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, travel and the lodging industry, 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 the Justice Investors limited partnership ("Justice" or the "Partnership"). Portsmouth has a 50.0% limited partnership interest in Justice and serves as the managing general partner of Justice. Evon Corporation ("Evon") serves as the other general partner. Justice owns the land, improvements and leaseholds at 750 Kearny Street, San Francisco, California, known as the Hilton San Francisco Financial District (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.

Until September 30, 2008, the Partnership also derived income from the lease of the parking garage to Evon. As discussed below, effective October 1, 2008, Justice entered into an installment sale agreement with Evon to purchase the remaining term of the garage lease and related garage assets. Justice also leases a portion of the lobby level of the Hotel to a day spa operator. Portsmouth 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. The Company's Austin, Texas property and all of the Company's residential rental properties in California 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 March 31, 2009 Compared to the Three Months Ended March 31, 2008

The Company had a net loss of $1,260,000 for the three months ended March 31, 2009 compared to a net loss of $1,900,000 for the three months ended March 31, 2008. As discussed in Note 1, the Company stopped recording a minority interest benefit in Justice Investors beginning the quarter ended December 31, 2008 resulting in the recording of an additional $571,000 included in the net loss. During the three months ended March 31, 2009, operating income from hotel operations decreased to $759,000 from $1,320,000 during the three months ended March 31, 2008. During the three months ended March 31, 2009, operating income from real estate operations decreased to $1,541,000 from $1,644,000 for the three months ended March 31, 2008. During the same period, the net loss on marketable securities decreased to $359,000 for the three months ended March 31, 2009 from $2,345,000 for the three months ended March 31, 2008.

The following table sets forth a more detailed presentation of Hotel operations for the three months ended March 31, 2009 and 2008.

For the three months ended March 31,                            2009            2008
                                                             ----------      ----------
Hotel revenues:
 Hotel rooms                                                $ 5,251,000    $  6,737,000
 Food and beverage                                            1,106,000       1,451,000
 Garage                                                         571,000         393,000
 Other                                                          145,000         218,000
                                                             ----------      ----------
  Total hotel revenues                                        7,073,000       8,799,000
                                                             ----------      ----------
Operating expenses excluding interest, depreciation and
 Amortization expenses                                       (6,314,000)     (7,479,000)
                                                             ----------      ----------
Operating income                                                759,000       1,320,000

Interest expense                                               (719,000)       (745,000)
Depreciation and amortization expense                        (1,167,000)     (1,155,000)
                                                             ----------      ----------
Loss from hotel operations                                  $(1,127,000)    $  (580,000)
                                                             ==========      ==========

For the three months ended March 31, 2009, the Hotel generated operating income of approximately $759,000 before interest, depreciation and amortization, on operating revenues of approximately $7,073,000 compared to operating income of approximately $1,320,000 before interest, depreciation and amortization, on operating revenues of approximately $8,799,000 for the three months ended March 31, 2008. The decrease in Hotel operating income is primarily attributable to the decrease in room and food and beverage revenues in the current period, partially offset by a decrease in operating expenses as part of management's

efforts to reduce operating costs and to achieve greater efficiencies, and an increase in garage revenues due to the termination of the garage lease effective October 1, 2008 and the integration of those operations into those of the Hotel.

Room revenues decreased by $1,486,000 for the three months ended March 31, 2009 when compared to the three months ended March 31, 2008 and food and beverage revenues decreased by $345,000 for the same period. The decrease in room revenues was primarily attributable to a significant decline in average daily room rates as hotels in the San Francisco market have slashed room rates in an effort to maintain occupancy levels in a very competitive market due to current economic conditions. The decrease in food and beverage revenues is primarily attributable to decline in banquet and catering business as companies cut back on business travel, corporate meetings and events.

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 March 31, 2009 and 2008.

