 %
DISCONTINUED
OPERATIONS
Income from
discontinued
operations                                                                                                         9        914          (905 )    -99 %
Net gain on
disposition of
discontinued
operations                                                                                                       500        572           (72 )    -13 %
Total discontinued
operations                                                                                                       509      1,486          (977 )    -66 %

NET LOSS                                                                                                      (2,286 )   (4,335 )       2,049       47 %
NET LOSS
ATTRIBUTABLE TO
NONCONTROLLING
INTERESTS                                                                                                        177        351          (174 )    -50 %
NET LOSS
ATTRIBUTABLE TO THE
COMPANY                                                                                                     $ (2,109 ) $ (3,984 ) $     1,875       47 %

Total Portfolio

Total Revenues

Rental income decreased from $54.4 million for the three months ended March 31, 2008 to $53.8 million for the three months ended March 31, 2009, a decrease of $0.6 million, or 1%. This decrease is primarily attributable to a decrease of rental income from the same-store properties of $0.7 million due to decreased occupancy levels during the three months ended March 31, 2009 as compared to the three months ended March 31, 2008.

Other property related income increased from $3.5 million for the three months ended March 31, 2008 to $3.9 million for the three months ended March 31, 2009, an increase of $0.4 million, or 9%. This increase is primarily attributable to increased tenant administrative fee income and tenant insurance income across the portfolio of storage facilities during the first quarter of 2009 as compared to the first quarter of 2008.

Total Operating Expenses

Property operating expenses for the three months ended March 31, 2009 and for the three months ended March 31, 2008 were $24.5 million. Increases of $0.3 million in marketing expense and $0.1 million in property tax expense during the 2009 period as compared to the 2008 period were offset by decreases of $0.2 million in repairs and maintenance expenses and $0.2 million in insurance expenses, respectively.

Depreciation and amortization decreased from $19.5 million for the three months ended March 31, 2008 to $18.7 million for the three months ended March 31, 2009, a decrease of $0.8 million, or 4%. The decrease is primarily attributable to amortization expense of $1.9 million incurred during the three months ended March 31, 2008 related to two finite-lived intangible assets acquired by the Company during 2008 and 2007, with similar amortization of $0.1 million during the three months ended March 31, 2009, offset by

an increase in depreciation expense during the 2009 period of $1.0 million as compared to the 2008 period related to capital improvements during 2008 and 2009.

Total Other Expenses

Interest expense decreased from $13.8 million for the three months ended March 31, 2008 to $11.4 million for the three months ended March 31, 2009, a decrease of $2.4 million, or 18%. The decrease is attributable to lower interest rates on unsecured debt as well as lower outstanding borrowings on the credit facility during the 2009 period as compared to the 2008 period resulting in an overall decrease in interest expense during 2009 as compared to 2008.

Interest income remained constant at $0.1 million for the three months ended March 31, 2009 and for the three months ended March 31, 2008.

Discontinued Operations

Income from discontinued operations decreased from $0.9 million for the three months ended March 31, 2008 to $9,000 for the three months ended March 31, 2009, a decrease of $0.9 million, or 99%. The decrease is primarily attributed to income generated in the 2008 period with no similar income generated in the 2009 period for the 2008 dispositions as the Company did not own the properties in 2009. Net gains on disposition of discontinued operations decreased from $0.6 million for the three months ended March 31, 2008 to $0.5 million for the three months ended March 31, 2009 as a result of the sale of two assets for gains of $0.6 million during the three months ended March 31, 2008 compared to the sale of one asset for a gain of $0.5 million for the three months ended March 31, 2009.

Same-Store Property Portfolio

The Company considers its same-store portfolio to consist of only those facilities owned at the beginning and at the end of the applicable periods presented. The following same-store presentation is considered to be useful to investors in evaluating our performance because it provides information relating to changes in facility-level operating performance without taking into account the effects of acquisitions, developments or dispositions.

Same-store revenues decreased from $57.0 million for the three months ended March 31, 2008 to $56.5 million for the three months ended March 31, 2009, a decrease of $0.5 million, or 1%, primarily attributable to a 2% decrease in average occupancy rates on the same-store portfolio in the 2009 period compared to the 2008 period. Same-store property operating expenses remained constant at $22.1 million for the three months ended March 31, 2008 and March 31, 2009. Increases of $0.1 million in advertising and $0.1 million in real estate taxes were offset by a decrease of $0.2 million in repairs and maintenance in the 2009 period as compared to the 2008 period.

