FORWARD-LOOKING STATEMENTS AND PROJECTIONS

The Company may from time to time make forward-looking statements and projections concerning future expectations. When used in this discussion, the words "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "may," "could," "might" and similar expressions, are intended to identify forward-looking statements. These statements are subject to certain risks and uncertainties, such as national and worldwide economic conditions, including the impact of recessionary conditions on tourism and travel, the impact of terrorism and war on the national and international economies, including tourism and securities markets, energy and fuel costs, natural disasters, general economic conditions and competition in the hotel industry in the San Francisco area, seasonality, labor relations and labor disruptions, partnership distributions, the ability to obtain financing at favorable interest rates and terms, securities markets, regulatory factors, litigation and other factors discussed below in this Report and in the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 2008, that could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as to the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

RESULTS OF OPERATIONS

The Company's principal business is conducted through Portsmouth's general and limited partnership interest in Justice, rental income from its investments in multi-family real estate properties and income received from investment of its cash and securities assets. Portsmouth has a 50.0% ownership interest in Justice and serves as one of the general partners. Justice owns the land, improvements and leaseholds at 750 Kearny Street, San Francisco, California, known as the Hilton San Francisco Financial District hotel (the "Hotel"). The financial statements of Justice have been consolidated with those of the Company.

The Hotel is operated by the Partnership as a full service Hilton brand hotel pursuant to a Franchise License Agreement with Hilton Hotels Corporation. The term of the Agreement is for a period of 15 years commencing on January 12, 2006, with an option to extend the license term for another five years, subject to certain conditions. Justice also has a Management Agreement with Prism Hospitality L.P. ("Prism") to perform the day-to-day management functions of the Hotel.

The Partnership also derives income from the lease of the garage portion of the property to Evon Corporation ("Evon"), the managing general partner of Justice, and from a lease with Tru Spa for a portion of the lobby level of the Hotel. The Company also receives management fees as a general partner of Justice for its services in overseeing and managing the Partnership's assets. Those fees are eliminated in consolidation.

In addition to the operations of the Hotel, the Company also generates income from the ownership and management of real estate. Properties include eighteen apartment complexes, two commercial real estate properties, and two single- family houses as strategic investments. The properties are located throughout the United States, but are concentrated in Texas and Southern California. The Company also has investments in unimproved real property. All of the Company's residential rental properties with exception of the San Antonio and Las Colinas, Texas properties, are managed by professional third party property management companies.

The Company acquires its investments in real estate and other investments utilizing cash, securities or debt, subject to approval or guidelines of the Board of Directors. The Company also invests in income-producing instruments, equity and debt securities and will consider other investments if such investments offer growth or profit potential.

Three Months Ended September 30, 2008 Compared to the Three Months Ended September 30, 2007

The Company had net income of $649,000 for the three months ended September 30, 2008 compared to net income $1,263,000 for the three months ended September 30, 2007. During most recent quarter, the Company had significant improvements in all three of its operations. The Company had income from investment transactions of $770,000 compared to a loss of $1,881,000, income from hotel operations of $191,000 compared to a loss of $558,000 and income from real estate operations of $178,000 compared to income of $30,000. During the comparable quarter ended September 30, 2007, the Company sold a real estate property and recognized a gain on its sale of $4,074,000, which primarily resulted in the Company having net income of $1,263,000.

The following table sets forth a more detailed presentation of Hotel operations for the three months ended September 30, 2008 and 2007.

