Blackstone Reports Third Quarter 2011 Results

Economic Net Income was a loss of $342 million for the third quarter of 2011, down from net income of $339 million for the third quarter of 2010. Economic Net Income was $929 million for the nine months ended September 30, 2011, up 3% from 2010.

Distributable Earnings were $120 million for the third quarter of 2011, down from $166 million in the third quarter of 2010. Distributable Earnings were $501 million for the nine months ended September 30, 2011, up 8% from 2010.

GAAP Results Attributable to The Blackstone Group L.P. included a net loss of $275 million in the third quarter of 2011, compared to a net loss of $44 million in the third quarter of 2010, in each case including net IPO and acquisition-related accounting charges.

Fee-Earning Assets Under Management increased 27% to a record $133 billion at September 30, 2011, from $104 billion at September 30, 2010, while Total Assets Under Management increased 32% to $158 billion at September 30, 2011.

Blackstone’s GSO Capital Partners Acquires Harbourmaster Capital.

Blackstone declares a quarterly distribution of $0.10 per common unit.

NEW YORK--()--The Blackstone Group L.P. (NYSE: BX) today reported its third quarter 2011 results.

Economic Net Income (“ENI”) was a loss of $341.9 million for the third quarter of 2011, a decrease of $681.2 million compared to ENI for the third quarter of 2010. The decrease in ENI compared to the third quarter of 2010 was principally due to market-driven declines in the carrying value of assets as of September 30, 2011 across Blackstone’s investment segments, partially offset by an increase of $66.4 million, or 18%, in Management and Advisory Fees to $442.6 million for the third quarter of 2011. However, since September 30, 2011, U.S. and European markets have rebounded. ENI was $929.4 million for the nine months ended September 30, 2011, an increase of $24.5 million compared to ENI for the nine months ended September 30, 2010 of $904.9 million, primarily attributable to increases in Performance Fees net of applicable compensation and Total Management and Advisory Fees.

Driven both by net inflows and investment appreciation during the last year, Blackstone’s managed assets demonstrated consistently strong growth with Fee-Earning Assets Under Management rising to a record $132.9 billion and Total Assets Under Management rising to $157.7 billion at September 30, 2011. The Blackstone funds had $33.4 billion of committed but uninvested capital, or “dry powder”, at the end of the third quarter of 2011, a record level.

For the third quarter of 2011, Total Segment Revenues were $(140.3) million, down from $792.2 million in the third quarter of 2010, due to lower Performance Fees in the Private Equity, Real Estate and Credit Businesses segments and lower Investment Income. Total Management Fees increased to $442.6 million, up 18% from $376.2 million in the prior year’s third quarter, principally from the increase in Fee-Earning Assets Under Management.

Total Segment Expenses were $239.9 million for the third quarter of 2011, a decrease from $424.1 million for the third quarter of 2010, primarily due to the reversal of accruals for Performance Fee Compensation of $230.2 million to $(100.9) million for the third quarter of 2011. Compensation, excluding Performance Fee Compensation, was up 16% to $243.8 million principally as a result of increased personnel. Blackstone’s non-compensation expenses were up 15% from the third quarter of 2010 driven mostly by financing activities and occupancy costs related to continuing global expansion.

GAAP results for the third quarter of 2011 included Revenues of $(124.1) million, compared to $784.0 million for the third quarter of 2010, and Net Loss Attributable to The Blackstone Group L.P. of $274.6 million, compared to a net loss of $44.4 million for the third quarter of 2010.

Stephen A. Schwarzman, Chairman and Chief Executive Officer, said, “The third quarter presented extremely challenging market conditions, dominated by risk aversion and volatility. While our earnings were not immune to the sharp downward trajectory of global markets, our limited partner investors affirmed their confidence in our world-leading businesses and increased their share of funds with us. We reported net inflows in all of our businesses and grew fee-earning assets under management to a firm record $133 billion, up nearly 30% year over year. During the quarter we capitalized on the significant dislocation in the market and invested $4.8 billion in total capital, our highest level of investment activity since 2007, sowing the seeds for strong future returns.”

The table below details Blackstone’s ENI, Net Fee Related Earnings from Operations, Distributable Earnings and Fee-Earning Assets Under Management as of, and for, the three and nine months ended September 30, 2011 and 2010. ENI, Total Segments includes unrealized gains (losses) and the direct compensation impact related to those gains (losses), but excludes IPO and acquisition-related accounting charges.

      As of and for the Three                   Nine Months Ended            
Months Ended September 30, Variance September 30, Variance

2011

     

2010

$

%

2011

      2010 $ %
(Dollars in Thousands, Except per Unit Amounts)
Economic Net Income (Loss),
Total Segments $ (380,183 ) $ 368,091 $

(748,274

)

N/M $ 1,084,854 $ 974,664 $ 110,190 11 %
Provision (Benefit) for
Income Taxes (a)   (38,258 )   28,812   (67,070 ) N/M     155,416   69,752   85,664 123 %
Economic Net Income (Loss),
After Taxes $ (341,925 ) $ 339,279 $ (681,204

)

N/M   $ 929,438 $ 904,912 $ 24,526 3 %
 
Economic Net Income (Loss),
After Taxes per Adjusted

Unit (b)

$

(0.31

) $

0.31

$

(0.62

) N/M   $

0.84

$

0.82

$ 0.02 2 %
Net Fee Related Earnings from
Operations $ 102,009   $ 112,914 $ (10,905 ) -10 % $ 332,406 $ 319,574 $ 12,832 4 %
Distributable Earnings $

120,112

  $ 166,316 $

(46,204

)

-28

% $

501,193

$ 462,587 $

38,606

8

%
Distributable Earnings
per Common Unit (c) $

0.10

  $ 0.15 $

(0.05

)

-33

% $

0.43

$ 0.42 $

0.01

2

%
 
Fee-Earning Assets Under
Management:

Private Equity

$ 37,006,024 $ 24,311,443 $ 12,694,581 52 %

Real Estate

29,981,920 24,345,161 5,636,759 23 %

Hedge Fund Solutions

37,231,013 31,760,599 5,470,414 17 %

Credit Businesses

  28,715,420     23,875,979   4,839,441   20 %
Total Fee-Earning Assets
Under Management $ 132,934,377   $ 104,293,182 $ 28,641,195   27 %

_________________________________

(a) Represents the implied provision for income taxes calculated using a similar methodology applied in calculating the tax provision for The Blackstone Group L.P.

(b) Adjusted Units represents the weighted-average unit count for Economic Net Income purposes. A reconciliation of this item to the comparable GAAP measure is presented in Exhibit 4 to this release.

(c) See Exhibit 4 for the calculation of Distributable Earnings Units Outstanding.

SEGMENT REVIEW

Private Equity

Private Equity had revenues of $(285.1) million for the third quarter of 2011 compared to $214.9 million in 2010. Revenues were $387.9 million for the nine months ended September 30, 2011, compared with revenues of $575.6 million in the same period of 2010. The decrease from the third quarter of 2010 was principally due to decreases in Performance Fees and Investment Income of $378.3 million and $141.6 million, respectively.

The carrying value of assets in contributed Private Equity funds declined by 10.9% for the third quarter of 2011. The carrying value of the segment’s publicly held investments was reduced due to a significant drop in global equities markets during the quarter and lower values of foreign currencies in relation to the U.S. dollar. The segment’s privately held investments declined in carrying value to a lesser extent due to continued strong operating performance of the underlying portfolio companies. For the first two quarters of 2011, the latest available quarterly financial information, growth in revenue and EBITDA of the portfolio companies averaged approximately 12% and 10%, respectively. Private Equity’s portfolio companies continue to exhibit generally positive revenue and earnings growth. As of September 30, 2011, the unrealized value and cumulative realized proceeds, before carried interest, fees and expenses, for Blackstone’s contributed Private Equity funds was 1.4 times investors’ original investments. On a realized/partially realized basis, this multiple was 2.3 times investors' original investments.

Economic Net Income was a loss of $319.5 million for the third quarter of 2011, down from income of $111.9 million for the third quarter of 2010, primarily a result of lower Performance Fees and Investment Income.

