The Blackstone Group Reports First Quarter 2008 Results

NEW YORK--(BUSINESS WIRE)--The Blackstone Group L.P. (NYSE: BX) today reported its first quarter 2008 results.

For the quarter ended March 31, 2008, Total Net Reportable Segment Revenues were $32.3 million as compared to Total Pro Forma Adjusted Reportable Segment Revenues of $1.23 billion in 2007. Declines in all business segments drove the year-over-year decrease in revenues.

Economic Net Income for the quarter ended March 31, 2008 was a loss of $(93.6) million as compared to Pro Forma Adjusted Economic Net Income of $957.8 million for the quarter ended March 31, 2007.

For the quarter ended March 31, 2008, GAAP Revenues totaled $68.5 million, GAAP Other Income (Loss) totaled $(215.6) million, GAAP Expenses (including non-cash transactional charges of $940.0 million) totaled $1.10 billion, GAAP Income (Loss) Before Non-Controlling Interests and Provision for Income Taxes was $(1.25) billion and GAAP Net Income (Loss) Before Provision for Taxes totaled $(246.7) million. The vesting of equity awards granted at the time of the IPO contributed significantly to the GAAP loss. For the quarter ended March 31, 2007, GAAP revenues totaled $1.23 billion, GAAP Other Income totaled $3.04 billion, GAAP Expenses totaled $172.2 million, GAAP Income (Loss) Before Non-Controlling Interests and Provision for Income Taxes was $4.09 billion, and GAAP Net Income Before Provision for Taxes totaled $1.15 billion. A significant amount of equity interests held by senior managing directors and other employees is subject to future vesting, minimum retained ownership interests and transfer restrictions. As a result of the future vesting, Blackstone has and will continue to show significant non-cash compensation charges associated with these equity interests over their respective service periods. These non-cash charges, which arose in 2007 in connection with the reorganization and the initial public offering, are likely to result in GAAP net losses for the next five years depending upon the applicable service periods or useful lives, but will never have any impact on cash earnings.

In connection with the initial public offering of the common units of The Blackstone Group L.P. (the publicly traded partnership), Blackstone effected a reorganization on June 18, 2007, which affects the comparison of the current year's periods with those of the prior years. Blackstone's business was historically conducted through a large number of entities as to which there was no single holding entity. Accordingly, operating results for the 2007 period presented are for the respective consolidated and combined entities.

Fixed income and equity markets accelerated their declines in the first quarter of 2008, with U.S., European and Asian equity indices down significantly and credit spreads substantially wider. Reduced liquidity, which was evident in the second half of 2007, also accelerated in the first quarter of 2008. Lenders severely restricted new commitments to senior loans and high yield debt, which limited industry-wide leveraged acquisition activity levels in both corporate and real estate markets. Recently announced private equity-led acquisitions have mostly been smaller in size and global completed mergers and acquisition activity declined. The duration of current economic conditions is unknown.

Stephen A. Schwarzman, Chairman and Chief Executive Officer of Blackstone said: “Turbulent markets throughout the world persisted in the first quarter, affecting virtually all asset pricing across credit and equity markets. This was both good and bad for us. On the one hand, it meant lower carrying values of some of our investments in the short term and restricted our disposition activity. On the other hand, purchase prices for new deals declined, opening up many interesting investment possibilities. Credit market dislocation, while limiting availability of debt for large leveraged transactions, has also created attractive debt investment opportunities, particularly in leveraged loans. Our well-timed GSO acquisition dramatically expanded our efforts in this area. Despite the challenges presented by a slowing global economy, overall our portfolio companies and real estate investments continued to perform well. Our balance sheet remains healthy, and our long-term contractual management fees position us well to increase market share.”

SEGMENT REVIEW

For the quarter ended March 31, 2008, Total Net Reportable Segment Revenues decreased to $32.3 million from Total Pro Forma Adjusted Reportable Segment Revenues of $1.23 billion for the quarter ended March 31, 2007. Revenue declines were experienced by all four business segments — Corporate Private Equity, Real Estate, Marketable Alternative Asset Management and Financial Advisory. Our revenues include Performance Fees and Allocations that are determined and accounted for on a quarterly basis as if the net unrealized fair value of the managed funds’ investments were realized as of such date, although there is no intention to realize the overwhelming majority of such investments at the present time.

Economic Net Income After Taxes was a loss of $(66.5) million for the quarter ended March 31, 2008 as compared to Pro Forma Adjusted Economic Net Income After Taxes of $838.5 million for the quarter ended March 31, 2007.