For the three months ended September 30,                        2008            2007
                                                             ----------      ----------
Hotel revenues:
 Hotel rooms                                                $ 7,588,000     $ 7,915,000
 Food and beverage                                            1,259,000       1,289,000
 Garage                                                         399,000         415,000
 Other operating departments                                     53,000         167,000
                                                             ----------      ----------
  Total hotel revenues                                        9,299,000       9,786,000
                                                             ----------      ----------
Operating expenses excluding interest, depreciation
  and amortization                                           (7,242,000)     (8,512,000)
                                                             ----------      ----------
Operating income                                              2,057,000       1,274,000

Interest expense                                               (719,000)       (702,000)
Depreciation and amortization expense                        (1,147,000)     (1,130,000)
                                                             ----------      ----------
Income (loss) from hotel operations                         $   191,000     $  (558,000)
                                                             ==========      ==========

For the three months ended September 30, 2008, the Hotel generated operating income of approximately $2,057,000, before interest, depreciation and amortization, on operating revenues of approximately $9,299,000 compared to operating income of approximately $1,274,000 before interest, depreciation and amortization, on operating revenues of approximately $9,786,000 for the three months ended September 30, 2007. The increase in Hotel operating income is primarily due to a significant decrease in operating expenses of approximately $1,270,000, offset by a decrease in operating revenues of approximately $487,000. The decrease in operating expenses is primarily attributable to certain nonrecurring legal and consulting fees incurred in the prior period related to construction litigation that was settled as of June 30, 2008 and for zoning issues. Operating expenses also decreased due to a decline in hotel occupancy during the current quarter and managements efforts to reduce costs. That decline in occupancy was also the primary reason for the decrease in operating revenues compared to the prior period.

The following table sets forth the average daily room rate, average occupancy percentage and room revenue per available room ("RevPar") of the Hotel for the three months ended September 30, 2008 and 2007.

Three Months Ended         Average           Average
  September 30,           Daily Rate        Occupancy%         RevPar
-----------------         ----------        ---------         --------
      2008                   $187              81%              $152
      2007                   $177              89%              $158

While the Hotel was able to achieve an increase of approximately $10 in its average daily room rates for the three months ended September 30, 2008 compared to the three months ended September 30, 2007, average occupancy percentage declined approximately 8%, and Rev Par decreased by approximately $6 from the comparable period. The operations of the Hotel began to feel the impact of the dramatic downturn in the domestic and international economies and markets during the first quarter and that impact is expected to continue through fiscal 2009. If that remains true, we expect Hotel operating revenues to be less than fiscal 2008.

Facing the prospect of a recession and a decline in business, group and leisure travel, both domestic and international, management has continued to focus on ways to improve efficiencies and reduce operating costs and other expenses in its efforts to stabilize and maintain operating income of the Hotel. As a result of those efforts, we have seen further reductions in operating costs of the Hotel as a percentage of Hotel revenues for the three months ended September 30, 2008. Management will also increase its sales and marketing efforts in what is expected to become an even more competitive hotel market in San Francisco. Management will also continue to explore new and innovative ways to improve operations and enhance the guest experience. One new concept that Management has recently initiated is the opening of a new wine bar "Flyte" in the lobby of the Hotel in August 2008.

Real estate operations improved to income of $178,000 for the three months ended September 30, 2008 from income of $30,000 for the three months ended September 30, 2007. The improvement was primarily attributable to the increase in rental income and the decrease in interest expense partially offset by the increase in operating expenses. Rental income increased to $3,226,000 from $2,999,000 primarily due to the increased occupancy and rental rates as the result of management's efforts to improve the competitiveness of the Company's properties through interior and exterior improvements. The largest improvement in rental income occurred at its 358-unit apartment located in Austin, Texas. Operating expense increased to $1,273,000 from $1,092,000 as the result of the improvements and providing better service. Interest expense decreased to

$860,000 from $942,000 primary as the result of a one-time expense of $59,000 related to the refinancing of the mortgage on the Company's newly renovated 30- unit apartment complex located in Los Angeles, California during the quarter ended September 30, 2007.

During the three months ended September 30, 2008, the Company had listed for sale its 249-unit apartment complex located in Austin, Texas and its 132-unit apartment complex located in San Antonio, Texas. The operations of these properties are classified under discontinued operations in the condensed consolidated statements of operations. During the three months ended September 30, 2007, the Company sold its 224-unit apartment complex located in Irving, Texas for $8,050,000 and recognized a gain on the sale of real estate of $4,074,000. The operations and the related gain on the sale of real estate are also included under discontinued operations.