Fee-Earning Assets Under Management were $37.0 billion compared to $24.3 billion in the third quarter of 2010 principally due to the commencement of the investment period for BCP VI.

Dry powder for Private Equity, which is inclusive of amounts related to BCP VI, was $16.9 billion as of September 30, 2011. Limited Partner Capital Invested during the third quarter of 2011 totaled $1.4 billion, an increase from $678.9 million during the third quarter of 2010. Blackstone’s Private Equity segment’s funds had $689.8 million of Limited Partner Capital committed to transactions which had not yet closed as of September 30, 2011.

Real Estate

Real Estate had revenues of $(15.2) million for the third quarter of 2011, compared with revenues of $257.8 million for the third quarter of 2010. Real Estate had nine-month revenues of $1.2 billion, compared with revenues of $618.4 million in the same period of 2010. The decrease from the third quarter of 2010 was principally due to decreases in Performance Fees and Investment Income of $189.8 million and $104.9 million, respectively.

The carrying value of assets in contributed Real Estate funds, including co-investments, increased 0.1% for the third quarter of 2011. The segment’s properties continued to demonstrate solid growth in revenue and net operating income. For the third quarter of 2011, RevPAR (Revenue per Available Room) of Blackstone’s investments increased between 6% and 8% year over year. Occupancy levels and rental rates within the office portfolio increased 130 basis points and 11%, respectively, compared to the prior year. In addition, retail sales in mall investments were up 8% and leasing activity increased 40% at the grocery anchored strip centers, compared to the prior year. The decrease in Performance Fees and Investment Income was primarily related to the decline in the public markets, which impacted the segment’s public stock holdings and certain hospitality investments along with the negative impact of foreign exchange. Offsetting these factors was an increase in the value of the retail portfolio. A material portion of the decrease in Performance Fees was due to the reversal of previously recognized profit allocations, amplified by the “catch-up” provisions of the funds. As of September 30, 2011, the unrealized value and cumulative realized proceeds, before carried interest, fees and expenses, of Blackstone’s Real Estate funds represented 1.4 times investors’ original investment. On a realized/partially realized basis, this multiple was 2.2 times investors’ original investments.

ENI for the Real Estate segment was a loss of $65.7 million for the third quarter of 2011 compared to income of $148.0 million for the third quarter of 2010, driven principally by the decrease in Performance Fees and Investment Income.

Fee-Earning Assets Under Management were $30.0 billion compared to $24.3 billion for the third quarter of 2010. Fee-Earning Assets Under Management increased in the third quarter of 2011 principally due to Blackstone’s next major real estate fund, BREP VII, which had its first closing of $4 billion of committed capital in August 2011.

Dry powder for Real Estate, which is inclusive of amounts related to BREP VII, was $10.1 billion as of September 30, 2011. Limited Partner Capital Invested during the third quarter of 2011 was $1.7 billion, up from $689.0 million during the third quarter of 2010. Blackstone’s Real Estate segment’s funds had $264.9 million of Limited Partner Capital committed to transactions which had not yet closed as of September 30, 2011.

Hedge Fund Solutions

Hedge Fund Solutions had revenues of $57.2 million for the third quarter of 2011, compared with revenues of $94.6 million for the third quarter of 2010. The decrease in revenues from the third quarter of 2010 was principally due to decreases in Performance Fees and Investment Income of $29.1 million and $17.9 million, respectively, partially offset by an increase in Total Management Fees of 14% to $79.8 million for the third quarter of 2011. Hedge Fund Solutions had nine-month revenues of $247.2 million, compared with revenues of $247.6 million in the same period of 2010.

The returns for the underlying assets for Blackstone’s Hedge Fund Solutions’ funds were negative 4.1% for the third quarter of 2011, a result of the return of turbulent markets.

ENI for the Hedge Funds Solutions segment decreased by 67% to $16.5 million for the third quarter of 2011 compared to $49.4 million for the third quarter of 2010, driven principally by the decreases in Performance Fees and Investment Income.

Fee-Earning Assets Under Management for the segment grew 17% to $37.2 billion from $31.8 billion at the end of the third quarter of 2010. The increase from the prior year period was principally due to net inflows across the segment. Net inflows for Blackstone’s Hedge Fund Solutions business came primarily from its commingled and customized investment products, hedge fund manager seeding platform and long only solutions business. Hedge Fund Solutions had $2.4 billion of net inflows of Fee-Earning Assets Under Management for the third quarter of 2011, bringing year to date net fee-earning inflows to $6.1 billion.

Credit Businesses

Credit Businesses had revenues of $15.4 million for the third quarter of 2011, compared with revenues of $137.1 million for the third quarter of 2010. The decrease from the third quarter of 2010 was due to a decrease in Performance Fees to $(40.3) million for the third quarter of 2011, partially offset by an increase in Total Management Fees of 17% to $59.5 million driven by an increase in Fee-Earning Assets Under Management. Credit Businesses had nine-month revenues of $269.9 million, compared with revenues of $313.1 million in the same period of 2010. The net decrease from 2010 was driven by the same reasons noted above.

The returns of the underlying assets for Blackstone’s credit-oriented businesses for the third quarter of 2011 was negative 5.0% for the hedge funds, negative 9.9% for the rescue lending funds, due in each case to broad declines in public debt markets, and positive 7.1% for the mezzanine funds due primarily to favorable realizations of certain investments.

ENI for the Credit Businesses segment was a loss of $17.0 million for the third quarter of 2011 compared to income of $54.9 million for the third quarter of 2010 driven, principally by the decrease in Performance Fees.

Fee-Earning Assets Under Management for the segment increased 20%, or $4.8 billion, to $28.7 billion from $23.9 billion for the third quarter of 2010. Of the $4.8 billion increase, the long only platform had its strongest year over year growth including the acquisition of Allied Irish Bank’s CLOs in the second quarter of 2011. Also driving the increase in Fee-Earning Assets Under Management was $1.3 billion of Limited Partner Capital Deployed from the mezzanine funds and rescue lending funds in the third quarter of 2011.

Dry powder of drawdown funds for the Credit Businesses segment was $4.7 billion as of September 30, 2011.

On October 6, 2011, GSO Capital Partners LP (“GSO”), the global credit platform of Blackstone, announced the acquisition of Harbourmaster Capital, a European leveraged loan manager and adviser with $10.3 billion of Assets Under Management as of September 30, 2011. The Harbourmaster Capital Dublin-based team will continue to support the Harbourmaster funds, and will form a combined platform with GSO’s existing European leveraged loan business to develop new European focused funds for their global investor base. As of September 30, 2011, the combined GSO and Harbourmaster European leveraged loan platform would have been $15.2 billion in Assets Under Management supported by a combined team of 40 professionals in both Dublin and London. The transaction is expected to close in early 2012 following regulatory and certain third party approvals.

Financial Advisory

Revenues were relatively flat at $87.4 million for the third quarter of 2011 compared to $87.7 million for the third quarter of 2010. Revenues were $264.6 million for the nine months ended September 30, 2011, a decrease from $300.8 million in the same period of 2010.

ENI was $5.6 million for the third quarter of 2011 compared to $3.9 million for the third quarter of 2010.

CAPITAL AND LIQUIDITY

As of September 30, 2011, Blackstone had $1.8 billion in cash, Treasury cash management strategies and liquid Blackstone funds. Long-term debt totaled $1.0 billion in borrowings from the 2010 and 2009 bond issuances. Blackstone has no borrowings outstanding against its $1 billion revolving credit facility.

DISTRIBUTION

The Blackstone Group L.P. has declared a quarterly distribution of $0.10 per common unit to record holders of common units at the close of business on November 15, 2011. This distribution will be paid on November 30, 2011.

Blackstone’s general partner maintains the right to determine the amount to be distributed from The Blackstone Group L.P.’s net after-tax share of its annual Distributable Earnings. Distributable Earnings will only be a starting point for the determination of the amount to be distributed to unitholders because in determining the amount to be distributed Blackstone will subtract from Distributable Earnings any amounts determined by its general partner to be necessary or appropriate to provide for the conduct of its business, to make appropriate investments in its business and funds, to comply with applicable law, any of its debt instruments or other agreements, or to provide for future distributions to its unitholders for any ensuing quarter. The aggregate amounts of Blackstone’s distributions to unitholders will typically be less than its Distributable Earnings for that year.