Net Cash Flow Provided by Operating Activities was $115.2 million for the quarter ended March 31, 2008 as compared to Net Cash Flow Used in Operating Activities of $1.34 billion for the comparable prior period. Adjusted Cash Flow (Used) from Operations for the quarter ended March 31, 2008 was $(4.4) million as compared to Pro Forma Adjusted Cash Flow from Operations of $292.5 million for the comparable prior period.

The table below details Blackstone’s Economic Net Income and Pro Forma Adjusted Economic Net Income for the quarters ended March 31, 2008 and 2007, respectively. Economic Net Income Before Taxes, includes unrealized gains/losses and compensation and compensation reductions related to those gains/losses but excludes transaction related (including non-cash) charges.

		Quarter Ended March 31,							% Variance
			2008			2007
						Pro Forma Adjusted
		(Dollars in Thousands, Except per Unit Amounts)
Economic Net Income (Loss), Total Reportable Segments (a)		$	(93,567	)		$	957,779		(110	%)
Provision (Benefit) for Income Taxes (b)			(27,053	)			119,304		(123	%)
Economic Net Income (Loss) After Taxes		$	(66,514	)		$	838,475		(108	%)
Economic Net Income (Loss) After Taxes per Adjusted Unit		$	(0.06	)		$	0.75
Adjusted Cash Flow (Used) from Operations (a)		$	(4,402	)		$	292,544

(a)		Reconciliations of Pro Forma Adjusted Economic Net Income, Total Reportable Segments to Economic Net Income, Total Reportable Segments and of Pro Forma Adjusted Cash Flow from Operations to Net Cash Used in Operating Activities are presented in Exhibits 3 and 4, respectively, to this release.
(b)		Represents the implied provision (benefit) for income taxes calculated using the same methodology applied in calculating the tax provision (benefit) for The Blackstone Group L.P.

Corporate Private Equity

Corporate Private Equity had negative first quarter revenues of $(116.7) million, as compared with positive revenues of $208.9 million for the first quarter of 2007. Negative revenues in this year’s quarter largely reflect a reduction in Performance Fees and Allocations and Investment Income (Loss) and Other due to a decline in the overall carrying value of the private equity managed funds from year end 2007. Substantially all of this decline was attributable to the decrease in the publicly traded market value of the Deutsche Telekom AG equity investment notwithstanding the increased profitability of the company. This reflects declines in the German stock market and in telecommunication stocks during this quarter. We believe Deutsche Telekom remains a strong company trading at the attractive value of 4.7x EBITDA. Management Fees increased $10.0 million, or 17%, to $69.8 million. The increase in Base Management Fees reflected growth in Weighted-Average Fee-Earning Assets Under Management.

Compensation expense was a negative $(80.8) million in the first quarter, reflecting a $112.5 million accrual for departed partners’ clawback obligation since the negative Performance Fees and Allocations in the first quarter would cause a clawback of carried interests previously received by departed partners. The accrual for clawback obligations was accounted for as a reduction in compensation costs.

Weighted-Average Fee-Earning Assets Under Management for the quarter totaled $25.05 billion compared with $21.86 billion in the first quarter of 2007, reflecting an increase in the number of attractive investment opportunities.

LP Capital deployed increased to $340.1 million for the quarter ended March 31, 2008 from $56.7 million for the prior year period.

Real Estate

For the quarter ended March 31, 2008, Real Estate generated revenues of $47.9 million, down 94% from the first quarter of 2007 revenues of $766.8 million. During the quarter ended March 31, 2008, Performance Fees and Allocations and Investment Income (Loss) and Other decreased as compared to the first quarter of 2007 due to a modest reduction in the net carrying value of the real estate managed funds as compared with a significant increase in the carrying value of these funds last year relating primarily to accretive sales within our Equity Office Properties (“EOP”) office portfolio that we acquired in the first quarter of 2007. Management Fees decreased by $168.8 million from the same period last year primarily because Blackstone closed the EOP acquisition in last year’s first quarter and generated a substantial transaction fee in connection with that acquisition. Base Management Fees increased $29.3 million due to higher assets under management.

Weighted-Average Fee-Earning Assets Under Management for the quarter totaled $18.87 billion compared with $10.71 billion in the first quarter of 2007, due mainly to capital raised for the Blackstone Real Estate Partners VI fund.

LP capital deployed in the first quarter of 2008 totaled $369.2 million, down from $3.88 billion (including $3.3 billion invested in EOP) in the first quarter of 2007.