The Company had a net gain on marketable securities of $1,643,000 for the three months ended September 30, 2008 compared to a net loss of $1,377,000 for the three months ended September 30, 2007. For the three months ended September 30, 2008, the Company had a net realized gain of $1,082,000 and a net unrealized loss of $561,000. For the three months ended September 30, 2007, the Company had a net realized loss of $247,000 and net unrealized loss of $1,130,000. Gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a significant impact on the Company's results of operations. However, the amount of gain or loss on marketable securities for any given period may have no predictive value and variations in amount from period to period may have no analytical value. For a more detailed description of the composition of the Company's marketable securities please see the Marketable Securities section below.

The Company may also invest, with the approval of the Securities Investment Committee, in private investment equity funds and other unlisted securities, such as convertible notes through private placements. Those investments in non- marketable securities are carried at cost on the Company's balance sheet as part of other investments, net of other than temporary impairment losses. As of September 30, 2008, the Company had net other investments of $6,556,000. During the three months ended September 30, 2008 and 2007, the Company performed an impairment analysis of its other investments and determined that its investments had other than temporary impairments and recorded impairment losses of $595,000 and $125,000, respectively.

Margin interest and trading expenses decreased to $338,000 for the three months ended September 30, 2008 from $432,000 for the three months ended September 30, 2007 primarily as the result of the decrease in margin interest expense to $59,000 from $117,000. Margin interest expense decreased as the result of the maintenance of lower margin balances.

Minority interest related to Justice Investors changed to a minority interest expense of $96,000 for the three months ended September 30, 2008 compared to a minority interest benefit $278,000 for the three months ended September 30, 2007. The change is due to the income generated from hotel operations of $191,000 for the three months ended September 30, 2008 compared to a loss incurred from hotel operations of $558,000 for the three months ended September 30, 2007.

The total provision for income tax expense decreased to $310,000 for the three months ended September 30, 2008 from $621,000 for the three months ended September 30, 2007 primarily as the result of the Company having a significantly lower pre-tax income for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007.

Minority interest related to Portsmouth and Santa Fe decreased to $212,000 for the three months ended September 30, 2008 from $409,000 for the three months ended September 30, 2007 primarily due to the lower loss incurred by Portsmouth and Santa Fe during the three months ended September 30, 2008.

MARKETABLE SECURITIES AND OTHER INVESTMENTS

The Company's investment portfolio is diversified with 20 different equity positions. The portfolio contains four individual equity securities that are more than 5% of the equity value of the portfolio with the largest security being 41% of the value of the portfolio. The amount of the Company's investment in any particular issuer may increase or decrease, and additions or deletions to its securities portfolio may occur, at any time. While it is the internal policy of the Company to limit its initial investment in any single equity to less than 5% of its total portfolio value, that investment could eventually exceed 5% as a result of equity appreciation or reduction of other positions. Marketable securities are stated at market value as determined by the most recently traded price of each security at the balance sheet date.

As of September 30, 2008, the Company had investments in marketable equity securities of $4,969,000. The following table shows the composition of the Company's marketable securities portfolio by selected industry groups as of September 30, 2008 and June 30, 2008.

   As of September 30, 2008
                                                              % of Total
                                                              Investment
   Industry Group                      Fair Value             Securities
   --------------                      ------------           ----------

   Diary products                      $ 2,042,000               41.1%
   Basic materials                       1,431,000               28.8%
   Financial                               434,000                8.7%
   Pharmaceuticals and healthcare          398,000                8.0%
   Communications                          244,000                4.9%
   Other                                   420,000                8.5%
                                       ------------           ----------
                                       $ 4,969,000              100.0%
                                       ============           ==========

   As of June 30, 2008
                                                              % of Total
                                                              Investment
   Industry Group                      Fair Value             Securities
   --------------                      ------------           ----------
   Dairy products                      $  1,540,000               23.0%
   Communications                         1,123,000               16.7%
   Financial                                721,000               10.8%
   Basic materials                          654,000                9.8%
   Medical                                  467,000                7.0%
   Transportation                           442,000                6.6%
   Others                                 1,759,000               26.1%
                                         ----------              ------
                                       $  6,706,000              100.0%
                                         ==========              ======

The following table shows the net gain or loss on the Company's marketable securities and the associated margin interest and trading expenses for the indicated periods.