Although for calendar 2010 Blackstone distributed substantially all of its net after-tax annual Distributable Earnings, Blackstone’s current intention is to distribute to its common unitholders substantially all of The Blackstone Group L.P.’s net after-tax share of annual Distributable Earnings less the amount of its realized investment gains. This determination was made based on the continued pace of organic and inorganic growth and the potential for further strategic initiatives and the retained amount will be used for those purposes. The retained cash will be deducted from the fourth quarter distribution which is made in the first quarter of the ensuing calendar year. Distributions for the first three quarters will remain unchanged at $0.10 per unit. All distributions are subject to Blackstone’s discretion to retain additional amounts from the amount of annual Distributable Earnings to be distributed as described above.

Because Blackstone will not know what its Distributable Earnings will be for any fiscal year until the end of such year, Blackstone expects that its first three quarterly distributions in respect of any given year will be based on its anticipated annualized Net Fee Related Earnings. As such, the distributions for the first three quarters are expected to be smaller than the final quarterly distribution in respect of such year. For the fourth quarter of 2011 Blackstone expects to pay the remaining amount of the year’s Distributable Earnings less realized investment gains.

All of the foregoing is subject to the qualification that the declaration and payment of any distributions are at the sole discretion of Blackstone’s general partner and the general partner may change its distribution policy at any time.

Because the wholly-owned subsidiaries of The Blackstone Group L.P. must pay taxes and make payments under the tax receivable agreements described in Blackstone’s Annual Report on Form 10-K, the amounts ultimately distributed by The Blackstone Group L.P. to its common unitholders in respect of fiscal 2011 and subsequent years are expected to be different, on a per unit basis, than the amounts distributed by the Blackstone Holdings partnerships to the Blackstone personnel and others who are limited partners of the Blackstone Holdings partnerships in respect of their Blackstone Holdings partnership units.

Blackstone will host a conference call on October 20, 2011 at 11:00 a.m. ET to discuss third quarter 2011 results. The conference call can be accessed by dialing (877) 261-8937 (U.S. domestic) or +1 (857) 244-7415 (international) pass code 14994355. 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 +1 (617) 801-6888 (international) conference ID number 60737059, beginning approximately two hours after the event.

Blackstone expects to host a conference call to report its 2011 fourth quarter and full year results on February 2, 2012.

About The Blackstone Group

Blackstone (NYSE:BX) is one of the world’s leading investment and advisory firms. Blackstone seeks to create positive economic impact and long-term value for its investors, the companies they invest in, the companies they advise and the broader global economy. Blackstone does this through the commitment of their extraordinary people and flexible capital. Their alternative asset management businesses include the management of private equity funds, real estate funds, hedge fund solutions, credit-oriented funds and closed-end mutual funds. Blackstone also provides various financial advisory services, including financial and strategic advisory, restructuring and reorganization advisory and fund placement services. Further information is available at www.blackstone.com. Follow us on Twitter @Blackstone.

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, 2010, 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 filings. 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 Statements of Operations
(Dollars in Thousands, Except Per Unit Data)
 
Quarter Ended September 30,
2011 2010
Revenues
Management and Advisory Fees $ 425,193   $ 362,521  
Performance Fees
Realized

6,605

66,142
Unrealized  

(462,902

)

  199,824  
Total Performance Fees   (456,297 )   265,966  

Investment Income (Loss)

Realized 45,596 13,542
Unrealized   (145,990 )   127,428  

Total Investment Income (Loss)

  (100,394 )   140,970  
Interest and Dividend Revenue 9,085 10,075
Other   (1,666 )   4,468  
Total Revenues   (124,079 )   784,000  
Expenses
Compensation and Benefits
Compensation 494,478 664,004
Performance Fee Compensation
Realized

10,542

24,962
Unrealized  

(111,435

)

  104,324  

Total Compensation and Benefits

393,585 793,290
General, Administrative and Other 124,929 114,291
Interest Expense 13,785 11,766
Fund Expenses   8,635     6,422  
Total Expenses   540,934     925,769  
Other Income
Net Gains (Losses) from Fund Investment Activities   (329,399 )   285,071  

Income (Loss) Before Benefit for Taxes

(994,412 ) 143,302

Benefit for Taxes

 

7,637

 

 

4,225

 

Net Income (Loss) (986,775 ) 147,527
Net Income (Loss) Attributable to Redeemable
Non-Controlling Interests in Consolidated Entities (44,776 ) 23,623
Net Income (Loss) Attributable to Non-Controlling Interests
in Consolidated Entities (265,353 ) 242,723

Net Loss Attributable to Non-Controlling Interests

in Blackstone Holdings   (402,079 )   (74,461 )
Net Income (Loss) Attributable to The Blackstone Group L.P. $ (274,567 ) $ (44,358 )
Net Income (Loss) per Common Unit, Basic and Diluted $ (0.56 ) $ (0.12 )
           
THE BLACKSTONE GROUP L.P.
Exhibit 1b. Consolidated Statements of Operations
(Dollars in Thousands, Except Per Unit Data)
 
Nine Months Ended
September 30,
2011 2010
Revenues
Management and Advisory Fees $ 1,335,971   $ 1,123,403  
Performance Fees
Realized

164,571

171,941
Unrealized  

659,987

    312,304  
Total Performance Fees   824,558     484,245  
Investment Income
Realized 77,682 29,493
Unrealized   70,116     371,691  
Total Investment Income   147,798     401,184  
Interest and Dividend Revenue 27,423 25,922
Other   1,721     573  
Total Revenues   2,337,471     2,035,327  
Expenses
Compensation and Benefits
Compensation 1,853,393 2,556,665
Performance Fee Compensation
Realized

52,797

55,582
Unrealized  

169,188

    158,032  

Total Compensation and Benefits

2,075,378 2,770,279
General, Administrative and Other 380,433 341,853
Interest Expense 41,773 26,633
Fund Expenses   19,045     15,484  
Total Expenses   2,516,629     3,154,249  
Other Income
Net Gains (Losses) from Fund Investment Activities   (449,244 )   397,625  
Income (Loss) Before Provision for Taxes (628,402 ) (721,297 )
Provision for Taxes   95,412     24,802  
Net Income (Loss) (723,814 ) (746,099 )

Net Income (Loss) Attributable to Redeemable Non-Controlling

Interests in Consolidated Entities (22,891 ) 47,171
Net Income (Loss) Attributable to Non-Controlling Interests
in Consolidated Entities (450,842 ) 320,816
Net Income (Loss) Attributable to Non-Controlling Interests

in Blackstone Holdings

  (104,455 )   (755,031 )
Net Income (Loss) Attributable to The Blackstone Group L.P. $ (145,626 ) $ (359,055 )
Net Income (Loss) per Common Unit, Basic and Diluted $ (0.31 ) $ (1.02 )
 
 

THE BLACKSTONE GROUP L.P.

Exhibit 2a. Economic Net Income and Net Fee Related Earnings from Operations

(Dollars in Thousands)

The tables below detail Blackstone’s Economic Net Income and Net Fee Related Earnings from Operations. Net Fee Related Earnings from Operations is a supplemental measure of after tax
performance used to highlight earnings from operations excluding the income from and related profit sharing expenses of Blackstone’s performance fees and investment income, except for
interest income. The reconciliation of Economic Net Income to Net Fee Related Earnings from Operations is presented in Exhibit 2b to this release.

