The Blackstone Group Reports Second Quarter 2008 Earnings

  • Economic Net Income for the Second Quarter 2008 totaled $99.9 million as compared to a loss of $(93.6) million in the first quarter of 2008. GAAP Net Loss of $(185.5) million reflected net transaction related costs of $858.7 million offset by Non-Controlling Interests of $573.3 million.
  • Record Assets Under Management of $119.41 billion, a 30% increase from $91.77 billion a year ago and up from $113.53 billion at March 31, 2008.
  • Blackstone declares a quarterly distribution of $0.30 per common unit and reaffirms priority distributions to public common unitholders of $1.20 per year through 2009, to be paid quarterly.

NEW YORK--()--The Blackstone Group L.P. (NYSE: BX) today reported its second quarter 2008 results. For the quarter ended June 30, 2008, Total Net Reportable Segment Revenues were $376.2 million as compared to $32.3 million in this year's first quarter. Total Pro Forma Adjusted Reportable Segment Revenues were $982.8 million in the second quarter of 2007. The year over year change was largely driven by lower Performance Fees and Allocations and lower Transaction Fees which were offset by higher Base Management Fees across all asset management segments. For the six months ended June 30, 2008, Total Net Reportable Segment Revenues were $408.5 million as compared to Total Pro Forma Adjusted Reportable Segment Revenues of $2.21 billion for the same period in 2007.

Economic Net Income for the second quarter of 2008 totaled $99.9 million as compared to a loss of $(93.6) million in this year's first quarter and Pro Forma Adjusted Economic Net Income of $735.6 million for the second quarter of 2007. Economic Net Income for the six months ended June 30, 2008 was $6.4 million as compared to Pro Forma Adjusted Economic Net Income of $1.69 billion for the six months ended June 30, 2007. Declines in all business segments drove the year-over-year decrease in both revenues and Economic Net Income.

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 compensation charges associated with these equity interests over their respective service periods. These as well as certain other transactional charges, which arose in 2007 in connection with the reorganization, the initial public offering and subsequent corporate actions including acquisitions, are likely to result in GAAP net losses for the next five years depending upon the applicable service periods or useful lives.

GAAP results for the second quarter of 2008 included Revenues of $353.7 million, Other Income of $189.7 million and Loss Before Benefit for Taxes of $(185.5) million. For the second quarter of 2007, Revenues were $952.1 million, Other Income was $2.36 billion and Income Before Benefit for Taxes totaled $771.9 million.

GAAP results for the six months ended June 30, 2008 included Revenues of $422.2 million, Other Loss of $(26.0) million and Loss Before Benefit for Taxes of $(432.2) million. For the six months ended June 30, 2007, Revenues were $2.18 billion, Other Income was $5.40 billion and Income Before Provision for Taxes totaled $1.92 billion.

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 year's. 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 periods presented are for the respective consolidated and combined entities.

Market conditions remained challenging during the second quarter of 2008 as global economic growth slowed and commodity prices soared. U.S. and European economic indicators continue to point to a slowdown in growth. Emerging economies, while still growing, have moderated. At the same time, the price of global commodities has risen. The economic backdrop challenged fixed income and equity markets and volatility was high. Lenders continue to severely restrict commitments to new debt, limiting industry-wide leveraged acquisition activity levels in both corporate and real estate markets.

Stephen A. Schwarzman, Chairman and Chief Executive Officer said: Slowing growth of world economies and volatile markets continue to present challenges as well as opportunities for our firm. We are sourcing an increasing number of attractive investment opportunities, some as a result of the market dislocation, and we committed $2.4 billion of new equity in private equity from April through July. We continue to see client asset inflows across our products and we are opportunistically hiring as we create new product offerings for our LPs. Our balance sheet remains strong and we are extremely well positioned in the current environment.

SEGMENT REVIEW

For the second quarter of 2008, Total Net Reportable Segment Revenues increased to $376.2 million from $32.3 million in the first quarter of 2008. This compares to Total Pro Forma Adjusted Reportable Segment Revenues of $982.8 million for the second quarter of 2007. Revenue increases since the first quarter of 2008 were in the Corporate Private Equity and Marketable Alternative Asset Management segments offset by a decline in the Real Estate segment. Revenue declines in the second quarter of 2008 compared to the second quarter of 2007 were experienced by the Corporate Private Equity, Real Estate and Financial Advisory segments. Blackstone 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 increased to $165.6 million for the second quarter of 2008 versus a loss of $(66.5) million in the first quarter of 2008. This compares to Pro Forma Adjusted Economic Net Income After Taxes of $655.0 million for the second quarter of 2007.

For the six months ended June 30, 2008, Total Net Reportable Segment Revenues decreased to $408.5 million from Total Pro Forma Adjusted Reportable Segment Revenues of $2.21 billion for the six months ended June 30, 2007. Revenue declines were experienced by all four business segments Corporate Private Equity, Real Estate, Marketable Alternative Asset Management and Financial Advisory. Economic Net Income After Taxes was $99.1 million for the six months ended June 30, 2008 as compared to Pro Forma Adjusted Economic Net Income After Taxes of $1.49 billion for the six months ended June 30, 2007.