For the three months ended September 30,        2008                   2007
                                          --------------        --------------
Net gain(loss) on marketable securities    $  1,643,000           $ (1,377,000)
Impairment loss on other investments           (595,000)              (125,000)
Dividend & interest income                       60,000                 53,000
Margin interest expense                         (59,000)              (117,000)
Trading and management expenses                (279,000)              (315,000)
                                           ------------           ------------
                                           $    770,000           $ (1,881,000)
                                           ============           ============

The Company may also invest, with the approval of the Securities Investment Committee, in private investment equity funds and other unlisted securities, such as convertible notes through private placements. Those investments in non- marketable securities are carried at cost on the Company's balance sheet as part of other investments, net of other than temporary impairment losses.

As of September 30, 2008, the Company had net other investments of $6,556,000. During the three months ended September 30, 2008 and 2007, the Company made investments in corporate debt instruments of a public company in the basic materials sector totaling $750,000 and $125,000, respectively.

During the three months ended September 30, 2008 and 2007, the Company received common stock issued upon conversion or as payment of interest and penalties on convertible notes in this company. Through sales of this common stock, the Company was able to recover approximately $1,871,000 and $40,000 of its investments during the three months ended September 30, 2008 and 2007, respectively. As of September 30, 2008, the Company had $828,000 of this company's common stock included in its investment in marketable securities balance of $4,969,000.

FINANCIAL CONDITION AND LIQUIDITY

The Company's cash flows are primarily generated from the operations of Justice Investors. The Company also receives revenues generated from its real estate operations and from the investment of its cash and securities assets. Since the operations of the Hotel were temporarily suspended on May 31, 2005, and significant amounts of money were expended to renovate and reposition the Hotel as a Hilton, Justice did not pay any partnership distributions until the end of March 2007. As a result, the Company had to depend more on the revenues generated from the investment of its cash and marketable securities and from its real estate operations during that transition period.

The Hotel started to generate cash flows from its operations in June 2006, which have continued to improve since that time. For the three months ended September 30, 2008, Justice paid a total of $850,000 in limited partnership distributions, of which the Company received $425,000. No limited partnership distributions were paid in three months ended September 30, 2007. The general partners expect to conduct regular reviews to set the amount of any future distributions that may be appropriate based on the results of operations of the Hotel and other factors, including establishment of reasonable reserves for debt payments and operating contingencies. The recent dramatic downturn in

domestic and international economies and markets, and the prospect of a prolonged recession, are expected to have a negative impact on the operating results of the Hotel in fiscal 2009, which could reduce amounts available for limited partnership distributions.

To meet its substantial financial commitments for the renovation and transition of the Hotel to a Hilton, Justice had to rely on borrowings to meet its obligations. On July 27, 2005, Justice entered into a first mortgage loan with The Prudential Insurance Company of America in a principal amount of $30,000,000 (the "Prudential Loan"). The term of the Prudential Loan is for 120 months at a fixed interest rate of 5.22% per annum. The Prudential Loan calls for monthly installments of principal and interest in the amount of approximately $165,000, calculated on a 30-year amortization schedule. The Prudential Loan is collateralized by a first deed of trust on the Partnership's Hotel property, including all improvements and personal property thereon and an assignment of all present and future leases and rents. The Prudential Loan is without recourse to the limited and general partners of Justice. As of September 30, 2008 the Prudential Loan balance was approximately $28,614,000.