Three Months Ended         Average           Average
     March 31,            Daily Rate        Occupancy%         RevPar
-----------------         ----------        ---------         --------
      2009                   $135              80%              $107
      2008                   $176              77%              $136

The operations of the Hotel continued to be impacted by the significant downturn in the domestic and international economies and markets. The Hotel's average daily room rate was approximately $41 lower for the three months ended March 31, 2009 compared to the three months ended March 31, 2008. However, due to increased sales and marketing efforts in the face of difficult economic conditions and greater competition, the Hotel was able to boost occupancy rates by three percent (3%) over the comparable period. As a result, the Hotel was able to achieve a RevPar number that was near the top of its competitive set.

Management has also 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. The Hotel's management company has added support to those efforts by agreeing to reduce its management fees by fifty percent for the 2009 calendar year. As a result, we have seen further reductions in operating costs of the Hotel for the three months ended March 31, 2009 despite maintaining higher occupancy levels. Management will also continue to explore new and innovative ways to improve operations and enhance the guest experience. One significant step was to move lunch and dinner services from the restaurant to the lounge to create a more intimate, yet lively, atmosphere and to complement the new wine bar "Flyte" in the lobby of the Hotel. That initiative appears to be working as the Hotel generated its first quarterly operating profit from its food and beverage operations in the three months ended March 31, 2009.

Operating income from real estate operations decreased to $1,541,000 for the three months ended March 31, 2009 from $1,644,000 for the three months ended March 31, 2008 primarily due to the decrease in real estate revenue to $3,141,000 from $3,318,000, partially offset by the decrease in real estate operating expenses to $1,600,000 from $1,674,000. The decrease in real estate revenue is due to the one-time receipt of additional other revenue of approximately $181,000 at the Company's Las Colinas, Texas property during the three months ended March 31, 2008. The Company's real estate operations remains relatively consistent with comparable prior year period. Management continues to review and analyze the Company's real estate operations to improve occupancy and rental rates, reduce expenses and improve efficiencies.

As of March 31, 2009, 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. These properties are classified as held for sale on the Company's condensed consolidated balance sheet with the operations of these properties classified under discontinued operations in the condensed consolidated statements of operations.

The Company had a net loss on marketable securities of $359,000 for the three months ended March 31, 2009 compared to a loss of $2,345,000 for the three months ended March 31, 2008. For the three months ended March 31, 2009, the Company had a net realized gain of $56,000 and a net unrealized loss of $415,000. For the three months ended March 31, 2008, the Company had a net realized gain of $422,000 and net unrealized loss of $2,767,000. 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 March 31, 2009, the Company had net other investments of $6,320,000. During the three months ended March 31, 2009 and 2008, 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 $705,000 and $1,117,000, respectively.

Margin interest and trading expenses decreased to $262,000 for the three months ended March 31, 2009 from $456,000 for the three months ended March 31, 2008 primarily due to the decrease in borrowing costs and margin interest expense.

As discussed in Note 1, during the three months March 31, 2009, the Company did not record a minority interest benefit of $571,000 related to the loss from hotel operations. In the comparable quarter ended March 31, 2008, the Company recorded a minority interest benefit of $266,000.

The provision for income tax benefit decreased to $650,000 for the three months ended March 31, 2009 from $1,697,000 for the three months end March 31, 2008 as the result of the lower pre-tax loss incurred during the three months ended March 31, 2009. Additionally, as noted above and in Note 1, the Company did not record a pre-tax minority interest benefit for the three months ended March 31, 2009. As the result the effective tax rate during the three months ended March 31, 2009 is lower compared to the three months ended March 31, 2008.