                                                                     
Three Months Ended   Nine Months Ended
Mar 31, Jun 30, Sep 30, Dec 31, Mar 31, Jun 30,

Sep 30,

Sep 30, 2011 vs.
Sep 30, 2010

Sep 30, Sep 30,
2010 2010 2010 2010 2011 2011 2011 $ % 2010 2011
Economic Net Income, Total Segments
Revenues
Management and Advisory Fees
Base Management Fees $ 251,971 $ 262,914 $ 269,434 $ 285,152 $ 305,587 $ 316,474 $ 322,371 $ 52,937 20 % $ 784,319 $ 944,432
Advisory Fees 76,568 134,099 84,541 130,932 70,252 102,243 86,178 1,637 2 % 295,208 258,673
Transaction and Other Fees, Net * 35,260 20,617 22,948 58,923 58,363 103,561 41,793 18,845 82 % 78,825 203,717
Management Fee Offsets **   (1,178 )   (179 )   (674 )   (282 )   (8,536 )   (8,675 )   (7,703 )   (7,029 ) N/M     (2,031 )   (24,914 )
Total Management and Advisory Fees   362,621     417,451     376,249     474,725     425,666     513,603     442,639     66,390   18 %   1,156,321     1,381,908  
Performance Fees
Realized 53,881 46,374 66,039 195,369 95,600 60,215

7,897

(58,142

)

-88

% 166,294

163,712

Unrealized   132,333     (20,738 )   192,745     260,286     505,197     612,843    

(465,176

)

 

(657,921

)

N/M     304,340    

652,864

 
Total Performance Fees   186,214     25,636     258,784     455,655     600,797     673,058     (457,279 )   (716,063 ) N/M     470,634     816,576  
Investment Income (Loss)
Realized 5,307 15,721 14,276 11,611 23,499 30,732 31,647 17,371 122 % 35,304 85,878
Unrealized   151,521     87,186     128,247     134,680     102,577     106,837     (165,753 )   (294,000 ) N/M     366,954     43,661  
Total Investment Income (Loss) 156,828 102,907 142,523 146,291 126,076 137,569 (134,106 ) (276,629 ) N/M 402,258 129,539
Interest Income and Dividend Revenue 8,690 6,930 10,187 10,289 9,448 9,283 10,110 (77 ) -1 % 25,807 28,841
Other   (3,250 )   (644 )   4,468     (1,192 )   2,259     1,128     (1,667 )   (6,135 ) N/M     574     1,720  
Total Revenues   711,103     552,280     792,211     1,085,768     1,164,246     1,334,641     (140,303 )   (932,514 ) N/M     2,055,594     2,358,584  
Expenses
Compensation and Benefits
Compensation 190,637 220,662 210,582 237,233 229,898 278,738 243,840 33,258 16 % 621,881 752,476
Performance Fee Compensation
Realized 7,741 22,879 24,962 72,734 14,543 27,711

10,543

14,419

 

-58

% 55,582

52,797

Unrealized   54,600     (892 )   104,323     70,615     162,525     118,097    

111,435

 

 

215,758

 

N/M     158,031    

169,187

 
Total Compensation and Benefits 252,978 242,649 339,867 380,582 406,966 424,546 142,948 (196,919 ) -58 % 835,494 974,460
Other Operating Expenses   73,023     88,160     84,253     99,080     102,975     99,363     96,932     12,679   15 %   245,436     299,270  
Total Expenses   326,001     330,809     424,120     479,662     509,941     523,909     239,880     (184,240 ) -43 %   1,080,930     1,273,730  
Total Economic Net Income (Loss) $ 385,102   $ 221,471   $ 368,091   $ 606,106   $ 654,305   $ 810,732   $ (380,183 ) $ (748,274 ) N/M   $ 974,664   $ 1,084,854  
 
Total Net Fee Related Earnings from Operations $ 98,745   $ 107,915   $ 112,914   $ 122,740   $ 93,180   $ 137,217   $ 102,009   $ (10,905 ) -10 % $ 319,574   $ 332,406  
 
 
* Transaction and Other Fees, Net, are net of amounts, if any, shared with limited partners including, for Private Equity, broken deal expenses.
** Primarily placement fees.

continued...

           
THE BLACKSTONE GROUP L.P.
Exhibit 2a. Economic Net Income and Net Fee Related Earnings from Operations - Continued
(Dollars in Thousands)  
 
Three Months Ended   Nine Months Ended
                                            Sep 30, 2011 vs.      
Mar 31, Jun 30, Sep 30, Dec 31, Mar 31, Jun 30, Sep 30, Sep 30, 2010 Sep 30, Sep 30,
2010 2010 2010 2010 2011   2011   2011   $       % 2010 2011
Private Equity
Revenues
Management Fees
Base Management Fees $ 65,432 $ 66,795 $ 66,077 $ 65,003 $ 79,935 $ 82,297 $ 85,534 $ 19,457 29 % $ 198,304 $ 247,766
Transaction and Other Fees, Net * 31,972 16,367 13,348 10,556 35,342 52,353 21,430 8,082 61 % 61,687 109,125
Management Fee Offsets **    

 

(91

)

  (97 )   (7,889 )   (7,629 )   (6,498 )   (6,407 )

N/M

    (91 )  

(22,016

)

Total Management Fees   97,404     83,162     79,334     75,462     107,388     127,021     100,466     21,132   27 %   259,900     334,875  
Performance Fees
Realized 46,175 1,106 44,814 64,774 82,389 1,362

(17,966

)

(62,780

)

N/M

 

92,095

65,785

Unrealized   45,549     (24,020 )   45,499     84,466     32,537     187,190    

(270,014

)  

(315,513

)

N/M     67,028    

(50,287

)
Total Performance Fees   91,724     (22,914 )   90,313     149,240     114,926     188,552     (287,980 )   (378,293 ) N/M     159,123     15,498  
Investment Income (Loss)
Realized (495 ) 3,141 9,940 2,746 17,907 3,021 20,548 10,608 107 % 12,586 41,476
Unrealized   84,684     17,275     30,491     20,838     29,126     76,947     (121,688 )   (152,179 ) N/M     132,450     (15,615 )
Total Investment Income (Loss) 84,189 20,416 40,431 23,584 47,033 79,968 (101,140 ) (141,571 ) N/M 145,036 25,861
Interest Income and Dividend Revenue 3,428 2,728 3,802 4,086 3,505 3,197 3,396 (406 ) -11 % 9,958 10,098
Other   100     460     1,061     400     811     665     141     (920 ) -87 %   1,621     1,617  
Total Revenues   276,845     83,852     214,941     252,772     273,663     399,403     (285,117 )   (500,058 ) N/M     575,638     387,949  
Expenses
Compensation and Benefits
Compensation 46,910 46,612 47,552 38,271 56,254 66,694 54,220 6,668 14 % 141,074 177,168
Performance Fee Compensation
Realized 6,005 128 10,783 15,711 7,718

49

(2,443

)

 

(13,226

)

N/M

 

16,916

5,324

Unrealized   6,344     (10,296 )   18,306     6,966     5,464     29,309    

(44,955

)  

(63,261

) N/M     14,354    

(10,182

)
Total Compensation and Benefits 59,259 36,444 76,641 60,948 69,436 96,052 6,822 (69,819 ) -91 % 172,344 172,310
Other Operating Expenses   24,431     28,677     26,359     30,122     28,713     30,124     27,588     1,229   5 %   79,467     86,425  
Total Expenses   83,690     65,121     103,000     91,070     98,149     126,176     34,410     (68,590 ) -67 %   251,811     258,735  
Economic Net Income (Loss) $ 193,155   $ 18,731   $ 111,941   $ 161,702   $ 175,514   $ 273,227   $ (319,527 ) $ (431,468 ) N/M   $ 323,827   $ 129,214  
 
 

 

* Transaction and Other Fees, Net, are net of amounts, if any, shared with limited partners including, for Private Equity, broken deal expenses.
** Primarily placement fees.

