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

FORWARD LOOKING STATEMENTS: This document 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. Risk that could impact our performance and results include, but are not limited to, those described in Item 1A, "Risk Factors" in our most recent Annual Report on Form 10-K and in this Form 10-Q, in our other filings with the Securities and Exchange Commission, and 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 laws, including property tax rates and assessments, 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, including risks related to current economic conditions;

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

o risks related to our participation in joint ventures;

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 tenant insurance matters and real estate investment trusts ("REITs"), and risks related to the impact of existing or potential new laws and regulations;

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 or breaches of our data security;

o difficulties in raising capital at a reasonable cost;

o fill-up of our newly developed properties; and

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

Our forward-looking statements speak only as of the date of this report or as of the dates indicated in the statements. We assume no obligation to update, revise or supplement publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our 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. The notes to our September 30, 2009 condensed consolidated financial statements, primarily Note 2, summarize 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 Internal Revenue Code and applicable state laws. We also believe that Shurgard, prior to merging with us, 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 real estate and other intangible assets which are long-lived 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.

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 certain 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. Significant unaccrued losses that we have determined are at least reasonably possible are described in Note 12 to our September 30, 2009 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.

VALUATION OF ASSETS AND LIABILITIES ACQUIRED IN BUSINESS COMBINATIONS: We have estimated the fair value of real estate, intangible assets, debt, and the other assets and other liabilities acquired in business combinations, most notably the Shurgard Merger. We have acquired these assets, in certain cases, with non-cash assets, most notably the 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 tenant base in place at the time of the merger, 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.

Our principal business activities include the acquisition, development, ownership and operation of self-storage facilities which offer storage spaces for lease, generally on a month-to-month basis, for personal and business use. We are the largest owner and operator of self-storage facilities in the U.S., and we have an interest in what we believe is the largest owner and operator of self-storage facilities in Europe.

We currently operate within three reportable segments: (i) Domestic Self-Storage, (ii) Europe Self-Storage and (iii) Commercial. The Domestic Self-Storage segment comprises the direct and indirect ownership, development, and operation of storage facilities in the U.S. Our Europe Self-Storage segment comprises our equity interest in the self-storage through our 49% ownership in Shurgard Europe and its associated activities in seven countries in Western Europe. Our Commercial segment includes our commercial property operations, directly and through our 41.4% ownership interest in PS Business Parks, Inc. ("PSB"), a publicly traded REIT whose common stock trades on the New York Stock Exchange under the symbol "PSB" (as of September 30, 2009, PSB owned and operated 19.6 million rentable square feet of commercial space). See "Investment in PSB" under "Equity in Earnings of Real Estate Entities" below for information regarding transactions related to our investment in PSB recorded during the three months ended September 30, 2009. Our other activities including (i) the reinsurance of policies against losses to goods stored by tenants in our self-storage facilities, (ii) merchandise sales at our self-storage facilities and (iii) management of self-storage facilities owned by third-party owners and domestic facilities owned by the affiliated entities that are not consolidated are not allocated to any segment.

During the three months ended March 31, 2009, we decided to terminate our containerized storage and truck rental operations. Accordingly, the related results of operations have been included in discontinued operations on our condensed consolidated statements of income. Our self-storage facilities in the U.S. comprise approximately 92% of our operating revenue for each of the three and nine months ended September 30, 2009, and represent the primary driver of growth in our net income and cash flows from operations. In addition, much of our ancillary revenues are derived at our self-storage facility locations, either from our existing self-storage customer base or from the customer traffic within our self-storage facilities. Accordingly, a large portion of management time and focus is placed upon maximizing revenues and effectively managing expenses in our self-storage facilities.

The self-storage industry is not immune to the recessionary pressures in the general economic environment. Demand for self-storage space in both the U.S. and Europe has softened and, as a result, we are experiencing downward pressure on occupancy levels, rental rates, and revenues in each of our operating segments.

An important determinant of our long-term growth is the expansion of our asset base and deployment of capital. Acquisitions of self-storage facilities have been minimal over the past year as we continue to monitor seller expectations and wait for better opportunities that may come about as certain local developers, who raised capital through the issuance of debt, endeavor to refinance such debt in the near-term, but face the current tight credit markets as well as pressure on operating cash flow due to the current difficult operating environment and may be more likely to consider liquidating their facilities. There can be no assurance that such opportunities may arise either in the short or long-term.

While historically we have developed real estate facilities, our current development of real estate facilities has been minimized due to the existing economic environment and our belief that our capital can be more effectively put to use in other ways.

We currently have $670.9 million in cash and cash equivalents on hand at September 30, 2009, and continue to evaluate opportunities to effectively deploy this capital, primarily either through the acquisition of facilities or through the opportunistic acquisition of our own debt and equity securities. We acquired $110.2 million of our outstanding senior unsecured notes during February 2009 and we acquired, for $24.6 million, certain of our preferred securities in March 2009 at a substantial discount to liquidation value. Also during March 2009, we acquired for $153.0 million, certain of our preferred partnership units at a substantial discount to their carrying amount.