Marketable Alternative Asset Management (MAAM)

For the quarter ended March 31, 2008, MAAM generated revenues of $30.0 million, a decrease of 81% from the first quarter of 2007. The decline reflected a combination of lower Performance Fees and Allocations from Blackstone’s funds, as well as a reduction in the carrying values of Blackstone’s direct investments in those funds as a result of modest declines in their investment performance, in contrast to investment gains in the comparable 2007 quarter. Management Fees increased due to higher levels of assets under management. MAAM includes both funds of hedge funds and proprietary hedge funds investing across several asset classes, geographies and investment styles and accordingly is not tied to any one market or the direction of those markets. Additionally, MAAM includes GSO Capital Partners LP ("GSO"), which manages CLOs and investment funds specializing in various credit strategies including leveraged lending, senior debt, mezzanine debt, distressed debt, and middle market and non-control private equity. GSO’s funds and results are included in the MAAM segment only from the transaction closing date of March 3, 2008.

Weighted-Average Fee-Earning Assets Under Management for the quarter ended March 31, 2008 totaled $48.82 billion (including $8.56 billion relating to GSO) compared with $27.32 billion for the prior year period.

Financial Advisory

Revenues decreased 24% to $71.2 million in the first quarter ended March 31, 2008 compared to the same period in 2007. Revenues within Blackstone’s fund placement business, Park Hill, and the corporate and mergers and acquisitions advisory business declined year-over-year, while revenues in Blackstone’s restructuring and reorganization advisory business increased. Revenue can be highly variable due to the size of one-time fees, but the transaction volume in the pipeline is up across all three businesses. Last year’s first quarter included a substantial fee received by Park Hill related to a specific fund-raising assignment.

CAPITAL

For economic net income purposes, the weighted-average fully diluted unit count at period end was 1,122 million units (the “Adjusted Units”) and the total number of outstanding units entitled to cash distributions was 1,082 million units.

DISTRIBUTION

The Blackstone Group L.P. is pleased to declare a quarterly distribution of $0.30 per common unit payable to record holders of common units at the close of business on May 30, 2008. This distribution will be paid on June 13, 2008. In addition, Blackstone reaffirms its intention to make priority distributions to its public common unitholders of $1.20 per common unit per year through 2009, to be paid quarterly. These distribution amounts differ from Blackstone’s earnings/loss per unit.

Blackstone will host a conference call on May 15, 2008 at 11:00 a.m. EDT to discuss first quarter 2008 results. The conference call can be accessed by dialing (888) 713-4205 (U.S. domestic) and (617) 213-4862 (international) pass code 60516941. Additionally the conference call will be broadcast live over the internet and can be accessed by all interested parties through the Investor Relations section of The Blackstone Group’s website http://ir.blackstone.com. For those unable to listen to the live broadcast, a replay will be available on Blackstone’s website or by dialing (888) 286-8010 (U.S. domestic) or (617) 801-6888 (international) pass code number 70998836, beginning approximately two hours after the event.

About The Blackstone Group

The Blackstone Group L.P. is a leading global alternative asset manager and provider of financial advisory services. Its alternative asset management businesses include the management of corporate private equity funds, real estate funds, funds of hedge funds, debt funds (including leveraged lending funds), collateralized loan obligation (“CLO”) vehicles, proprietary hedge funds and closed-end mutual funds. The Blackstone Group also provides various financial advisory services, including corporate and mergers and acquisitions advisory, restructuring and reorganization advisory and fund placement services. Further information is available at www.blackstone.com.

Forward-Looking Statements

This release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which reflect Blackstone’s current views with respect to, among other things, Blackstone’s operations and financial performance. You can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. Blackstone believes these factors include but are not limited to those described under the section entitled "Risk Factors" in its Annual Report on Form 10-K for the fiscal year ended December 31, 2007, as such factors may be updated from time to time in its periodic filings with the SEC, which are accessible on the SEC's website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in the prospectus. Blackstone undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

This release does not constitute an offer of any Blackstone Fund.