continued

           
THE BLACKSTONE GROUP L.P.
Exhibit 2a. Economic Net Income and Net Fee Related Earnings from Operations - Continued
(Dollars in Thousands)
Three Months Ended Nine Months Ended
                                          Sep 30, 2011 vs.      
Mar 31, Jun 30, Sep 30, Dec 31, Mar 31, Jun 30, Sep 30, Sep 30, 2010 Sep 30, Sep 30,
2010 2010 2010 2010 2011 2011 2011 $       % 2010 2011
Real Estate
Revenues
Management Fees
Base Management Fees $ 83,060 $ 82,916 $ 83,232 $ 89,220 $ 95,439 $ 97,467 $ 97,925 $ 14,693 18 % $ 249,208 $ 290,831
Transaction and Other Fees, Net * 1,942 2,979 8,538 46,455 21,543 49,288 19,551 11,013 129 % 13,459 90,382
Management Fee Offsets **   (489 )   (110 )   (401 )   (71 )   (505 )   (745 )   (880 )   (479 ) -119 %   (1,000 )   (2,130 )
Total Management Fees   84,513     85,785     91,369     135,604     116,477     146,010     116,596     25,227   28 %   261,667     379,083  
Performance Fees
Realized 5,948 16,319 5,010 13,011 2,593 20,832 5,308 298 6 % 27,277 28,733
Unrealized   11,391     21,117     69,910     154,553     368,104     429,458     (120,176 )   (190,086 ) N/M     102,418     677,386  
Total Performance Fees   17,339     37,436     74,920     167,564     370,697     450,290     (114,868 )   (189,788 ) N/M     129,695     706,119  
Investment Income (Loss)
Realized 2,632 3,900 2,159 2,560 2,919 11,394 7,313 5,154 N/M 8,691 21,626
Unrealized   46,892     79,543     83,968     108,576     61,406     37,332     (26,060 )   (110,028 ) N/M     210,403     72,678  
Total Investment Income (Loss) 49,524 83,443 86,127 111,136 64,325 48,726 (18,747 ) (104,874 ) N/M 219,094 94,304
Interest Income and Dividend Revenue 2,718 2,178 3,026 3,251 3,288 2,989 3,195 169 6 % 7,922 9,472
Other   (1,876 )   (390 )   2,330     (400 )   860     515     (1,390 )   (3,720 ) N/M     64     (15 )
Total Revenues   152,218     208,452     257,772     417,155     555,647     648,530     (15,214 )   (272,986 ) N/M     618,442     1,188,963  
Expenses
Compensation and Benefits
Compensation 40,150 44,528 43,219 55,280 58,501 71,618 55,259 12,040 28 % 127,897 185,378
Performance Fee Compensation
Realized 1,524 8,895 1,806 3,619 1,230 9,382 2,251 445 25 % 12,225 12,863
Unrealized   6,937     15,999     46,182     53,746     106,501     91,021     (30,510 )   (76,692 ) N/M     69,118     167,012  
Total Compensation and Benefits 48,611 69,422 91,207 112,645 166,232 172,021 27,000 (64,207 ) -70 % 209,240 365,253
Other Operating Expenses   14,290     17,647     18,584     23,668     28,366     22,971     23,495     4,911   26 %   50,521     74,832  
Total Expenses   62,901     87,069     109,791     136,313     194,598     194,992     50,495     (59,296 ) -54 %   259,761     440,085  
Economic Net Income (Loss) $ 89,317   $ 121,383   $ 147,981   $ 280,842   $ 361,049   $ 453,538   $ (65,709 ) $ (213,690 ) N/M   $ 358,681   $ 748,878  
 
 
 
* Transaction and Other Fees, Net, are net of amounts, if any, shared with limited partners.
** Primarily placement fees.

continued

           

THE BLACKSTONE GROUP L.P.

Exhibit 2a. Economic Net Income and Net Fee Related Earnings from Operations - Continued
(Dollars in Thousands)
 
Three Months Ended Nine Months Ended
                                            Sep 30, 2011 vs.      
Mar 31, Jun 30, Sep 30, Dec 31, Mar 31, Jun 30, Sep 30, Sep 30, 2010 Sep 30, Sep 30,
2010 2010 2010 2010 2011 2011 2011 $       % 2010 2011
Hedge Fund Solutions
Revenues
Management Fees
Base Management Fees $ 63,866 $ 65,533 $ 69,305 $ 74,069 $ 75,612 $ 79,290 $ 79,355 $ 10,050 15 % $ 198,704 $ 234,257
Transaction and Other Fees, Net * 809 870 846 1,047 727 861 740 (106 ) -13 % 2,525 2,328
Management Fee Offsets **     (72 )   (163 )   (95 )   (124 )   (196 )   (258 )   (95 ) -58 %   (235 )   (578 )
Total Management Fees   64,675     66,331     69,988     75,021     76,215     79,955     79,837     9,849   14 %   200,994     236,007  
Performance Fees
Realized 2,117 1,021 872 52,616 893 667 5,764 4,892 N/M 4,010 7,324
Unrealized   10,413     (2,596 )   14,137     (18,972 )   19,253     3,441     (19,861 )   (33,998 ) N/M     21,954     2,833  

Total Performance Fees

  12,530     (1,575 )   15,009     33,644     20,146     4,108     (14,097 )   (29,106 ) N/M     25,964     10,157  
Investment Income (Loss)
Realized (250 ) 5,438 1,050 3,580 1,341 12,855 1,023 (27 ) -3 % 6,238 15,219
Unrealized   11,880     (6,749 )   7,831     6,399     7,120     (12,864 )   (10,034 )   (17,865 ) N/M     12,962     (15,778 )
Total Investment Income (Loss) 11,630 (1,311 ) 8,881 9,979 8,461 (9 ) (9,011 ) (17,892 ) N/M 19,200 (559 )
Interest Income and Dividend Revenue 475 353 498 543 516 472 500 2 0 % 1,326 1,488
Other   (83 )   (40 )   270     (50 )   104     (38 )   18     (252 ) -93 %   147     84  
Total Revenues   89,227     63,758     94,646     119,137     105,442     84,488     57,247     (37,399 ) -40 %   247,631     247,177  
Expenses
Compensation and Benefits
Compensation 20,742 26,388 24,506 23,750 28,657 32,288 31,319 6,813 28 % 71,636 92,264
Performance Fee Compensation
Realized 771 356 3,313 16,193 300 253 2,257 (1,056 ) -32 % 4,440 2,810
Unrealized   3,783     (977 )   5,075     (6,814 )   5,358     2,955     (7,214 )   (12,289 ) N/M     7,881     1,099  
Total Compensation and Benefits 25,296 25,767 32,894 33,129 34,315 35,496 26,362 (6,532 ) -20 % 83,957 96,173
Other Operating Expenses   11,285     12,353     12,388     15,334     13,008     16,075     14,421     2,033   16 %   36,026     43,504  
Total Expenses   36,581     38,120     45,282     48,463     47,323     51,571     40,783     (4,499 ) -10 %   119,983     139,677  
Economic Net Income $ 52,646   $ 25,638   $ 49,364   $ 70,674   $ 58,119   $ 32,917   $ 16,464   $ (32,900 ) -67 % $ 127,648   $ 107,500  
 
 
 
* Transaction and Other Fees, Net, are net of amounts, if any, shared with limited partners.
** Primarily placement fees.

continued

           
THE BLACKSTONE GROUP L.P.
Exhibit 2a. Economic Net Income and Net Fee Related Earnings from Operations - Continued

(Dollars in Thousands)

