Blackstone Reports Q1 Earnings

The Blackstone Group this morning reported Q1 earnings, including a $93 million loss. This compared favorably to both an $824 million loss in Q4 2008, and a $94 million loss in Q1 2008.

PRESS RELEASE

The Blackstone Group L.P. (NYSE: BX):

Economic Net Income was a loss of $(93) million for the first quarter of 2009, significantly better than the loss of $(827) million in the fourth quarter of 2008 and about flat from a loss of $(94) million in the first quarter of 2008.

Net Fee Related Earnings from Operations were $90 million for the first quarter of 2009, up 32% from the first quarter of 2008.

Adjusted Cash Flows From Operations were $75 million during the first quarter of 2009, up from negative $(4) million for the first quarter of 2008.

GAAP Net Loss Attributable to The Blackstone Group L.P. was $(232) million in the first quarter of 2009, including transaction-related charges of $192 million, as compared to a GAAP Net Loss of $(251) million in the first quarter of 2008, which included transaction-related charges of $226 million.

Blackstone was awarded a Single-A rating with Stable Outlook by Standard & Poor’s.

Blackstone declares a quarterly priority distribution of $0.30 per common unit.

First Quarter 2009 Highlights

Management and Advisory Fees were $344.6 million, up from $320.8 million in the first quarter of 2008 and down from $389.2 million in the fourth quarter of 2008. Fee earning assets under management were approximately flat at $92.2 billion versus $92.9 billion at March 31, 2008 and up from $91.0 billion at December 31, 2008.

Fee-Earning Assets Under Management were higher in Private Equity and Real Estate year-over-year and lower in Marketable Alternative Asset Management, mostly as a result of our decision to eliminate two of our single-manager hedge funds, but also due to market declines in 2008. Both Blackstone’s credit-oriented and funds of hedge funds businesses experienced net inflows and positive performance in the first quarter of 2009.

Performance Fees and Allocations of negative $(213.8) million were an improvement from negative $(629.1) million for the fourth quarter of 2008, but down from negative $(188.4) million for the first quarter of 2008. Performance Fees and Allocations were positive for Corporate Private Equity and Marketable Alternative Asset Management.

Blackstone remains well positioned from a capital and liquidity perspective, with $776.3 million in available cash as of March 31, 2009, $400.1 million invested in liquid Blackstone Funds and $81.9 million in outstanding borrowings.

The Blackstone Group L.P. (NYSE: BX) today reported its first quarter 2009 results.

For the first quarter of 2009, Total Segment Revenues were $48.0 million as compared to negative $(621.4) million for the fourth quarter of 2008 and $32.3 million for the first quarter of 2008. The year-over-year change was driven by a lower net depreciation of the underlying portfolio investments in the Corporate Private Equity and Marketable Alternative Asset Management segments and increased Management and Advisory Fees in the Real Estate, Financial Advisory and Corporate Private Equity segments. These increases were partially offset by increased net depreciation of the underlying portfolio investments in the Real Estate segment.

GAAP results for the first quarter of 2009 included Revenues of $47.1 million, Other Loss of $(34.8) million and Net Loss Attributable to The Blackstone Group L.P. of $(231.6) million. For the first quarter of 2008, Revenues were $68.5 million, Other Loss was $(215.6) million and Net Loss Attributable to The Blackstone Group L.P. totaled $(251.0) million. On a GAAP basis, Net Cash Flows Provided by Operating Activities was $555.9 million for the first quarter of 2009 as compared to $115.2 million for the first quarter of 2008.

Global economies weakened further in the first quarter of 2009, while global markets were more variable. In the United States and Europe, equities markets declined in the double-digit range, while Asian markets rebounded approximately 15%-35% off of their lows. Loan pricing moderately improved in the first quarter of 2009 and modest debt issuance was visible. However, commercial mortgage backed securities markets remained mostly closed. Credit trends worsened across most consumer and commercial asset classes. Commodities prices, which dropped sharply in the second half of 2008, rose in the first quarter of 2009. Most currencies weakened against the U.S. dollar in the first quarter, with the U.S. dollar 5.5% higher against the Euro, 2.1% higher against the Pound Sterling and 9.1% higher against the Japanese Yen. Macro-economic weakness continues to negatively affect real estate fundamentals globally.

Several government initiatives to potentially stimulate lending, consumer spending and the functioning of debt capital markets were announced during the first quarter. The dollar amount of stimulus spending announced by governments worldwide is unprecedented. Lenders continue to severely restrict commitments to new debt, limiting industry-wide leveraged acquisition activity levels in both corporate and real estate markets. General acquisition activity has continued to decline, which has had a significant impact on several of our investment businesses.

Stephen A. Schwarzman, Chairman and Chief Executive Officer, said, “Blackstone continues to focus on its core investment and advisory businesses amidst a dynamic and challenging economic and market back-drop. We are a beneficiary of an altered competitive landscape, as Blackstone remains a trusted and stable partner to its institutional investors, advisory clients and employees. We will continue to channel the firm’s intellectual capital across business units to navigate market dislocations and find attractive investments with a favorable risk-reward balance.”