On March 27, 2007, Justice entered into a second mortgage loan with Prudential (the "Second Prudential Loan") in the principal amount of $19,000,000. The term of the Second Prudential Loan is for approximately 100 months and matures on August 5, 2015, the same date as the first Prudential Loan. The Second Prudential Loan is at a fixed interest rate of 6.42% per annum and calls for monthly installments of principal and interest in the amount of approximately $119,000, calculated on a 30-year amortization schedule. The Second Prudential Loan is collateralized by a second deed of trust on the Partnership's Hotel property, including all improvements and personal property thereon and an assignment of all present and future leases and rents. The Second Prudential Loan is without recourse to the limited and general partners of Justice. As of September 30, 2008, the Second Prudential Loan balance was approximately $18,691,000.

The Partnership also obtained a new unsecured $3,000,000 revolving line of credit facility from UCB to be utilized by the Partnership to meet any emergency or extraordinary cash flow needs. The new line of credit facility matures on February 2, 2009 and the annual interest rate is based on an index selected by Justice at the time of advance, equal to the Wall Street Journal Prime Rate less 0.5%, or the LIBOR Rate plus 2%. As of September 30, 2008, there was a balance of $1,500,000 drawn by Justice under the new line of credit, with an annual interest rate at Prime less 0.5% (4.00% as of September 30, 2008). It is expected that the Partnership will attempt to renew or extend its line of credit facility with UCB or to obtain a replacement facility with another lending institution in the near future.

While the debt service requirements related to the two Prudential loans, as well as the utilization of the UCB line of credit, may create some additional risk for the Company and its ability to generate cash flows in the future since the Partnership's assets had been virtually debt free for an number of years, management believes that cash flows from the operations of the Hotel and the garage lease will continue to be sufficient to meet all of the Partnership's current and future obligations and financial requirements. Management also believes that there is sufficient equity in the Hotel assets to support future borrowings, if necessary, to fund any new capital improvements and other requirements.

In April 2004, the Company obtained a revolving $5,000,000 line of credit ("LOC"). The LOC carries a variable interest rate (lender's base rate plus 1%). Interest is paid on a monthly basis. During the three months ended September 30, 2008, the outstanding balance on the line of credit of $3,462,000 was paid off.

In July 2008, the Company modified the mortgage on its 264-unit apartment complex located in St. Louis, Missouri and borrowed an additional $500,000 bringing the outstanding of the note as of September 30, 2008 to $6,176,000. The term and the interest rate on the note remain the same.

In August 2007, the Company sold its 224-unit apartment complex located in Irving, Texas for $8,050,000 and recognized a gain on the sale of real estate of $4,074,000. The Company received net proceeds after selling costs of $7,739,000 and paid off the related outstanding mortgage note payable of $4,007,000 and made a $3,000,000 payment to reduce its outstanding line of credit to $1,258,000 from $4,258,000.

In August 2007, the Company refinanced its $7,203,000 construction loan on its 30-unit apartment complex located in Los Angeles, California and obtained a mortgage note payable in the amount of $6,850,000. The term of the note is 15 years, with interest only for the first two years. The interest is fixed at 5.97%.

The Company has invested in short-term, income-producing instruments and in equity and debt securities when deemed appropriate. The Company's marketable securities are classified as trading with unrealized gains and losses recorded through the consolidated statements of operations.

Management believes that its cash, marketable securities, and the cash flows generated from those assets and from its real estate operations, partnership distributions and management fees, will be adequate to meet the Company's current and future obligations.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off balance sheet arrangements.

MATERIAL CONTRACTUAL OBLIGATIONS

The Company does not have any material contractual obligations or commercial commitments other than the mortgages of its rental properties, its line of credit and Justice Investors' mortgage loans with Prudential and its revolving line of credit facility with UCB.

IMPACT OF INFLATION

The Company's residential and commercial rental properties provide income from short-term operating leases and no lease extends beyond one year. Rental increases are expected to offset anticipated increased property operating expenses.

Hotel room rates are typically impacted by supply and demand factors, not inflation, since rental of a hotel room is usually for a limited number of nights. Room rates can be, and usually are, adjusted to account for inflationary cost increases. Since Prism has the power and ability under the terms of its management agreement to adjust hotel room rates on an ongoing

. . .