 
Three Months Ended Nine Months Ended
                                                   
Sep 30, 2011 vs.
Mar 31, Jun 30, Sep 30, Dec 31, Mar 31, Jun 30, Sep 30, Sep 30, 2010 Sep 30, Sep 30,
2010 2010 2010 2010 2011 2011 2011 $ % 2010 2011
Credit Businesses
Revenues
Management Fees
Base Management Fees $ 39,613 $ 47,670 $ 50,820 $ 56,860 $ 54,601 $ 57,420 $ 59,557 $ 8,737 17 % $ 138,103 $ 171,578
Transaction and Other Fees, Net * 536 299 216 606 745 849 (26 ) (242 ) N/M 1,051 1,568
Management Fee Offsets **   (689 )   3     (19 )   (19 )   (18 )   (105 )   (67 )   (48 ) N/M     (705 )   (190 )
Total Management Fees   39,460     47,972     51,017     57,447     55,328     58,164     59,464     8,447   17 %   138,449     172,956  
Performance Fees
Realized (359 ) 27,928 15,343 64,968 9,725 37,354 14,791 (552 ) -4 % 42,912 61,870
Unrealized   64,980     (15,239 )   63,199     40,239     85,303     (7,246 )   (55,125 )   (118,324 ) N/M     112,940     22,932  
Total Performance Fees   64,621     12,689     78,542     105,207     95,028     30,108     (40,334 )   (118,876 ) N/M     155,852     84,802  
Investment Income (Loss)
Realized 3,233 3,291 658 2,518 1,235 3,236 2,807 2,149 N/M 7,182 7,278
Unrealized   7,835     (3,444 )   5,350     (269 )   4,532     5,437     (7,800 )   (13,150 ) N/M     9,741     2,169  
Total Investment Income (Loss) 11,068 (153 ) 6,008 2,249 5,767 8,673 (4,993 ) (11,001 ) N/M 16,923 9,447
Interest Income and Dividend Revenue 673 403 1,252 710 453 902 1,404 152 12 % 2,328 2,759
Other   (459 )   (332 )   330     (27 )   98     (47 )   (132 )   (462 ) N/M     (461 )   (81 )
Total Revenues   115,363     60,579     137,149     165,586     156,674     97,800     15,409     (121,740 ) -89 %   313,091     269,883  
Expenses
Compensation and Benefits
Compensation 28,343 26,982 28,774 39,158 30,325 34,170 41,512 12,738 44 % 84,099 106,007
Performance Fee Compensation
Realized (559 ) 13,500 9,060 37,211 5,295 18,027 8,478 (582 ) -6 % 22,001 31,800
Unrealized   37,536     (5,618 )   34,760     16,717     45,202     (5,188 )   (28,756 )   (63,516 ) N/M     66,678     11,258  
Total Compensation and Benefits 65,320 34,864 72,594 93,086 80,822 47,009 21,234 (51,360 ) -71 % 172,778 149,065
Other Operating Expenses   8,290     12,167     9,669     8,980     15,357     10,226     11,210     1,541   16 %   30,126     36,793  
Total Expenses   73,610     47,031     82,263     102,066     96,179     57,235     32,444     (49,819 ) -61 %   202,904     185,858  
Economic Net Income (Loss) $ 41,753   $ 13,548   $ 54,886   $ 63,520   $ 60,495   $ 40,565   $ (17,035 ) $ (71,921 ) N/M   $ 110,187   $ 84,025  
 
 
 
* Transaction and Other Fees, Net, are net of amounts, if any, shared with limited partners.
** Primarily placement fees.

continued

           
THE BLACKSTONE GROUP L.P.
Exhibit 2a. Economic Net Income and Net Fee Related Earnings from Operations - Continued
(Dollars in Thousands)
Three Months Ended Nine Months Ended
                                                       

 

Sep 30, 2011 vs.
Mar 31, Jun 30, Sep 30, Dec 31,

Mar 31,

Jun 30, Sep 30, Sep 30, 2010 Sep 30, Sep 30,
2010 2010 2010 2010 2011 2011 2011 $ % 2010 2011
Financial Advisory
Revenues
Advisory Fees $ 76,568 $ 134,099 $ 84,541 $ 130,932 $ 70,252 $ 102,243 $ 86,178 $ 1,637 2 % $ 295,208 $ 258,673
Transaction and Other Fees, Net   1     102      

259

 

 

6     210     98     98   N/M     103     314
Total Advisory and Transaction Fees   76,569     134,201     84,541   131,191     70,258     102,453     86,276     1,735   2 %   295,311     258,987
Investment Income (Loss)
Realized 187 (49 ) 469 207 97 226 (44 ) (513 ) N/M 607 279
Unrealized   230     561     607   (864 )   393     (15 )   (171 )   (778 ) N/M     1,398     207
Total Investment Income (Loss) 417 512 1,076 (657 ) 490 211 (215 ) (1,291 ) N/M 2,005 486
Interest Income and Dividend Revenue 1,396 1,268 1,609 1,699 1,686 1,723 1,615 6 0 % 4,273 5,024
Other   (932 )   (342 )   477   (1,115 )   386     33     (304 )   (781 ) N/M     (797 )   115
Total Revenues   77,450     135,639     87,703   131,118     72,820     104,420     87,372     (331 ) 0 %   300,792     264,612
Expenses
Compensation and Benefits
Compensation   54,492     76,152     66,531   80,774     56,161     73,968     61,530     (5,001 ) -8 %   197,175     191,659
Total Compensation and Benefits 54,492 76,152 66,531 80,774 56,161 73,968 61,530 (5,001 ) -8 % 197,175 191,659
Other Operating Expenses   14,727     17,316     17,253   20,976     17,531     19,967     20,218     2,965   17 %   49,296     57,716
Total Expenses   69,219     93,468     83,784   101,750     73,692     93,935     81,748     (2,036 ) -2 %   246,471     249,375
Economic Net Income (Loss) $ 8,231   $ 42,171   $ 3,919 $ 29,368   $ (872 ) $ 10,485   $ 5,624   $ 1,705   44 % $ 54,321   $ 15,237
 
             
THE BLACKSTONE GROUP L.P.

Exhibit 2b. Reconciliation of Income (Loss) Before Provision (Benefit) for Taxes to Total Segments, Economic Net Income (Loss), of Total

Segments, Economic Net Income (Loss) to Net Fee Related Earnings from Operations, of Net Fee Related Earnings from Operations to

Distributable Earnings and of Earnings Before Interest, Taxes and Depreciation and Amortization from Net Fee Related Earnings
from Operations to Net Fee Related Earnings from Operations
 

(Dollars in Thousands)

 
Three Months Ended Nine Months Ended
March 31,       June 30,       September 30,       December 31,       March 31,       June 30,       September 30, September 30,       September 30,
2010 2010 2010 2010 2011 2011 2011 2010 2011
Income (Loss) Before Provision (Benefit) for Taxes $ (227,671 ) $ (636,928 ) $ 143,302 $ 198,643 $ 117,214 $ 248,796 $ (994,412 ) $ (721,297 ) $ (628,402 )
IPO and Acquisition-Related Charges (a) 726,722 749,930 438,568 453,975 421,861 424,483 258,435 1,915,220 1,104,779
Amortization of Intangibles (b) 39,512 40,822 40,872 44,172 44,174 44,905 45,665 121,206 134,744
(Income) Loss Associated with Non-Controlling Interests
in (Income) Loss of Consolidated Entities (c)   (153,461 )   67,647     (254,651 )   (90,684 )   71,056     92,548     310,129     (340,465 )   473,733  
Total Segments
Total Segments, Economic Net Income (Loss) 385,102 221,471 368,091 606,106 654,305 810,732 (380,183 ) 974,664 1,084,854
Performance Fees Adjustment (d) (186,214 ) (25,636 ) (258,784 ) (455,655 ) (600,797 ) (673,058 ) 457,279 (470,634 ) (816,576 )
Investment Income (Loss) Adjustment (e) (156,828 ) (102,907 ) (142,523 ) (146,291 ) (126,076 ) (137,569 ) 134,106 (402,258 ) (129,539 )

Investment Income (Loss) - Blackstone's Treasury

Cash Management Strategies (f)

3,665 5,062 11,226 (4,676 ) 1,302 4,038 (3,011 ) 19,953 2,329
Performance Fee Compensation and
Benefits Adjustment (g) 62,341 21,987 129,285 143,349 177,068 145,808 (100,892 ) 213,613 221,984
Taxes Payable (h)   (9,321 )   (12,062 )   5,619     (20,093 )   (12,622 )   (12,734 )   (5,290 )   (15,764 )   (30,646 )
Net Fee Related Earnings from Operations 98,745 107,915 112,914 122,740 93,180 137,217 102,009 319,574 332,406
Realized Performance Fees (i) 46,140 23,495 41,077 122,635 81,057 32,504

(2,646

)

110,712

110,915

Realized Investment Income (j)

5,307 15,721 14,276 11,611 23,499 30,732 31,647 35,304 85,878
Adjustment Related to Realized Investment Income -

Blackstone's Treasury Cash Management Strategies (k)

(1,264 ) 512 (4,874 ) (2,156 ) (1,010 ) (2,343 ) (309 ) (5,626 ) (3,662 )
Other Payables Including Payable Under Tax
Receivable Agreement   (232 )   (68 )   2,923     (15,633 )   (177 )   (13,578 )   (10,589 )   2,623     (24,344 )
Distributable Earnings $ 148,696   $ 147,575   $ 166,316   $ 239,197   $ 196,549   $ 184,532   $