Net Cash Flow Provided by Operating Activities was $102.1 million for the three months ended June 30, 2008 as compared to $516.8 million for the comparable prior year period. Adjusted Cash Flow from Operations for the second quarter of 2008 was $161.5 million as compared to Pro Forma Adjusted Cash Flow from Operations of $668.3 million for the comparable prior period.

The table below details Blackstone's Economic Net Income and Adjusted Cash Flow from Operations for the quarter and six months ended June 30, 2008 as compared to Blackstones Pro Forma Adjusted Economic Net Income for the comparable prior year periods. Economic Net Income Before Taxes includes unrealized gains/losses and compensation and compensation reductions related to those gains/losses but excludes transaction related charges.

  Three Months Ended June 30,   %   Six Months Ended June 30,   %
2008   2007 Variance 2008   2007 Variance
Pro Forma

Adjusted

Pro Forma

Adjusted

(Dollars in Thousands, Except per Unit Amounts)
Economic Net Income, Total

Reportable Segments (a)

$ 99,925 $ 735,611 (86 %) $ 6,358 $ 1,693,390 (100 %)
Provision (Benefit) for Income

Taxes (b)

  (65,717 )   80,581 (182 %)   (92,771 )   199,885 (146 %)
Economic Net Income After Taxes $ 165,642   $ 655,030 (75 %) $ 99,129   $ 1,493,505 (93 %)
 
Economic Net Income After Taxes

per Adjusted Unit

$ 0.15   $ 0.58 $ 0.09   $ 1.33
 
Adjusted Cash Flow from

Operations (a)

$

161,525

  $ 668,334 $

157,123

  $ 960,878

(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 Provided by (Used in) Operating Activities are presented in Exhibits 4 and 5, 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 second quarter revenues of $92.4 million, as compared with revenues of $400.5 million for the second quarter of 2007. The greatest driver of change year over year was a reduction in Performance Fees and Allocations and Investment Income (Loss) and Other which offset an increase in Base Management Fees. The increase in Base Management Fees reflected growth in Weighted-Average Fee-Earning Assets Under Management.

Compensation expense was $40.3 million in the second quarter, down from $44.8 million for the second quarter of 2007. Other operating expenses rose to $20.9 million from $14.8 million, and remained in line with the previous three quarters.

Weighted-Average Fee-Earning Assets Under Management for the quarter totaled $25.08 billion compared with $23.48 billion in the second quarter of 2007.

LP Capital deployed totaled $775.9 million for the second quarter of 2008 reflecting several investments including acquisitions and add-ons to current fund investments.

Real Estate

For the quarter ended June 30, 2008, Real Estate had negative second quarter revenues of $(14.4) million, as compared with revenues of $315.1 million for the second quarter of 2007. The main driver of the decline year-over-year was a modest reduction in the net carrying value of the real estate managed funds, which is reflected in Performance Fees and Allocations and Investment Income (Loss). During the quarter ended June 30, 2007, the funds achieved a significant increase in the carrying value relating primarily to accretive sales within the segments real estate portfolio.

Base Management Fees increased in the second quarter 2008, reflecting higher Fee-Earning Assets Under Management. Blackstone announced the $10.9 billion closing of its Blackstone Real Estate Partners VI Fund on April 1, 2008. Transaction fees declined as a result of lower transaction volume in the quarter as compared with a year ago.

Weighted-Average Fee-Earning Assets Under Management for the quarter increased 25% or $3.88 billion to $19.17 billion.

LP capital deployed totaled $209.8 million for the quarter ended June 30, 2008 reflecting additional capital invested within the existing portfolio.

Marketable Alternative Asset Management (MAAM)

For the second quarter of 2008, MAAM generated revenues of $225.2 million, an increase of 34% from the second quarter of 2007. The second quarter 2008 marks the first quarter fully inclusive of GSO's results of operations. In addition to the inclusion of GSO, the increase in revenues was largely driven by an increase in Base Management Fees, reflective of greater Fee-Earning Assets Under Management. Revenues from Performance Fees and Allocations declined modestly as positive performance was below that achieved in the second quarter of 2007. Investment Income and Other, which reflects Blackstones investment in its funds, increased year-over-year.

Weighted-Average Fee-Earning Assets Under Management for the quarter ended June 30, 2008 totaled $52.12 billion (including $10.06 billion relating to GSO) compared with $32.68 billion for the prior year period, a 59% increase. MAAM includes funds of hedge funds and proprietary hedge funds investing across several asset classes and geographies.

LP Capital Deployed totaled $808.9 million for the quarter ended June 30, 2008 primarily from activity in Blackstones credit liquidity funds.