RESULTS OF OPERATIONS

Net income for the three months ended September 30, 2009 was $244.0 million compared to $147.9 million for the same period in 2008, representing an increase of $96.1 million. This increase is primarily due to a foreign currency exchange gain totaling $21.4 million in the three months ended September 30, 2009 as compared to a foreign currency exchange loss totaling $53.2 million in the same period in 2008 and a gain on disposition of $30.3 million related to an equity offering by PS Business Parks, Inc. ("PSB"), offset partially by a $16.2 million reduction in net operating income with respect to our Same Store Facilities.

Revenues for the Same Store Facilities decreased 4.6% or $16.9 million in the quarter ended September 30, 2009 as compared to the same period in 2008, due to a 4.2% reduction in realized rent per occupied square foot, combined with a 1.0% reduction in average occupancies. Cost of operations for the Same Store Facilities declined 0.6% or $0.7 million in the quarter ended September 30, 2009 as compared to the same period in 2008. Net operating income for our Same Store Facilities decreased 6.3% or $16.2 million in the quarter ended September 30, 2009 as compared to the same period in 2008.

For the three months ended September 30, 2009, net income allocable to our common shareholders (after allocating net income to our noncontrolling interests, preferred and equity stock shareholders, and holders of restricted share units) was $173.5 million or $1.03 per common share on a diluted basis compared to $71.5 million or $0.42 per common share for the same period in 2008, representing an increase of $102.0 million or $0.61 per common share on a diluted basis. These increases are primarily due to the net impact of the factors described above.

Net income for the nine months ended September 30, 2009 was $602.8 million compared to $811.8 million for the same period in 2008, representing a decrease of $209.0 million. This decrease is primarily due to (i) a gain of $341.8 million in the nine months ended September 30, 2008 related to our disposition of an interest in Shurgard Europe, (ii) a $28.6 million reduction in net operating income with respect to our Same Store Facilities, and (iii) an impairment charge included in discontinued operations with respect to intangible assets totaling $8.2 million in the nine months ended September 30, 2009,

partially offset by (iv) a gain on disposition of $30.3 million related to an equity offering by PSB, (v) a foreign exchange gain of $19.9 million during the nine months ended September 30, 2009 as compared to a loss of $12.2 million during the same period in 2008, (vi) a $31.6 million reduction in depreciation and amortization related to our domestic assets, primarily representing reduced intangible amortization, and (vii) a reduction in general and administrative expenses due to $27.9 million in incentive compensation incurred in the nine months ended September 30, 2008 related to our disposition of an interest in Shurgard Europe.

Revenues for the Same Store Facilities decreased 3.0% or $32.3 million in the nine months ended September 30, 2009 as compared to the same period in 2008, due to a 2.5% reduction in realized rent per occupied square foot, combined with a 1.0% reduction in average occupancies. Cost of operations for the Same Store Facilities declined 1.0% or $3.6 million in the nine months ended September 30, 2009 as compared to the same period in 2008. Net operating income for our Same Store Facilities decreased 4.0% or $28.6 million for the nine months ended September 30, 2009 as compared to the same period in 2008.

For the nine months ended September 30, 2009, net income allocable to our common shareholders (after allocating net income to our noncontrolling interests, preferred and equity stock shareholders, and holders of restricted share units) was $468.5 million or $2.78 per common share on a diluted basis compared to $584.3 million or $3.46 per common share for the same period in 2008, representing a decrease of $115.8 million or $0.68 per common share on a diluted basis. These decreases are primarily due to the net impact of the factors described above, offset by a $78.2 million reduction in earnings allocated to our preferred partnership unitholders and preferred shareholders in the nine months ended September 30, 2009 associated with the repurchase of securities.

REAL ESTATE OPERATIONS

SELF-STORAGE OPERATIONS: Our self-storage operations are by far the largest component of our operating activities, representing approximately 92% and 91% of our total revenues generated for the three months ended September 30, 2009 and 2008, respectively, and 92% for each of the nine months ended September 30, 2009 and 2008. Net operating income (after depreciation and amortization expense) with respect to our self-storage operations decreased by $7.7 million during the three months ended September 30, 2009, when compared to the same period in 2008 as the decline in revenues of 3.7% outpaced the 7.2% decline in depreciation and amortization due to decreased amortization of tenant intangible assets. Net operating income (after depreciation and amortization expense) with respect to our self-storage operations increased by $5.3 million during the nine months ended September 30, 2009, when compared to the same period in 2008 due to decreased amortization of tenant intangible assets, offset partially by the deconsolidation of Shurgard Europe effective April 1, 2008.