Nine months ended March 31, 2009 Compared to the Nine months ended March 31, 2008

The Company had a net loss of $1,226,000 for the nine months ended March 31, 2009 compared to a net loss of $290,000 for the nine months ended March 31, 2008. As discussed in Note 1, the Company stopped recording a minority interest benefit in Justice Investors beginning the quarter ended December 31, 2008 resulting in the recording of an additional $1,179,000 included in the net loss. During the nine months ended March 31, 2009, operating income from hotel operations increased to $4,183,000 from $3,863,000 during the nine months ended

March 31, 2008. During the nine months ended March 31, 2009, operating income from real estate operations decreased to $4,183,000 from $3,863,000 for the nine months ended March 31, 2008. During the same period, the Company had a net gain on marketable securities of $1,729,000 for the nine months ended March 31, 2009 compared to a net loss on marketable securities of $2,347,000 for the nine months ended March 31, 2008. Contributing significantly to reduction of the net loss in the prior comparable period, the Company had a gain of $4,074,000 related to the sale real estate. There was no sale of real estate in the most recent period.

The following table sets forth a more detailed presentation of Hotel operations for the nine months ended March 31, 2009 and 2008.

For the Nine months ended March 31,                             2009            2008
                                                             ----------      ----------
Hotel revenues:
 Hotel rooms                                                $19,451,000    $ 21,961,000
 Food and beverage                                            3,633,000       4,399,000
 Garage                                                       1,541,000       1,229,000
 Other                                                          391,000         615,000
                                                             ----------      ----------
  Total hotel revenues                                       25,016,000      28,204,000
                                                             ----------      ----------
Operating expenses excluding interest, depreciation and
 amortization expenses                                      (20,833,000)    (24,341,000)
                                                             ----------      ----------
Operating income                                              4,183,000       3,863,000

Loss on termination of garage lease                            (684,000)              -
Interest expense                                             (2,162,000)     (2,150,000)
Depreciation and amortization expense                        (3,483,000)     (3,455,000)
                                                             ----------      ----------
Loss from hotel operations                                  $(2,146,000)    $(1,742,000)
                                                             ==========      ==========

For the nine months ended March 31, 2009, the Hotel generated operating income of approximately $4,183,000, before the loss on termination of garage lease, interest, depreciation and amortization, on operating revenues of approximately $25,016,000 compared to operating income of approximately $3,863,000 before interest, depreciation and amortization, on operating revenues of approximately $28,204,000 for the nine months ended March 31, 2008. Despite a significant decrease in operating revenues of approximately $3,188,000, the Hotel was able to increase its operating income by approximately $320,000 over the comparable period primarily due to a significant decrease in operating expenses of approximately $3,508,000 and an increase in garage revenues due to the termination of the garage lease effective October 1, 2008 and the integration of those operations into those of the Hotel.

Room revenues decreased by $2,510,000 for the nine months ended March 31, 2009 when compared to the nine months ended March 31, 2008 and food and beverage revenues decreased by $766,000 for the same period. The decrease in room revenues was primarily attributable to a decline in average daily room rates as hotels in the San Francisco market began to reduce room rates beginning in October 2008 in an effort to maintain occupancy levels in an increasingly more competitive market as economic conditions continued to deteriorate. The decrease in food and beverage revenues is primarily attributable to decline in banquet and catering business as companies cut back on business travel, corporate meetings and events.

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 nine months ended March 31, 2009 and 2008.

Nine Months Ended          Average           Average
    March 31,             Daily Rate        Occupancy%         RevPar
-----------------         ----------        ---------         --------
      2009                   $163              80%              $130
      2008                   $174              84%              $147

The full impact of the downturn in the domestic and international economies and markets began to be felt by the operations of the Hotel in September 2008 and it is expected to continue at least through fiscal 2009. As a result, the average daily room rate declined by approximately $11 and occupancy declined by approximately 4% for the nine months ended March 31, 2009. As a result, RevPar was also down approximately $17 from the comparable period.