Financial Advisory

Revenues decreased 26% to $72.9 million in the second quarter of 2008 compared to the same period in 2007. Revenues in Blackstones restructuring and reorganization advisory business increased year over year, while revenues in its fund placement business, Park Hill, and the corporate and mergers and acquisitions advisory business declined. The pipeline remains higher across all three businesses compared to the second quarter of 2007.

CAPITAL

For Economic Net Income purposes, the weighted-average fully diluted unit count for the three month and six month periods ended June 30, 2008 was 1,131 million units and 1,129 million units (the Adjusted Units), respectively. The total number of units used in calculating cash distributions was 1,101 million units for the six month period ended June 30, 2008.

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 August 29, 2008. This distribution will be paid on September 12, 2008. In addition, Blackstone reaffirms its intention to make priority distributions to its common unitholders of $1.20 per common unit per year through 2009, to be paid quarterly. These distribution amounts differ from Blackstones earnings/loss per unit.

Blackstone will host a conference call on August 6, 2008 at 11:00 a.m. EDT to discuss second quarter 2008 results. The conference call can be accessed by dialing (888) 713-4218 (U.S. domestic) and (617) 213-4870 (international) pass code 60801794. 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 Groups website http://ir.blackstone.com. For those unable to listen to the live broadcast, a replay will be available on Blackstones website or by dialing (888) 286-8010 (U.S. domestic) or (617) 801-6888 (international) pass code number 24559833, beginning approximately two hours after the event.

About The Blackstone Group

Blackstone is one of the worlds leading investment and advisory firms. We seek to create positive economic impact and long-term value for our investors, the companies we invest in, the companies we advise and the broader global economy. We do this through the commitment of our extraordinary people and flexible capital. Our alternative asset management businesses include the management of corporate private equity funds, real estate funds, hedge funds, funds of funds, debt funds, collateralized loan obligation vehicles (CLOs) and closed-end mutual funds. The Blackstone Group also provides various financial advisory services, including 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 Blackstones current views with respect to, among other things, Blackstones 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 1a.  Consolidated and Combined Statements of Income

(Dollars in Thousands, Except Per Unit Data)

 

   
Quarter Ended June 30,
2008   2007 % Variance
Revenues
Management and Advisory Fees $ 338,159 $ 341,694 (1 %)
Performance Fees and Allocations (13,722 ) 453,749 (103 %)
Investment Income and Other (1)   29,215     156,685   (81 %)
Total Revenues   353,652     952,128   (63 %)
Expenses
Compensation and Benefits (1) 1,028,808 345,545 198 %
Interest (1) 5,690 15,180 (63 %)
General, Administrative and Other (1) 107,517 50,686 112 %
Fund Expenses   21,793     65,557   (67 %)
Total Expenses   1,163,808     476,968   144 %
Other Income
Net Gains from Fund Investment Activities   189,678     2,360,343   (92 %)
Income (Loss) Before Non-Controlling

Interests in Income of Consolidated

Entities and Provision (Benefit) for Taxes

(620,478 ) 2,835,503 (122 %)
Non-Controlling Interests in Income (Loss)

of Consolidated Entities

  (434,969 )   2,063,561   (121 %)
Income (Loss) Before Benefit for Taxes (185,509 ) 771,942 (124 %)
Benefit for Taxes   (28,978 )   (2,409 ) 1103 %
Net Income (Loss) (1) $ (156,531 ) $ 774,351   (120 %)
June 19, 2007 through

June 30, 2007

Net Loss Per Common Unit, Basic and Diluted $ (0.60 ) $ (0.20 )
____________________

(1) Net transaction-related charges included above were:

Investment Income and Other $ 8,031   $ -  
Compensation and Benefits 823,705 236,228
Interest 2,352 -
General, Administrative and Other   40,685     7,200  

 

866,742

 

 

243,428

 

$

858,711

 

$

243,428

 

THE BLACKSTONE GROUP L.P.

Exhibit 1b.  Consolidated and Combined Statements of Income

(Dollars in Thousands, Except Per Unit Data)

 

   
Six Months Ended June 30,
2008   2007 % Variance
Revenues
Management and Advisory Fees $ 647,568 $ 789,096 (18 %)
Performance Fees and Allocations (202,409 ) 1,116,247 (118 %)
Investment Income and Other (1)   (22,984 )   273,153   (108 %)
Total Revenues   422,175     2,178,496   (81 %)
Expenses
Compensation and Benefits (1) 2,005,955 424,752 372 %
Interest (1) 8,433 26,302 (68 %)
General, Administrative and Other (1) 202,738 78,819 157 %
Fund Expenses   44,745     119,246   (62 %)
Total Expenses   2,261,871     649,119   248 %
Other Income (Loss)
Net Gains (Losses) from Fund Investment Activities   (25,958 )   5,396,825   (100 %)

Income (Loss) Before Non-Controlling Interests in Income (Loss) of Consolidated Entities and Provision (Benefit) for Taxes

 

(1,865,654 ) 6,926,202 (127 %)

Non-Controlling Interests in Income (Loss) of Consolidated Entities

 

