The Blackstone Group Reports Second Quarter 2010 Results

Economic Net Income Increased to $205 Million for the Second Quarter of 2010, up from $181 Million for the Second Quarter of 2009.

Net Fee Related Earnings Increased to $108 Million for the Second Quarter of 2010, up from $87 Million for the Second Quarter of 2009.

Distributable Earnings Increased to $148 Million for the Second Quarter of 2010, up from $90 Million in the Second Quarter of 2009.

GAAP Results Attributable to The Blackstone Group L.P. Declined in the Second Quarter of 2010 with a Net Loss of $193 Million, Compared to a Net Loss of $164 Million in the Second Quarter of 2009, in Each Case Including Net IPO and Acquisition-Related Charges.

Fee-Earning Assets under Management Totaled $101.4 Billion at June 30, 2010, up from $93.5 Billion at June 30, 2009.

Blackstone Declares a Quarterly Distribution of $0.10 Per Common Unit.

NEW YORK--(BUSINESS WIRE)-- The Blackstone Group L.P. (NYSE: BX) today reported its second quarter 2010 results.

For the second quarter of 2010, Total Segment Revenues were $552.3 million, up significantly from $403.6 million for the second quarter of 2009. The improvement was driven by increases in Investment Income derived from an increase in the carrying value of the underlying portfolio investments in the Private Equity and Real Estate segments, and by increased fees earned in the Financial Advisory segment. These increases were partially offset by decreases in Performance Fees and Allocations.

Total Segment Expenses were $330.8 million for the second quarter of 2010, an increase from $230.8 million for the second quarter of 2009. The increase in Compensation and Benefits to $242.6 million for the second quarter of 2010 was primarily driven by an increase in Performance Fee Related Compensation and an increase in Base Compensation.

GAAP results for the second quarter of 2010 included Revenues of $550.1 million, compared to $406.4 million for the second quarter of 2009, and Net Loss Attributable to The Blackstone Group L.P. of $193.3 million, compared to a net loss of $164.3 million for the second quarter of 2009.

Global equity markets declined sharply in the second quarter of 2010, while credit markets were flat to slightly down and spreads moderately widened. Volatility increased and investors became more risk averse, responding to growing concerns over the strength of the economic recovery, European sovereign debt issues and regulatory uncertainty. In real estate, the fundamental picture continued to improve in the second quarter. In office, certain markets continue to show improvements in occupancy trends and an increasing level of leasing activity. In hospitality, industry RevPAR (Revenue Per Available Room), an important hospitality industry metric, grew 6% in the second quarter, and has increased for four consecutive months, following nearly two years of declines.

Stephen A. Schwarzman, Chairman and Chief Executive Officer, said, “Our diversified business model has continued to provide us stability and growth. While adverse global securities markets performance had a negative impact on performance fees in the second quarter, we continue to see signs of improvement in the fundamentals across our portfolio, which benefited the carrying values of investments in Blackstone funds particularly in real estate. In addition, our successful long-term investment track record on behalf of our limited partners allowed us to raise new funds even in a most challenging fund-raising environment, bringing us to $111 billion in total assets under management at period end.”

The table below details Blackstone’s Economic Net Income, Net Fee Related Earnings from Operations, Distributable Earnings and Fee-Earning Assets Under Management as of, and for the three and six months ended June 30, 2010 and 2009. Economic Net Income, Total Segments includes unrealized gains (losses) and the direct compensation impact related to those gains/losses, but excludes IPO and acquisition-related charges.

SEGMENT REVIEW

Private Equity

Private Equity had revenues of $83.9 million for the second quarter of 2010, compared with revenues of $198.6 million for the second quarter of 2009. The change from 2009 was driven principally by negative Performance Fees and Allocations of $22.9 million compared to positive $97.2 million for the three months ended June 30, 2009. Operating performance for the second quarter of 2010 was driven by privately held companies in the hospitality, leisure and healthcare sectors. The net return for Blackstone’s Private Equity funds was 2.3% in the second quarter of 2010 versus 4.2% in the second quarter of 2009 and 15% in the first quarter of 2010. At June 30, 2010, the unrealized value and cumulative realized proceeds, before carried interest, fees and expenses, of Blackstone’s contributed Private Equity funds represented 1.4 times investors’ original investments. Excluding funds which are still in their Investment Period, the value was 2.2 times investors’ original investments.

Net Fee Related Earnings from Operations were $11.5 million for the second quarter of 2010, down from $23.9 million for the second quarter of 2009. Economic Net Income was $18.7 million for the second quarter of 2010, down from $123.8 million for the second quarter of 2009, a result of lower Performance Fees and Allocations.