To enhance year-over-year comparisons, the following table summarizes, and the ensuing discussion describes, the operating results of three groups of facilities that management analyzes: (i) the Same Store group, representing the facilities in the Domestic Self-Storage Segment that we have owned and have been operating on a stabilized basis since January 1, 2007, (ii) all other facilities in the Domestic Self-Storage Segment, which are primarily those consolidated facilities that we have not owned and operated at a stabilized basis since January 1, 2007 such as newly acquired, newly developed, or recently expanded facilities, and (iii) the facilities operated by Shurgard Europe which were deconsolidated effective March 31, 2008.

 SELF-STORAGE OPERATIONS
 SUMMARY                                 Three Months Ended September 30,             Nine Months Ended September 30,
                                    -----------------------------------------    ---------------------------------------
                                                                   Percentage                                  Percentage
                                        2009           2008          Change          2009          2008          Change
                                    -----------    -----------     ----------    -----------   -----------     ----------
                                                                 (Dollar amounts in thousands)
 RENTAL INCOME:
   Same Store Facilities..........  $   352,121    $   368,976        (4.6)%    $  1,046,145  $  1,078,428        (3.0)%
   Other Facilities ..............       26,086         23,762         9.8%           74,931        64,631        15.9%
   Shurgard Europe Facilities (a).            -              -         -                   -        54,722      (100.0)%
                                    -----------    -----------     ----------    -----------   -----------     ----------
     Total rental income..........      378,207        392,738        (3.7)%       1,121,076     1,197,781        (6.4)%
                                    -----------    -----------     ----------    -----------   -----------     ----------
COST OF OPERATIONS:
   Same Store Facilities..........      113,286        113,972        (0.6)%         354,719       358,354        (1.0)%
   Other Facilities...............        7,975          7,607         4.8%           24,494        23,350         4.9%
   Shurgard Europe Facilities (a).            -              -         -                   -        24,654      (100.0)%
                                    -----------    -----------     ----------    -----------   -----------     ----------
      Total cost of operations....      121,261        121,579        (0.3)%         379,213       406,358        (6.7)%
                                    -----------    -----------     ----------    -----------   -----------     ----------
NET OPERATING INCOME (b):
   Same Store Facilities..........      238,835        255,004        (6.3)%         691,426       720,074        (4.0)%
   Other Facilities...............       18,111         16,155        12.1%           50,437        41,281        22.2%
   Shurgard Europe Facilities (a).            -              -         -                   -        30,068      (100.0)%
                                    -----------    -----------     ----------    -----------   -----------     ----------
       Total net operating income.      256,946        271,159        (5.2)%         741,863       791,423        (6.3)%
   Total depreciation and
     amortization expense ........      (85,256)       (90,432)       (5.7)%        (252,366)     (305,907)      (17.5)%
                                    -----------    -----------     ----------    -----------   -----------     ----------
   Total net income...............  $   171,690    $   180,727        (5.0)%     $   489,497   $   485,516         0.8%
                                    ===========    ===========     ==========    ===========   ===========     ==========

DATA FOR SAME STORE AND OTHER FACILITIES:
Weighted average square foot
 occupancy during the period (c):
  Same Store Facilities...........        89.6%          90.5%        (1.0)%           89.2%         90.1%        (1.0)%
  Other Facilities................        86.8%          83.1%         4.5%            83.7%         78.6%         6.5%
Realized rents per occupied square
  foot during the period (d)(e):
  Same Store Facilities...........  $     12.73    $     13.29        (4.2)%     $     12.69   $     13.02        (2.5)%
  Other Facilities................  $     13.61    $     14.00        (2.8)%     $     13.49   $     13.85        (2.6)%
Number of facilities at period end:
  Same Store Facilities...........                                                     1,899         1,899         -
  Other Facilities................                                                        92            90         2.2%
Net rentable square footage at period end (in thousands):
  Same Store Facilities...........                                                   117,462       117,462         -
  Other Facilities................                                                     8,499         8,097         5.0%
Square foot occupancy at period end:
  Same Store Facilities...........                                                     88.7%         89.4%        (0.8)%
  Other Facilities................                                                     86.2%         82.4%         4.6%
In place rents per occupied square foot at period end:
  Same Store Facilities...........                                               $     13.65   $     14.37        (5.0)%
  Other Facilities................                                               $     14.80   $     15.43        (4.1)%

(a) Represents the results with respect to Shurgard Europe's properties for the periods consolidated in our financial statements. We acquired these facilities on August 22, 2006 in connection with the Shurgard Merger. As described in Note 3 to our September 30, 2009 condensed 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 same store property operations of Shurgard Europe.

(b) See "Net Operating income or NOI" below.

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

(d) Realized annual rent per occupied square foot is computed by annualizing the result of dividing rental income (which excludes late charges and administrative fees) by the weighted average occupied

square feet for period. Realized annual rent per occupied square foot takes into consideration promotional discounts and other items that reduce rental income from the contractual amounts due.

. . .