  (1,433,426 )   5,008,215   (129 %)

Income (Loss) Before Provision (Benefit) for Taxes

 

(432,228 ) 1,917,987 (123 %)
Provision (Benefit) for Taxes   (24,704 )   11,560   (314 %)
Net Income (Loss) (1) $ (407,524 ) $ 1,906,427   (121 %)
June 19, 2007 through

June 30, 2007

Net Loss Per Common Unit, Basic and Diluted $ (1.57 ) $ (0.20 )
____________________

(1) Net transaction-related charges included above were:

Investment Income and Other $ 8,031   $ -  
Compensation and Benefits 1,742,676 236,228
Interest 2,352 -
General, Administrative and Other   74,213     7,200  

 

1,819,241

 

 

243,428  

 

$

1,811,210

 

$

243,428

 

THE BLACKSTONE GROUP L.P.

Exhibit 2.  Consolidated Statements of Financial Condition

(Dollars in Thousands)

 

  June 30,

2008

  December 31,

2007

Assets
Cash and Cash Equivalents $ 217,660 $ 868,629
Cash Held by Blackstone Funds 79,426 163,696
Investments 7,195,586 7,145,156
Accounts Receivable 243,865 213,086
Due from Brokers 658,894 812,250
Investment Subscriptions Paid in Advance 54,999 36,698
Due from Affiliates 1,249,954 855,854
Intangible Assets, Net 1,206,450 604,681
Goodwill 1,689,976 1,597,474
Other Assets 148,100 99,366
Deferred Tax Assets   745,008   777,310
Total Assets $ 13,489,918 $ 13,174,200
 
Liabilities and Partners' Capital
Loans Payable $ 378,056 $ 130,389
Amounts Due to Non-Controlling Interest Holders 734,802 269,901
Securities Sold, Not Yet Purchased 1,062,141 1,196,858
Due to Affiliates 1,040,911 831,609
Accrued Compensation and Benefits 291,443 188,997
Accounts Payable, Accrued Expenses

and Other Liabilities

  175,150   250,445
Total Liabilities   3,682,503   2,868,199
 
Commitments and Contingencies
 
Non-Controlling Interests in Consolidated Entities   5,806,592   6,079,156
 
Partners' Capital
Partners' Capital 3,999,764 4,226,500
Accumulated Other Comprehensive Income   1,059   345
Total Partners' Capital   4,000,823   4,226,845
Total Liabilities and Partners' Capital $ 13,489,918 $ 13,174,200

THE BLACKSTONE GROUP L.P.

Exhibit 3.  Condensed Consolidated and Combined Statements of Cash Flows

(Dollars in Thousands)

 

  Quarter Ended   Six Months Months Ended
June 30,

2008

  June 30,

2007

  March 31, 2008   March 31, 2007 June 30,

2008

  June 30,

2007

Operating Activities
Net Income (Loss) $ (156,531 ) $ 774,351 $ (250,993 ) $ 1,132,076 $ (407,524 ) $ 1,906,427
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by

(Used in) Operating Activities:

Net Cash Provided by (Used in) Operating Activities
Blackstone Funds Related:
Non-Controlling Interests in Income (Loss) of Consolidated Entities (556,261 ) 1,625,043 (788,477 ) 744,923 (1,344,738 ) 2,369,966
Net Realized (Gains) Losses on Investments (118,555 ) (2,424,334 ) 256 (1,050,641 ) (118,299 ) (3,474,975 )

Changes in Unrealized (Gains) Losses on Investments Allocable to Blackstone Group

(7,770 ) 507,239 62,823 (520,424 ) 55,053 (13,185 )
Non-Cash Performance Fees and Allocations 37,343 (483,101 ) 76,279 113,622 (483,101 )
Equity-Based Compensation Expense 805,597 236,228 914,671 1,720,268 236,228
Intangible Amortization 40,685 7,200 33,528 74,213 7,200
Other Non-Cash Amounts Included in Net Income 5,102 17,782 3,845 (13,007 ) 8,947 4,775
Cash Flows Due to Changes in Operating Assets and Liabilities: 55,230 (342,933 ) 311,656 289,160 366,886 (53,773 )
Blackstone Funds Related Investment Activity   (2,697 )   599,372     (248,434 )   (1,926,042 )   (251,131 )   (1,326,670 )
Net Cash Provided by (Used in) Operating Activities   102,143     516,847     115,154     (1,343,955 )   217,297     (827,108 )
Investing Activities
Net Cash Provided by (Used in) Investing Activities   20,210     (34,742 )   (388,918 )   (3,068 )   (368,708 )   (37,810 )
Financing Activities
Net Cash Provided by (Used in) Financing Activities   (577,272 )   825,897     77,714     1,342,302     (499,558 )   2,168,199  
Effect of Exchange Rate Changes on Cash and Cash Equivalents   (90 )   (388 )   90     1,027         639  

Net Increase (Decrease) in Cash and Cash Equivalents

(455,009 ) 1,307,614 (195,960 ) (3,694 ) (650,969 ) 1,303,920
Cash and Cash Equivalents, Beginning of Period   672,669     125,749     868,629     129,443     868,629     129,443  
Cash and Cash Equivalents, End of Period $ 217,660   $ 1,433,363   $ 672,669   $ 125,749   $ 217,660   $ 1,433,363  

THE BLACKSTONE GROUP L.P.