Compensation and Benefits expense decreased to $36.4 million from $54.3 million for the second quarter of 2009. The change from 2009 was primarily due to a decrease in Performance Fee Related Compensation, driven by lower Performance Fees and Allocations revenue. Other Operating Expenses of $28.7 million were up from $20.6 million for the second quarter of 2009.

Fee-Earning Assets Under Management were relatively unchanged at $25.2 billion compared with the second quarter of 2009.

Limited Partner Capital Invested during the second quarter of 2010 totaled $469.8 million, including new and follow-on investments, an increase from $338.3 million invested during the second quarter of 2009. Blackstone had $1.0 billion of Limited Partner Capital committed to deals made by the Private Equity funds that had not yet closed as of June 30, 2010.

Private Equity had six-month revenues of $360.7 million, compared with revenues of $266.7 million in the same period of 2009. The principal driver of the year-over-year change was an increase in Investment Income as a result of net appreciation in the fair value of the portfolio investments, principally certain portfolio investments in the hospitality, leisure and healthcare sectors, and an increase in Transaction and Other Fees which was partially offset by a decrease in Performance Fees and Allocations.

Real Estate

Real Estate had revenues of $208.5 million for the second quarter of 2010, compared with negative revenues of $18.9 million for the second quarter of 2009. The change from 2009 was primarily due to an improvement in Performance Fees and Allocations and Investment Income (Loss), driven by both the improved current operating performance and projected cash flows across the Real Estate segment’s investments. The net return for Blackstone’s Real Estate carry funds was 17% for the second quarter of 2010 compared to a negative 20% in the second quarter of 2009, while the net returns for the Real Estate debt hedge funds was 2% for the second quarter of 2010 compared to 8% in the second quarter of 2009.

Net Fee Related Earnings from Operations were $24.7 million in the second quarter of 2010, down from $32.9 million for the second quarter of 2009. Economic Net Income was $121.4 million for the second quarter of 2010 compared to a negative $25.1 million for the second quarter of 2009, driven by the increases in Performance Fees and Allocations and Investment Income (Loss).

Compensation and Benefits were $69.4 million compared to a negative $6.8 million for the second quarter of 2009. The change from 2009 was primarily due to reversals of prior period carried interest allocations in the second quarter of 2009. Other Operating Expenses of $17.6 million were up from $13.0 million for the second quarter of 2009.

Fee-Earning Assets Under Management were $23.8 billion compared with $23.5 billion for the second quarter of 2009 reflecting the continued fund-raising success of Blackstone’s Real Estate debt platform. Total Assets Under Management for Blackstone’s Real Estate debt platform grew to $1.9 billion for the second quarter of 2010 from $1.7 billion in the first quarter of 2010 and from $792.4 million in the second quarter of 2009.

Limited Partner Capital Invested during the second quarter of 2010 was $643.8 million, up from $252.7 million during the second quarter of 2009. Blackstone had $1.3 billion of Limited Partner Capital committed to deals, or under letter of intent, by the Real Estate segment’s funds that had not yet closed as of June 30, 2010.

Real Estate had six-month revenues of $360.7 million, compared with negative revenues of $231.5 million in the same period of 2009. The principal drivers of the year-over-year change were the improved performances of the carry funds and debt hedge funds which resulted in improved Performance Fees and Allocations and Investment Income.

Credit and Marketable Alternatives (CAMA)

CAMA had revenues of $124.3 million, compared with $140.4 million for the second quarter of 2009. The change from 2009 was due primarily to a reduction in returns, driven by unfavorable conditions in equity and credit markets, on the segment’s credit-oriented funds and funds of hedge funds, resulting in reduced performance fees and allocations and investment income in both businesses. The net core funds composite returns for Blackstone’s funds of hedge funds was negative 1.4% for the second quarter of 2010 compared to 5.7% for the second quarter of 2009. Base Management Fees increased $16.9 million from the second quarter of 2009 as a result of positive net inflows in the funds of hedge funds business and the April 1, 2010 acquisition of $3.5 billion in collateralized debt obligations and collateralized loan obligations (“CLO”) vehicles.

Net Fee Related Earnings from Operations were $34.6 million for the second quarter of 2010, an increase of $9.4 million from $25.2 million for the second quarter of 2009, reflecting increased management fees. Economic Net Income was $39.2 million for the second quarter of 2010 compared to $66.5 million for the second quarter of 2009.