120,112

  $ 462,587   $

501,193

 
 
Earnings Before Interest, Taxes and Depreciation
and Amortization from Net Fee Related Earnings
from Operations (l) $ 120,805   $ 132,866   $ 124,195   $ 163,600   $ 126,666   $ 170,856   $ 128,201   $ 377,866   $ 425,723  

____________________

(a)     This adjustment adds back to Income (Loss) Before Provision for Taxes amounts for Transaction-Related Charges which include principally equity-based compensation charges associated with Blackstone’s initial public offering and other corporate actions.
(b) This adjustment adds back to Income (Loss) Before Provision for Taxes amounts for the Amortization of Intangibles which are associated with Blackstone’s initial public offering and other corporate actions.
(c) This adjustment adds back to Income (Loss) Before Provision for Taxes the amount of (Income) Loss Associated with Non-Controlling Interests in (Income) Loss of Consolidated Entities and includes the amount of Management Fee Revenues associated with Consolidated CLO Entities.
(d) This adjustment removes from ENI the total segment amount of Performance Fees.
(e) This adjustment removes from ENI the total segment amount of Investment Income (Loss).
(f)

This adjustment represents the realized and unrealized gain (loss) on Blackstone’s Treasury cash management strategies which are a component of Investment Income (Loss) but included in Net Fee Related Earnings.

(g) This adjustment removes from expenses the compensation and benefit amounts related to Blackstone’s profit sharing plans related to Performance Fees.
(h) Represents an implied payable for income taxes calculated using a similar methodology applied in calculating the current provision for The Blackstone Group L.P.
(i) Represents the adjustment for realized Performance Fees net of corresponding actual amounts due under Blackstone’s profit sharing plans related thereto.
(j)

Represents the adjustment for Blackstone’s Investment Income - Realized.

(k) Represents the elimination of Realized Investment Income attributable to Blackstone’s Treasury cash management strategies which is a component of both Net Fee Related Earnings from Operations and Realized Investment Income (Loss).
(l)

Earnings Before Interest, Taxes and Depreciation and Amortization from Net Fee Related Earnings from Operations represents Net Fee Related Earnings from Operations adding back the implied cash taxes payable component from the Distributable Earnings reconciliation presented above, which is included in (h), and segment interest and depreciation and amortization. The cash taxes payable component of (h) was $9.3 million, $12.1 million, $(5.6) million, $20.1 million, $12.6 million, $12.7 million, and $5.3 million for the three months ended March 31, 2010, June 30, 2010, September 30, 2010, December 31, 2010, March 31, 2011, June 30, 2011, and September 30, 2011, respectively. The cash taxes payable component of (h) was $30.6 million and $15.8 million for the nine months ended September 30, 2011 and 2010, respectively. Interest was $6.3 million, $6.8 million, $10.3 million, $13.2 million, $12.7 million, $13.1 million, and $12.6 million for the three months ended March 31, 2010, June 30, 2010, September 30, 2010, December 31, 2010, March 31, 2011, June 30, 2011, and September 30, 2011, respectively. Interest was $38.4 million and $23.5 million for the nine months ended September 30, 2011 and 2010, respectively. Depreciation and amortization was $6.4 million, $6.1 million, $6.6 million, $7.6 million, $8.2 million, $7.8 million, and $8.3 million for the three months ended March 31, 2010, June 30, 2010, September 30, 2010, December 31, 2010, March 31, 2011, June 30, 2011, and September 30, 2011, respectively. Depreciation and amortization was $24.3 million and $19.0 million for the nine months ended September 30, 2011 and 2010, respectively.

 
 

THE BLACKSTONE GROUP L.P.

Exhibit 3. Distributable Earnings

(Dollars in Thousands)

The following table calculates Blackstone’s Distributable Earnings. Distributable Earnings is a supplemental
measure of performance to assess amounts available for distributions to Blackstone unitholders, including Blackstone personnel.

      Three Months Ended       Nine Months Ended
September 30, September 30,
2011       2010 2011       2010
Fee Related Earnings
Revenues
Total Management and Advisory Fees (a) $ 442,639 $ 376,249 $ 1,381,908 $ 1,156,321
Interest and Dividend Revenue (a) 10,110 10,187 28,841 25,807
Other (a) (1,667 ) 4,468 1,720 574

Investment Income (Loss) - Blackstone's Treasury Cash

Management Strategies (b)   (3,011 )   11,226     2,329     19,953  
Total Revenues   448,071     402,130     1,414,798     1,202,655  
Expenses
Compensation and Benefits - Compensation (a) 243,840 210,582 752,476 621,881
Other Operating Expenses (a) 96,932 84,253 299,270 245,436
Cash Taxes (c)   5,290     (5,619 )   30,646     15,764  
Total Expenses   346,062     289,216     1,082,392     883,081  
Net Fee Related Earnings from Operations   102,009     112,914     332,406     319,574  
Performance Fees, Net of Related Compensation
Performance Fees - Realized (a)

7,897

66,039

163,712

166,294
Compensation and Benefits - Performance Fee
Compensation - Realized (a)  

(10,543

) (24,962 )  

(52,797

)   (55,582 )
Total Performance Fees, Net of Related Compensation  

2,646

  41,077    

110,915

    110,712  
Investment Income and Other

Investment Income - Realized (a)

31,647 14,276 85,878 35,304
Adjustment Related to Realized Investment Income -
Blackstone's Treasury Cash Management Strategies (d) (309 ) (4,874 ) (3,662 ) (5,626 )
Other Payables Including Payable Under Tax
Receivable Agreement   (10,589 )   2,923     (24,344 )   2,623  
Total Investment Income and Other   20,749     12,325     57,872     32,301  
Distributable Earnings $

120,112

  $ 166,316   $

501,193

  $ 462,587  

_________________________

(a)       Represents the total segment amounts of the respective captions.
(b)

Represents the inclusion of Investment Income (Loss) from Blackstone’s Treasury cash management strategies.

(c) Represents the provisions for and/or adjustments to income taxes that were calculated using a similar methodology applied in calculating the current provision for The Blackstone Group L.P.
(d) Represents the elimination of Realized Investment Income attributable to Blackstone’s Treasury cash management strategies which is a component of Net Fee Related Earnings from Operations.
 
                             

THE BLACKSTONE GROUP L.P.

Exhibit 4. Total GAAP Weighted-Average Common Units Outstanding—Basic and Diluted and
Reconciliation of Total GAAP Weighted-Average Common Units Outstanding—Basic and Diluted
to Weighted-Average Economic Net Income Adjusted Units with End of Period Economic Net
Income Adjusted Units Outstanding and Reconciliation of Total GAAP Common Units
Outstanding to Distributable Earnings Units Outstanding

 

The following table provides Blackstone’s Total GAAP Weighted-Average Common Units Outstanding—Basic
and Diluted.
 
Three Months Nine Months
Ended September 30, Ended September 30,
2011 2010 2011 2010
Total GAAP Weighted-Average Common Units
Outstanding - Basic and Diluted ( a) 487,189,657 370,101,582 470,551,727 352,794,385

The following table provides a reconciliation of Blackstone’s Total GAAP Common Units Outstanding—Basic and Diluted to Weighted-Average Economic Net Income Adjusted Units and presents the end of period Economic Net Income Adjusted Units Outstanding.

                             
Three Months As of and for the Nine
Ended September 30, Months Ended September 30,
2011 2010 2011 2010
Total GAAP Weighted-Average Common Units
Outstanding - Basic and Diluted 487,189,657 370,101,582 470,551,727 352,794,385
Adjustments:
Weighted-Average Blackstone Holdings Partnership Units 616,168,175 727,528,593 633,174,021 745,006,116
Weighted-Average Unvested Deferred Restricted
Common Units

7,243,768

-

8,169,431

2,106,877

Weighted-Average Economic Net Income Adjusted Units

1,110,601,600

1,097,630,175

1,111,895,179

1,099,907,378

 
Economic Net Income Adjusted Units, End of Period

1,110,027,706

1,101,164,769

The following table provides a reconciliation of Blackstone’s Total GAAP Common Units Outstanding to Distributable Earnings Units Outstanding.