Exhibit 4a.  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.  Exhibit 4b includes the presentation of Economic Net Income for each of the periods for which Pro Forma Adjusted Economic Net Income is presented below.

 
  Quarter Ended     Quarter Ended   Six Months Ended June 30,
March 31, 2007   June 30,

2007

  September 30, 2007   December 31, 2007 Full Year 2007 March 31, 2008   June 30,

2008

  2008   2007
Pro Forma Adjusted 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 $ 66,967 $ 134,303 $ 121,719
Transaction and Other Fees * 9,128 56,044 48,711 64,188 178,071 10,837 19,161 29,998 65,172
Management Fee Offsets **   (8,231 )   (12,634 )   (20,892 )   (23,278 )   (65,035 )   (8,410 )   (15,232 )   (23,642 )   (20,865 )
Total Management Fees 59,758 106,268 94,208 107,645 367,879 69,763 70,896 140,659 166,026
Performance Fees and Allocations 122,934 (a) 230,424 (a) 109,051 (124,460 ) 337,949 (a) (163,430 ) 21,960 (141,470 ) 353,358
Investment Income (Loss) and Other   26,212   (a)   63,782   (a)   24,032     1,428     115,454   (a)   (23,050 )   (408 )   (23,458 )   89,994  
Total Segment Revenues   208,904     400,474     227,291     (15,387 )   821,282     (116,717 )   92,448     (24,269 )   609,378  
Expenses
Compensation and Benefits 33,383 (b) 44,782 (b) 56,319 (1,798 ) 132,686 (b) (80,752 ) 40,283 (40,469 ) 78,165
Other Operating Expenses   8,778   (c)   14,793   (c)   22,798     23,603     69,972   (c)   22,200     20,880     43,080     23,571  
Total Segment Expenses   42,161     59,575     79,117     21,805     202,658     (58,552 )   61,163     2,611     101,736  
Economic Net Income (Loss) $ 166,743   $ 340,899   $ 148,174   $ (37,192 ) $ 618,624   $ (58,165 ) $ 31,285   $ (26,880 ) $ 507,642  
 
Real Estate
Revenues
Management Fees
Base Management Fees $ 37,450 $ 59,876 $ 70,964 $ 61,053 $ 229,343 $ 66,751 $ 67,977 $ 134,728 $ 97,326
Transaction and Other Fees * 209,451 19,748 14,540 108,400 352,139 11,795 6,854 18,649 229,199
Management Fee Offsets       (691 )   (9,281 )   (1,745 )   (11,717 )   (404 )   (326 )   (730 )   (691 )
Total Management Fees 246,901 78,933 76,223 167,708 569,765 78,142 74,505 152,647 325,834
Performance Fees and Allocations 457,360 (a) 152,681 (a) 28,479 (39,062 ) 599,458 (a) (30,062 ) (77,133 ) (107,195 ) 610,041
Investment Income (Loss) and Other   62,511   (a)   83,501   (a)   4,398     (15,145 )   135,265   (a)   (176 )   (11,788 )   (11,964 )   146,012  
Total Segment Revenues   766,772     315,115     109,100     113,501     1,304,488     47,904     (14,416 )   33,488     1,081,887  
Expenses
Compensation and Benefits 98,523 (b) 36,486 (b) 39,325 65,416 239,750 (b) 35,688 32,083 67,771 135,009
Other Operating Expenses   4,735   (c)   5,541   (c)   12,639     27,575     50,490   (c)   16,160     12,581     28,741     10,276  
Total Segment Expenses   103,258     42,027     51,964     92,991     290,240     51,848     44,664     96,512     145,285  
Economic Net Income (Loss) $ 663,514   $ 273,088   $ 57,136   $ 20,510  

$

1,014,248

  $ (3,944 ) $ (59,080 ) $ (63,024 ) $ 936,602  
 

Marketable Alternative Asset Management

 