Compensation and Benefits were $60.6 million, up from $57.4 million for the second quarter of 2009. The increase from the second quarter of 2009 was principally driven by an increase in base compensation. Other Operating Expenses of $24.5 million were up from $16.5 million for the second quarter of 2009, reflecting an increase in professional fees and technology costs primarily in the credit platform businesses related to the launching of new products.

Fee-Earning Assets Under Management for the second quarter of 2010 totaled $52.4 billion, up from $44.7 billion for the second quarter of 2009. The increase from 2009 was principally due to market appreciation in the funds of hedge funds and the April 1, 2010 acquisition of $3.5 billion in collateralized debt obligations and CLO vehicles.

Limited Partner Capital Invested in certain carry credit-oriented funds during the second quarter of 2010 totaled $264.1 million, representing 5.7% of total commitments in these funds, up from $112.1 million for the second quarter of 2009.

CAMA had six-months revenues of $328.9 million compared with revenues of $239.6 million in the same period of 2009. The increase was primarily driven by an increase in Performance Fees and Allocations and an increase in Base Management Fees.

Financial Advisory

Revenues were $135.6 million for the second quarter of 2010, up from $83.5 million for the second quarter of 2009. The increase in segment revenues was primarily driven by higher fees generated from the fund placement business and the restructuring and reorganization business. The fund placement business saw an increase in fees to more normalized levels as economic conditions negatively impacting institutional allocations to alternative investment funds modestly abated. The pipeline for the restructuring and reorganization business remains strong across a diverse group of industries and geographies. The pipeline for the financial and strategic advisory business continues to be strong and includes a significant international component.

Net Fee Related Earnings from Operations were $37.2 million for the second quarter of 2010, an increase from $4.9 million for the second quarter of 2009. The primary catalyst for the increase from 2009 was an increase in fees generated by Blackstone’s fund placement business and the restructuring and reorganization business, both of which had several large mandates which closed during the quarter. Economic Net Income was $42.2 million for the second quarter of 2010 compared to $7.5 million for the second quarter of 2009.

Revenues were $213.1 million for the six months ended June 30, 2010, an increase from $174.5 million in the same period of 2009. The increase in segment revenues was primarily driven by an increase of $43.8 million in fees earned by Blackstone’s fund placement business due to the same economic factors for the quarterly activity noted above and an increase of $5.6 million in fees generated by Blackstone’s financial and strategic advisory business. The increase was partially offset by a decrease of $12.1 million in fees from the restructuring and reorganization business.

CAPITAL AND LIQUIDITY

For Economic Net Income purposes, the weighted-average fully diluted adjusted unit count for the three and six month periods ended June 30, 2010 was 1,124.9 million units and 1,126.0 million units, respectively. The weighted-average fully diluted adjusted unit count for the three and six months periods ended June 30, 2009 was 1,123.6 million units and 1,127.9 million units, respectively.

The total number of units used in calculating cash distributions and Distributable Earnings per Adjusted Unit was 1,099.3 million units for the six month period ended June 30, 2010 and 1,091.6 million units for the six month period ended June 30, 2009.

As of June 30, 2010, Blackstone had $506.7 million in cash, $813.2 million invested in Blackstone’s Treasury cash management strategies which included high grade liquid debt strategies and $273.8 million invested in liquid Blackstone funds, against just under $600 million in borrowings from the 2009 bond issuance. Blackstone has no borrowings outstanding against its $1.07 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 August 13, 2010. This distribution will be paid on August 31, 2010.

For distributions related to fiscal 2010 and thereafter, 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 its annual Distributable Earnings 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. 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 will likely be smaller than the final quarterly distribution in respect of such year. In the fourth quarter Blackstone will distribute the remaining Distributable Earnings for the year, which is expected to also include realized Performance Fees and Allocations net of related compensation and realized net investment income.

In most years the aggregate amounts of Blackstone’s distributions to unitholders will not equal its Distributable Earnings for that year. Distributable Earnings will only be a starting point for the determination of the amount to be distributed to unitholders because as noted above, 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.

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 2010 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.

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Blackstone will host a conference call on July 22, 2010 at 11:00 a.m. ET to discuss second quarter 2010 results. The conference call can be accessed by dialing (888) 713-4209 (U.S. domestic) or +1 (617) 213-4863 (international) pass code 85648246. 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 13960154, beginning approximately two hours after the event.

About The Blackstone Group

Blackstone is one of the world’s 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 private equity funds, real estate funds, funds of hedge funds, credit-oriented funds and closed-end mutual funds. The Blackstone Group 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.

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, 2009, 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.