Non-GAAP Financial Measures

NOI

We define net operating income, which we refer to as "NOI," as total continuing revenues less continuing property operating expenses. NOI also can be calculated by adding back to net loss: interest expense on loans, loan procurement amortization expense, depreciation and amortization, and general and administrative; and deducting: income from discontinued operations, gains on disposition of discontinued operations, other and interest income. NOI is not a measure of performance calculated in accordance with GAAP.

We use NOI as a measure of operating performance at each of our facilities, and for all of our facilities in the aggregate. NOI should not be considered as a substitute for operating income, net income, cash flows provided by operating, investing and financing activities, or other income statement or cash flow statement data prepared in accordance with GAAP.

We believe NOI is useful to investors in evaluating our operating performance because:

† It is one of the primary measures used by our management and our facility managers to evaluate the economic productivity of our facilities, including our ability to lease our facilities, increase pricing and occupancy, and control our property operating expenses;

† It is widely used in the real estate industry and the self-storage industry to measure the performance and value of real estate assets without regard to various items included in net income that do not relate to or are not indicative of operating performance, such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets; and

† We believe it helps our investors to meaningfully compare the results of our operating performance from period to period by removing the impact of our capital structure (primarily interest expense on our outstanding indebtedness) and depreciation of our basis in our assets from our operating results.

There are material limitations to using a measure such as NOI, including the difficulty associated with comparing results among more than one company and the inability to analyze certain significant items, including depreciation and interest expense, that directly affect our net income. We compensate for these limitations by considering the economic effect of the excluded expense items independently as well as in connection with our analysis of net income. NOI should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP, such as total revenues, operating income and net income.

Cash Flows



Comparison of the Three Months Ended March 31, 2009 to the Three Months Ended
March 31, 2008



A comparison of cash flow for operating, investing and financing activities for
the three months ended March 31, 2009 and 2008 is as follows:



                                          Three Months Ended March 31,
                                            2009               2008          Change
                                                 (in thousands)
Net cash flow provided by (used in):
Operating activities                   $        11,289    $        11,735   $    (446 )
Investing activities                   $          (376 )  $       (14,001 ) $  13,625
Financing activities                   $       (13,080 )  $         3,374   $ (16,454 )

Cash provided by operating activities decreased from $11.7 million in 2008 to $11.3 million in 2009, a decrease of $0.4 million, or 4%. The decrease is primarily attributable to (a) a decrease in depreciation and amortization expense of $1.2 million in the 2009 period as compared to the 2008 period, (b) a decrease in the change in other assets of $1.3 million during the 2009 period as compared to the 2008 period as a result of the timing of certain payments, offset by (i) net loss of $2.3 million in the 2009 period as compared $4.3 million in 2008, (ii) a decrease of $0.6 million in the change in accounts payable and accrued expenses during the 2009 period as compared to the 2008 period as a result of the timing of certain payments, and (iii) decreased gains on dispositions of $0.1 million in the 2009 period as compared to the 2008 period due to two dispositions during the 2008 period as compared to one disposition during the 2009 period.

Cash used in investing activities decreased from $14.0 million in 2008 to $0.4 million in 2009, a decrease of 97%. The decrease is primarily attributable to
(i) higher acquisition activity in the 2008 period (one facility for an aggregate purchase price of $13.3 million) relative to the 2009 period (no facility acquisition activity), (ii) proceeds from the 2009 dispositions of $2.9 million compared to $4.4 million of proceeds during the 2008 period and (iii) a decrease in capital additions of $0.7 million in the 2009 period as compared to the 2008 period.

Cash used in or provided by financing activities changed from proceeds of $3.4 million in 2008 to a use of $13.1 million in 2009, a change of $16.5 million. The change is primarily attributable to net borrowings of $14.7 million during the 2008 period as compared to net principal payments of $11.5 million in the 2009 period and a decrease in the dividends paid during 2009 to $0.025 per share . . .