Revenues
Management Fees
Base Management Fees $ 61,097 $ 74,413 $ 87,999 $ 92,795 $ 316,304 $ 103,187 $ 127,449 $ 230,636 $ 135,510
Transaction and Other Fees *   1,871     1,189     1,694     1,876     6,630     1,128     2,884     4,012     3,060  
Total Management Fees 62,968 75,602 89,693 94,671 322,934 104,315 130,333 234,648 138,570
Performance Fees and Allocations 68,061 (a) 61,906 (a) 2,522 24,094 156,583 (a) 5,058 45,027 50,085 129,967
Investment Income (Loss) and Other   25,259   (a)   31,138   (a)   32,658     59,423     148,478   (a)   (79,383 )   49,885     (29,498 )   56,397  
Total Segment Revenues   156,288     168,646     124,873     178,188     627,995     29,990     225,245     255,235     324,934  
Expenses
Compensation and Benefits 59,374 (b) 78,268 (b) 34,006 45,692 217,340 (b) 56,273 84,162 140,435 137,642
Other Operating Expenses   8,898   (c)   13,511   (c)   17,779     22,205     62,393   (c)   18,307     25,158     43,465     22,409  
Total Segment Expenses   68,272     91,779     51,785     67,897     279,733     74,580     109,320     183,900     160,051  
Economic Net Income (Loss) $ 88,016   $ 76,867   $ 73,088   $ 110,291   $ 348,262   $ (44,590 ) $ 115,925   $ 71,335   $ 164,883  
 
Financial Advisory
Revenues
Advisory Fees $ 92,525 $ 97,518 $ 81,911 $ 88,330 $ 360,284 $ 68,563 $ 71,080 $ 139,643 $ 190,043
Investment Income and Other   1,684     1,034     2,354     2,302     7,374     2,597     1,826     4,423     2,718  
Total Segment Revenues   94,209     98,552     84,265     90,632     367,658     71,160     72,906     144,066     192,761  
Expenses
Compensation and Benefits 49,926 (b) 45,854 (b) 50,020 44,363 190,163 (b) 46,967 48,574 95,541 95,780
Other Operating Expenses   4,777   (c)   7,941   (c)   13,485     11,712     37,915   (c)   11,061     12,537     23,598     12,718  
Total Segment Expenses   54,703     53,795     63,505     56,075     228,078     58,028     61,111     119,139     108,498  
Economic Net Income $ 39,506   $ 44,757   $ 20,760   $ 34,557   $ 139,580   $ 13,132   $ 11,795   $ 24,927   $ 84,263  
 

Economic Net Income Recap, Total Reportable Segments

 

Revenues
Management Fees
Base Management Fees $ 157,408 $ 197,147 $ 225,352 $ 220,583 $ 800,490 $ 237,274 $ 262,393 $ 499,667 $ 354,555
Advisory Fees 92,525 97,518 81,911 88,330 360,284 68,563 71,080 139,643 190,043
Transaction and Other Fees * 220,450 76,981 64,945 174,464 536,840 23,760 28,899 52,659 297,431
Management Fee Offsets   (8,231 )   (13,325 )   (30,173 )   (25,023 )   (76,752 )   (8,814 )   (15,558 )   (24,372 )   (21,556 )
Total Management Fees 462,152 358,321 342,035 458,354 1,620,862 320,783 346,814 667,597 820,473
Performance Fees and Allocations 648,355 (a) 445,011 (a) 140,052 (139,428 ) 1,093,990 (a) (188,434 ) (10,146 ) (198,580 ) 1,093,366
Investment Income (Loss) and Other   115,666   (a)   179,455   (a)   63,442     48,008     406,571   (a)   (100,012 )   39,515     (60,497 )   295,121  
Total Segment Revenues   1,226,173     982,787     545,529     366,934     3,121,423     32,337     376,183     408,520     2,208,960  
Expenses
Compensation and Benefits 241,206 (b) 205,390 (b) 179,670 153,673 779,939 (b) 58,176 205,102 263,278 446,596
Other Operating Expenses   27,188   (c)   41,786   (c)   66,701     85,095     220,770   (c)   67,728     71,156     138,884     68,974  
Total Segment Expenses   268,394     247,176     246,371     238,768     1,000,709     125,904     276,258     402,162     515,570  
Total Economic Net Income (Loss) $ 957,779   $ 735,611   $ 299,158   $ 128,166  

$

2,120,714

  $ (93,567 ) $ 99,925   $ 6,358   $ 1,693,390  

____________________

* Transaction and Other Fees are net of amounts, if any, shared with limited partners.

** Primarily broken deal expenses.

(a) Pro Forma adjustments reflect the elimination of the revenues of the businesses that were not contributed as part of the Reorganization.

(b) Pro Forma adjustments reflect the addition of expenses related to employee compensation and profit arrangements that were not effective prior to the Reorganization.

(c) Pro Forma adjustments reflect the elimination of interest expense based on the assumption that the revolving credit facility was repaid in full from the proceeds of the offering and as of January 1, 2007.

THE BLACKSTONE GROUP L.P.

Exhibit 4b.  Economic Net Income

(Dollars in Thousands)

The table below details Blackstone's Economic Net Income for each reportable segment for the quarters ended March 31, 2007 and June 30, 2007 and the year ended December 31, 2007.