           
September 30,
2011       2010
Total GAAP Common Units Outstanding (b) 488,178,170 374,003,111
Adjustment:
Blackstone Holdings Partnership Units 615,164,340 723,662,686
 
Distributable Earnings Units Outstanding (c) 1,103,342,510 1,097,665,797

______________________

(a)     Unvested Deferred Restricted Common Units and Blackstone Holdings Partnership Units are anti-dilutive for the three and nine months periods presented due to Net Losses in each of the periods presented.
(b) Common unit holders receive tax benefits from deductions taken by Blackstone’s corporate tax paying subsidiaries and bear responsibility for the deduction from Distributable Earnings of the Payable Under the Tax Receivable Agreement and certain other tax-related payables.
(c) Excludes units which are not entitled to distributions.
     
THE BLACKSTONE GROUP L.P.
Exhibit 5. Assets Under Management
(Dollars in Thousands)
 
As of and for the Periods Ended
September 30,
2011       2010
Total Assets Under Management
(End of Period)
Private Equity $ 42,967,159 $ 29,202,952
Real Estate 40,709,500 27,129,825
Hedge Fund Solutions 40,373,092 33,166,553
Credit Businesses   33,648,697   29,615,916
$ 157,698,448 $ 119,115,246
Fee-Earning Assets Under Management
(End of Period)
Private Equity $ 37,006,024 $ 24,311,443
Real Estate 29,981,920 24,345,161
Hedge Fund Solutions 37,231,013 31,760,599
Credit Businesses   28,715,420   23,875,979
$ 132,934,377 $ 104,293,182
Weighted-Average Fee-Earning
Assets Under Management
(For the Three Months Ended)
Private Equity $ 36,670,087 $ 24,610,920
Real Estate 28,701,420 24,016,964
Hedge Fund Solutions 37,658,240 30,554,606
Credit Businesses   28,429,249   23,540,949
$ 131,458,996 $ 102,723,439
Weighted-Average Fee-Earning
Assets Under Management
(Year to Date Period Ended)
Private Equity $ 35,731,733 $ 25,028,962
Real Estate 27,425,607 23,826,723
Hedge Fund Solutions 36,857,511 29,557,897
Credit Businesses   26,889,108   22,373,831
$ 126,903,959 $ 100,787,413
     

THE BLACKSTONE GROUP L.P.

Exhibit 6. Limited Partner Capital Invested Metrics

(Dollars in Thousands)

 
As of and for the Periods
Ended September 30,
2011       2010
Limited Partner Capital Invested
(For the Three Months Ended)
Private Equity $ 1,414,734 $ 678,882
Real Estate (a) 1,706,157 688,951
Credit Businesses   1,314,318   692,275
$ 4,435,209 $ 2,060,108
Limited Partner Capital Invested
(Year to Date Period Ended)
Private Equity $ 2,735,022 $ 1,536,594
Real Estate (a) 5,145,773 1,757,636
Credit Businesses   1,621,498   1,113,419
$ 9,502,293 $ 4,407,649
Fund Level Unrealized Value (b)
(End of Period)
Private Equity
Cost $ 21,367,917 $ 20,582,631
Unrealized Value $ 22,784,672 $ 21,924,759
Real Estate (a)
Cost $ 20,431,870 $ 13,754,522
Unrealized Value $ 25,632,721 $ 13,360,662
Credit Businesses
Cost $ 4,453,452 $ 3,465,813
Unrealized Value $ 4,958,853 $ 3,905,776

_________________________

(a)     Limited Partner Capital Invested and Fund Level Unrealized Value for the Real Estate segment represents activity related to funds raised by Blackstone.
(b) Cost and unrealized value represent the limited partners’ share, including co-investments arranged by Blackstone, of those fund level investments on which carried interest can be earned, before carried interest allocations to Blackstone, when a fund achieves cumulative investment returns in excess of a specified rate.
 

THE BLACKSTONE GROUP L.P.

Exhibit 7. Definitions of Non-GAAP Financial Information

 
Blackstone discloses the following financial measures that are calculated and presented on the basis of methodologies other than in accordance with generally accepted accounting principles in the United States of America (“non-GAAP”) in the attached press release:
  • Blackstone uses Economic Net Income, or “ENI”, as a key measure of value creation, a benchmark of its performance and in making resource deployment and compensation decisions across its five segments. ENI represents segment net income before taxes excluding transaction-related charges. Transaction-related charges arise from Blackstone’s initial public offering (“IPO”) and other corporate actions, including acquisitions. Transaction-related charges include equity-based compensation charges, the amortization of intangible assets and contingent consideration associated with acquisitions. ENI presents revenues and expenses on a basis that deconsolidates the investment funds Blackstone manages.
  • Economic Net Income After Taxes represents ENI adjusted to reflect the implied provision (benefit) for income taxes calculated using a similar methodology as applied in calculating the tax provision (benefit) for The Blackstone Group L.P. but consistent with the ENI concepts as noted above.
  • Blackstone uses Net Fee Related Earnings from Operations as a key measure to highlight earnings from operations excluding: (a) the income related to performance fees and related carry plan costs, (b) income earned from Blackstone’s investments in the Blackstone Funds, and (c) realized and unrealized gains (losses) from other investments except for such gains (losses) from Blackstone’s Treasury cash management strategies. Blackstone uses Net Fee Related Earnings from Operations as a measure to assess whether recurring revenue from its businesses is sufficient to adequately cover all of its operating expenses and generate profits. Net Fee Related Earnings from Operations equals contractual fee revenues, investment income from Blackstone’s Treasury cash management strategies and interest income, less (a) compensation expenses (which includes amortization of non-IPO and non-acquisition-related equity-based awards, but excludes amortization of IPO and acquisition-related equity-based awards, carried interest and incentive fee compensation), (b) other operating expenses, and (c) cash taxes due on earnings from operations as calculated using a similar methodology as applied in calculating the current tax provision (benefit) for The Blackstone Group L.P.
  • Blackstone uses Earnings Before Interest, Taxes and Depreciation and Amortization from Net Fee Related Earnings from Operations (“EBITDA-NFRE”) as a measure of segment performance and an indicator of its ability to cover recurring operating expenses. EBITDA-NFRE equals Net Fee Related Earnings from Operations before segment interest expense, segment depreciation and amortization and the cash taxes included in Net Fee Related Earnings from Operations.
  • Distributable Earnings, which is derived from Blackstone’s segment reported results, is a supplemental measure to assess performance and amounts available for distributions to Blackstone unitholders, including Blackstone personnel and others who are limited partners of the Blackstone Holdings partnerships. Distributable Earnings is intended to show the amount of net realized earnings without the effects of the consolidation of the Blackstone Funds.

    Distributable Earnings, which is a component of Economic Net Income, is the sum across all segments of: (a) Total Management and Advisory Fees, (b) Interest and Dividend Revenue, (c) Other Revenue, (d) Realized Performance Fees, and (e) Realized Investment Income (Loss); less (a) Compensation, (b) Realized Performance Fee Compensation, (c) Other Operating Expenses, and (d) Cash Taxes and Payables Under the Tax Receivable Agreement. Distributable Earnings is reconciled to Blackstone’s Consolidated Statement of Operations. It is Blackstone’s current intention that on an annual basis it will distribute to unitholders all of its Distributable Earnings, less realized investment gains, in excess of amounts determined by its general partner to be necessary or appropriate to provide for the conduct of its business, to make appropriate investments in its business and funds, to comply with applicable law, any of its debt instruments or other agreements, or to provide for future distributions to its unitholders for any ensuing quarter.

Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are included within this press release. These non-GAAP financial measures should be considered in addition to and not as a substitute for, or superior to, financial measures presented in accordance with GAAP.

Contacts

The Blackstone Group
Investor Relations:
Joan Solotar, +1-212-583-5068
solotar@blackstone.com
or
Weston Tucker, +1-212-583-5231
tucker@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
Weston Tucker, +1-212-583-5231
tucker@blackstone.com
or
Media Relations:
Peter Rose, +1-212-583-5871
rose@blackstone.com