Facing difficult economic conditions 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. The Hotel's management company has added support to those efforts by agreeing to reduce its management fees by fifty percent for the 2009 calendar year. As a result, we have seen further reductions in operating costs of the Hotel as a percentage of Hotel revenues for the nine months ended March 31, 2009. Management has also increased its sales and marketing efforts in what has become an even more competitive hotel market in San Francisco. Management has also continued to explore new and innovative ways to improve operations and enhance the guest experience. One significant step was to move lunch and dinner services from the restaurant to the lounge to create a more intimate, yet lively, atmosphere and to complement the new wine bar "Flyte" in the lobby of the Hotel. That initiative appears to be working as the Hotel generated its first quarterly operating profit from its food and beverage operations in the three months ended March 31, 2009.

Operating income from real estate operations decreased to $4,625,000 for the nine months ended March 31, 2009 from $4,819,000 for the nine months ended March 31, 2008 due to the increase in operating expenses to $4,922,000 from $4,623,000 partially offset by the increase in revenues to $9,547,000 from $9,442,000. The increase in operating expenses is primarily due the increase repairs and maintenance expenses and utilities expense partially offset by the one-time $151,000 reduction against professional fees received during the nine months ended March 31, 2008. The increase in revenues is primarily due to the increase in rental rates at the Company's properties located in Parsippany, New Jersey and St. Louis, Missouri. The Company's real estate operations remains relatively consistent with comparable prior year period. Management continues to review and analyze the Company's real estate operations to improve occupancy and rental rates, reduce expenses and improve efficiencies.

As of March 31, 2009, 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. These properties are classified as held for sale on the Company's condensed consolidated balance sheet with the operations of these properties classified under discontinued operations in the condensed consolidated statements of operations. During the nine months ended March 31, 2008, 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 $1,729,000 for the nine months ended March 31, 2009 compared to a net loss of $2,347,000 for the nine months ended March 31, 2008. For the nine months ended March 31, 2009, the Company had a net realized gain of $1,193,000 and a net unrealized gain of $536,000. For the nine months ended March 31, 2008, the Company had a net realized gain of $533,000 and net unrealized loss of $2,880,000. 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 March 31, 2009, the Company had net other investments of $6,320,000. During the nine months ended March 31, 2009 and 2008, 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 $1,300,000 and $1,242,000, respectively.

Trading and margin interest expense decreased to $901,000 for the nine months ended March 31, 2009 from $1,261,000 for the nine months ended March 31, 2008 primarily due to the decrease in borrowing costs and margin interest expense.

Minority interest related to Justice Investors changed to an expense of $96,000 for the nine months ended March 31, 2009 from a benefit of $801,000 for the nine months ended March 31, 2008. As discussed in Note 1, the Company did not record a minority interest benefit of $1,179,000 related to the loss from hotel operations. The $96,000 minority interest expense was recorded during the three months ended September 30, 2008.

The total provision for income tax benefit decreased to $598,000 for the nine months ended March 31, 2009 from $864,000 for the nine months end March 31, 2008. As noted above and in Note 1, the Company did not record a pre-tax minority interest benefit for the three months ended March 31, 2009. As the result the effective tax rate during the nine months ended March 31, 2009 is lower compared to the nine months ended March 31, 2008.

Minority interest related to Portsmouth and Santa Fe increased to $1,266,000 for the nine months ended March 31, 2009 from $1,038,000 for the nine months ended March 31, 2008 primarily due to the higher losses incurred by Portsmouth and Santa Fe during the nine months ended March 31, 2009.

MARKETABLE SECURITIES AND OTHER INVESTMENTS

The Company's investment portfolio is diversified with 43 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 45.4% 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 March 31, 2009, the Company had investments in marketable equity securities of $5,151,000. The following table shows the composition of the Company's marketable securities portfolio by selected industry groups as of March 31, 2009 and June 30, 2008.

   As of March 31, 2009
                                                              % of Total
                                                              Investment
   Industry Group                      Fair Value             Securities
   --------------                      ------------           ----------
   Dairy products                      $ 2,337,000               45.4%
   Financial services and REITs            730,000               14.2%
   Industrial                              637,000               12.4%
   Basic materials and energy              527,000               10.2%
. . .