 
              Marketable Alternative
Corporate Private Equity Real Estate Asset Management
Quarter Ended Year Ended Quarter Ended Year Ended Quarter Ended   Year Ended
March 31, 2007   June 30,

2007

  December 31, 2007   March 31, 2007   June 30,

2007

  December 31, 2007   March 31, 2007   June 30,

2007

  December 31, 2007
Revenues  
Management Fees
Base Management Fees $ 58,861 $ 62,858 $ 254,843 $ 37,450 $ 59,876 $ 229,343 $ 61,097 $ 74,413 $ 316,304
Transaction and Other Fees 9,128 56,044 178,071 209,451 19,748 352,139 1,871 1,189 6,630
Management Fee Offsets   (8,231 )   (12,634 )   (65,035 )       (691 )   (11,717 )      
Total Management Fees 59,758 106,268 367,879 246,901 78,933 569,765 62,968 75,602 322,934
Performance Fees and Allocations 140,423 254,466 379,479 476,358 157,425 623,200 68,061 61,906 156,583
Investment Income and Other   27,096     65,415     117,971     63,472     83,853     136,578     25,261   31,138   148,479
Total Segment Revenues   227,277     426,149     865,329     786,731     320,211     1,329,543     156,290   168,646   627,996
Expenses
Compensation and Benefits 17,278 24,603 96,402 18,328 22,077 145,146 28,631 42,000 150,330
Other Operating Expenses   12,185     19,887     78,473     6,429     8,183     54,829     14,495   20,253   74,728
Total Segment Expenses   29,463     44,490     174,875     24,757     30,260     199,975     43,126   62,253   225,058
Economic Net Income $ 197,814   $ 381,659   $ 690,454   $ 761,974   $ 289,951   $ 1,129,568   $ 113,164 $ 106,393 $ 402,938
 
Financial Advisory Recap, Total Reportable Segments
Quarter Ended Year Ended Quarter Ended Year Ended
March 31, 2007 June 30,

2007

December 31, 2007 March 31, 2007 June 30,

2007

December 31, 2007
Revenues
Management Fees
Base Management Fees $ $ $ $ 157,408 $ 197,147 $ 800,490
Advisory Fees 92,525 97,518 360,284 92,525 97,518 360,284
Transaction and Other Fees 220,450 76,981 536,840
Management Fee Offsets               (8,231 )   (13,325 )   (76,752 )
Total Management Fees 92,525 97,518 360,284 462,152 358,321 1,620,862
Performance Fees and Allocations - 684,842 473,797 1,159,262
Investment Income and Other   1,684     1,034     7,374     117,513     181,440     410,402  
Total Segment Revenues   94,209     98,552     367,658     1,264,507     1,013,558     3,190,526  
Expenses
Compensation and Benefits 15,911 22,342 132,633 80,148 111,022 524,511
Other Operating Expenses   5,204     8,638     39,037     38,313     56,961     247,067  
Total Segment Expenses   21,115     30,980     171,670     118,461     167,983     771,578  
Economic Net Income $ 73,094   $ 67,572   $ 195,988   $ 1,146,046   $ 845,575   $ 2,418,948  

THE BLACKSTONE GROUP L.P.

Exhibit 5.  Reconciliation of Pro Forma Adjusted Cash Flow from Operations to Net Cash Provided by (Used in) Operating Activities and of Economic Net Income Adjusted UnitsDiluted to GAAP Weighted-Average Common UnitsDiluted

(Dollars in Thousands, Except Unit Data)

he following table provides a reconciliation of Blackstones Adjusted Cash Flow from Operations and Pro Forma Adjusted Cash Flow from Operations to Blackstone's Net Cash Provided by (Used in) Operating Activities. Adjusted Cash Flow from Operations is a supplemental measure of liquidity to assess liquidity and amounts available for distributions to Blackstone unitholders, including Blackstone personnel.

 
Three Months Ended June 30,   Six Months Ended June 30,
  2008       2007       2008       2007  
Net Cash Provided by (Used in) Operating Activities $ 102,143 $ 516,847 $ 217,297 $ (827,108 )
Changes in Operating Assets and Liabilities (55,230 ) 342,933 (366,886 ) 53,773
Blackstone Funds Related Investment Activities 2,697 (599,372 ) 251,131 1,326,670
Net Realized Gains on Investments 118,555 2,424,334 118,299 3,474,975
Non-Controlling Interests in Income of Consolidated Entities 556,261 (1,625,043 ) 1,344,738 (2,369,966 )
Realized Gains - Blackstone Funds  

44,089

    120,448    

20,235

    97,855  
Adjusted Cash Flow from Operations

768,515

1,180,147

1,584,814

1,756,199
 
Pro Forma Pro Forma
Adjusted Cash Flow from Operations

768,515

1,180,147

1,584,814

1,756,199
Cash Flow from Operations - Adjustments (a)
Elimination of Non-Contributed Entities (b) - (21,008 ) - (46,523 )
Increase in Compensation Expense (c) - (94,369 ) - (255,426 )
Interests Held by Blackstone Holdings Limited Partners (d) (573,279 ) (169,833 ) (1,372,626 ) (169,833 )
Eliminate Interest Expense (e) - 15,180 - 26,302
Realized Gains - Blackstone Funds - (193,094 ) - (195,817 )
Incremental Cash Tax Effect (f)   (33,711 )   (48,689 )   (55,065 )   (154,024 )
Adjusted Cash Flow from Operations $

161,525

  $ 668,334   $

157,123

  $ 960,878  

_________________________

(a) Pro Forma Adjusted Cash Flow from Operations is based upon historical results of operations and gives effect to the pre-initial public offering reorganization and the initial public offering as if they were completed as of January 1, 2007. These pro forma adjustments are consistent with Rule 11.01 of Regulation SX.