THE BLACKSTONE GROUP L.P. Exhibit 1. Consolidated and Combined Statements of Income (Dollars in Thousands, Except Per Unit Data)
		Quarter Ended
		March 31, 2008				March 31, 2007			% Variance
Revenues
Management and Advisory Fees		$	309,409			$	447,402		(31	%)
Performance Fees and Allocations			(188,687	)			662,498		(128	%)
Investment Income and Other			(52,199	)			116,468		(145	%)
Total Revenues			68,523				1,226,368		(94	%)
Expenses
Compensation and Benefits (1)			977,147				79,207		1134	%
Interest			2,743				11,122		(75	%)
General, Administrative and Other (1)			95,221				28,132		238	%
Fund Expenses			22,952				53,689		(57	%)
Total Expenses			1,098,063				172,150		538	%
Other Income (Loss)
Net Gains (Losses) from Fund Investment Activities			(215,636	)			3,036,482		(107	%)
Income (Loss) Before Non-Controlling Interests in Income (Loss) of Consolidated Entities and Provision for Taxes			(1,245,176	)			4,090,700		(130	%)
Non-Controlling Interests in Income (Loss) of Consolidated Entities			(998,457	)			2,944,654		(134	%)
Income (Loss) Before Provision for Taxes			(246,719	)			1,146,046		(122	%)
Provision for Taxes			4,274				13,970		(69	%)
Net Income (Loss) (1)		$	(250,993	)		$	1,132,076		(122	%)
Net Loss Per Common Unit, Basic and Diluted		$	(0.97	)
(1) Transaction-related charges included above were:
Compensation and Benefits, inclusive of $906,444 of non-cash charges		$	918,971
General, Administrative and Other - amortization of intangibles			33,528
		$	952,499

THE BLACKSTONE GROUP L.P. Exhibit 2. Consolidated Statements of Financial Condition (Dollars in Thousands)
		March 31, 2008			December 31, 2007
Assets
Cash and Cash Equivalents		$	672,669		$	868,629
Cash Held by Blackstone Funds			117,514			163,696
Investments			7,058,802			7,145,156
Accounts Receivable			224,439			213,086
Due from Brokers			564,945			812,250
Investment Subscriptions Paid in Advance			8,170			36,698
Due from Affiliates			695,179			855,854
Intangible Assets, Net			1,247,135			604,681
Goodwill			1,689,976			1,597,474
Other Assets			174,499			99,366
Deferred Tax Assets			763,056			777,310
Total Assets		$	13,216,384		$	13,174,200
Liabilities and Partners' Capital
Loans Payable		$	451,653		$	130,389
Amounts Due to Non-Controlling Interest Holders			107,114			269,901
Securities Sold, Not Yet Purchased			1,084,235			1,196,858
Due to Affiliates			1,123,832			831,609
Accrued Compensation and Benefits			207,000			188,997
Accounts Payable, Accrued Expenses and Other Liabilities			210,987			250,445
Total Liabilities			3,184,821			2,868,199
Commitments and Contingencies
Non-Controlling Interests in Consolidated Entities			5,886,187			6,079,156
Partners' Capital
Partners' Capital			4,144,519			4,226,500
Accumulated Other Comprehensive Income			857			345
Total Partners' Capital			4,145,376			4,226,845
Total Liabilities and Partners' Capital		$	13,216,384		$	13,174,200

THE BLACKSTONE GROUP L.P. Exhibit 3a. Economic Net Income and Pro Forma Adjusted Economic Net Income (Dollars in Thousands)
The tables below detail Blackstone's Economic Net Income, except for the quarters ended March 31, 2007 and June 30, 2007 and the year ended December 31, 2007, for which periods Pro Forma Adjusted Economic Net Income is presented.  A presentation of Economic Net Income for each of the periods for which Pro Forma Adjusted Economic Net Income is presented below is included on page 11.
		Quarter Ended																				Quarter Ended
		March 31, 2007				June 30, 2007				September 30, 2007				December 31, 2007				Full Year 2007				March 31, 2008
		Pro Forma Adjusted																Pro Forma Adjusted
Corporate Private Equity
Revenues
Management Fees
Base Management Fees		$	58,861			$	62,858			$	66,389			$	66,735			$	254,843			$	67,336
Transaction and Other Fees			9,128				56,044				48,711				64,188				178,071				10,837
Management Fee Offsets *			(8,231	)			(12,634	)			(20,892	)			(23,278	)			(65,035	)			(8,410	)
Total Management Fees			59,758				106,268				94,208				107,645				367,879				69,763
Performance Fees and Allocations			122,934		(a)		230,424		(a)		109,051				(124,460	)			337,949		(a)		(163,430	)
Investment Income (Loss) and Other			26,212		(a)		63,782		(a)		24,032				1,428				115,454		(a)		(23,050	)
Total Segment Revenues			208,904				400,474				227,291				(15,387	)			821,282