(b) Represent adjustments to eliminate from Pro Forma Adjusted Cash Flow from Operations the cash flows of the businesses that were not contributed as part of the reorganization.

(c) Represent adjustments to reflect in Pro Forma Adjusted Cash Flow from Operations the cash portion of expenses related to employee compensation that were not effective prior to the reorganization as well as vested carried interest for departed partners.

(d) Represents an adjustment to add back net income (loss) allocable to interest holders of Blackstone Holdings Limited Partners after the Reorganization recorded as Non-Controlling Interests.

(e) Represent adjustments to eliminate interest expense in Pro Forma Adjusted Cash Flow from Operations on the assumption that the revolving credit facility was repaid in full from the proceeds of the offering.

(f) Represent the provisions for and/or adjustments to income taxes that were calculated using the same methodology applied in calculating such amounts for the period after the reorganization.

The following table provides a reconciliation of Blackstone's GAAP Weighted-Average Common UnitsDiluted to Weighted-Average Economic Net Income Adjusted UnitsDiluted.

 
  Three Months   Six Months   June 19, 2007
Ended Ended through
June 30, 2008 June 30, 2008 June 30, 2007
GAAP Weighted-Average Common Units Outstanding - Diluted 260,394,534 260,127,602

259,504,480

Adjustments:
Weighted-Average Partnership Units

836,010,555

833,995,410

827,516,625

Weighted-Average Unvested Deferred Restricted Common Units 34,559,729 34,995,854

34,230,122

Weighted-Average Economic Net Income Adjusted Units - Diluted

1,130,964,818

1,129,118,866

1,121,251,227

THE BLACKSTONE GROUP L.P.

Exhibit 6.  Supplemental Metrics

(Dollars in Thousands)

 
  As of and for the Quarters Ended June 30,  
2008   2007 % Variance
Total Assets Under Management
(End of Period)
Corporate Private Equity $ 30,299,340 $ 31,758,025 (5 %)
Real Estate 29,176,414 23,060,599 27 %
MAAM   59,937,279   36,950,246 62 %
$ 119,413,033 $ 91,768,870 30 %
Fee-Earning Assets Under Management
(End of Period) (a)
Corporate Private Equity $ 25,229,438 $ 23,611,474 7 %
Real Estate 21,084,770 15,089,702 40 %
MAAM   53,414,459   34,319,376 56 %
$ 99,728,667 $ 73,020,552 37 %
Weighted-Average Fee-Earning
Assets Under Management
(For the Quarter Ended) (a)
Corporate Private Equity $ 25,076,359 $ 23,483,800 7 %
Real Estate 19,171,496 15,294,258 25 %
MAAM   52,123,029   32,680,550 59 %
$ 96,370,884 $ 71,458,608 35 %
Limited Partner Capital Deployed
(For the Quarter Ended)
Corporate Private Equity $ 775,944 $ 1,603,508 (52 %)
Real Estate 209,779 71,088 195 %
MAAM (b)   808,875   55,318 1362 %
$ 1,794,598 $ 1,729,914 4 %
Fund Level Unrealized Value (c)
(End of Period)
Corporate Private Equity
Cost $ 15,646,836 $

10,972,121

43 %
Unrealized Value $ 17,355,494 $

14,716,870

18

%
Real Estate
Cost $ 11,114,394 $ 6,650,861 67 %
Unrealized Value $ 15,038,501 $ 11,531,535 30 %
MAAM (b)
Cost $ 1,862,250 $ 611,530 205 %
Unrealized Value $ 2,002,163 $ 646,133 210 %

_________________________

(a) Excludes unrealized values which Blackstone is entitled to receive in carried interest.

(b) Limited Partner Capital Deployed and Fund Level Unrealized Value for the MAAM segment represent activity in Blackstones mezzanine and credit liquidity funds.

(c) Cost and unrealized value represents the cost of those fund investments, including co-investments arranged by Blackstone, and related unrealized value on which Blackstone is entitled to receive carried interest when a fund achieves cumulative investment returns in excess of a specified rate.

Contacts

The Blackstone Group
Investor Relations:
Joan Solotar, +1-212-583-5068
solotar@blackstone.com
or
Media Relations:
Peter Rose, +1-212-583-5871
rose@blackstone.com

Sharing

Contacts

The Blackstone Group
Investor Relations:
Joan Solotar, +1-212-583-5068
solotar@blackstone.com
or
Media Relations:
Peter Rose, +1-212-583-5871
rose@blackstone.com