The table below details Blackstone’s Economic Net Income (Loss), Net Fee Related Earnings from Operations, Adjusted Cash Flows from Operations and Fee-Earning Assets Under Management as of, and for the quarters ended March 31, 2009 and 2008. Economic Net Income, Total Segments includes unrealized gains/losses and the direct compensation impact related to those gains/losses but excludes transaction-related charges.

As of and for the Quarter Ended March 31, Variance
2009 2008 $ %
(Dollars in Thousands, Except per Unit Amounts)
Economic Net Income (Loss), Total Segments
$ (93,202 ) $ (93,567 ) $ 365 –

Benefit for Income Taxes (a)
(10,772 ) (27,053 ) 16,281 60 %
Economic Net Income (Loss) After Taxes $ (82,430 ) $ (66,514 ) $ (15,916 ) -24 %

Economic Net Income (Loss) After Taxes per Adjusted Unit (b)

$ (0.07 ) $ (0.06 ) $ (0.01 ) -23 %
Net Fee Related Earnings from Operations $ 89,518 $ 67,561 $ 21,957 32 %
Adjusted Cash Flows from Operations

$ 74,784 $ (4,402 ) $ 79,186 N/M
Fee-Earning Assets Under Management:
Corporate Private Equity $ 25,461,139 $ 25,061,921 $ 399,218 2 %
Real Estate 22,867,992 18,795,343 4,072,649 22 %
Marketable Alternative Asset Management (c) 43,898,435 49,090,455 (5,192,020 ) -11 %
Total Fee-Earning Assets Under Management $ 92,227,566 $ 92,947,719 $ (720,153 ) -1 %
(a) Represents the implied benefit for income taxes calculated using the same methodology applied in calculating the tax provision for The Blackstone Group L.P.

(b) Adjusted Units represents the weighted-average fully diluted unit count for Economic Net Income purposes. A reconciliation of each of these items to the equivalent GAAP measure is presented in Exhibit 5 to this release.
(c) The variance of $5.2 billion is primarily attributed to a $3.3 billion decrease in Fee-Earning Assets Under Management related to Blackstone’s decision to restructure its Marketable Alternative Asset Management segment and liquidate two of its single manager proprietary hedge funds as well as market decreases in 2008.

SEGMENT REVIEW

Corporate Private Equity

Corporate Private Equity had revenues of $68.4 million in the first quarter of 2009, as compared with negative revenues of $(193.6) million for the fourth quarter of 2008 and negative $(116.7) million for the first quarter of 2008. The increase was driven by positive performance fees earned in one of Blackstone’s funds, partially offset by lower net depreciation in the total fair value of the segment’s underlying portfolio investments.

Net Fee Related Earnings from Operations were $19.9 million for the first quarter of 2009, an increase of $1.6 million as compared to the first quarter of 2008, down from $31.6 million for the fourth quarter of 2008, primarily due to lower transaction fees. Economic Net Income was $53.1 million for the first quarter of 2009 as compared to negative $(58.2) million for the first quarter of 2008.

Compensation and Benefits expense decreased to $(5.1) million from $22.5 million in the fourth quarter of 2008 and increased from $(80.8) million in the first quarter of 2008. The first quarter of 2008 included a $109.5 million reversal of prior period carried interest allocations to certain personnel, resulting from the net depreciation in fair value of certain portfolio investments, compared with a reversal of $40.7 million in the first quarter of 2009, which also reflected a change in our carry compensation plan. Other Operating Expenses were $20.5 million, down from $23.1 million in the fourth quarter of 2008 and $22.2 million in the first quarter of 2008.

Weighted-Average Fee-Earning Assets Under Management rose to $25.5 billion from $25.1 billion in the first quarter of 2008, driven principally by the deployment of capital.

Limited Partner Capital Deployed totaled $196.1 million for the first quarter of 2009, a decrease from $340.1 million deployed in the first quarter of 2008 and $1.1 billion in the fourth quarter of 2008.

Real Estate

Real Estate had revenues of negative $(211.9) million for the first quarter of 2009, as compared with revenues of negative $(477.8) million for the fourth quarter of 2008 and positive revenues of $47.9 million for the first quarter of 2008. The principal driver of the decline from the first quarter of 2008 was a net depreciation in the fair value of certain portfolio investments, which reflects revised operating projections of the portfolio companies. This decrease in fair value is reflected in Performance Fees and Allocations and Investment Income (Loss) and Other.

Net Fee Related Earnings from Operations were $30.5 million for the first quarter of 2009, an increase of $10.2 million as compared to the first quarter of 2008. The principal driver of the change from the first quarter of 2008 was an increase in Base Management Fees, partially offset by a decrease in transaction fees. Economic Net Income was negative $(187.9) million for the first quarter of 2009 as compared to negative $(3.9) million for the first quarter of 2008.

Compensation and Benefits were $(37.3) million, reflecting the reversal of prior period carried interest allocations to certain personnel, down from $(12.1) million in the fourth quarter of 2008 and $35.7 million for the first quarter of 2008. Other Operating Expenses were $13.3 million, up $1.0 million and down $2.9 million from the fourth quarter of 2008 and the first quarter of 2008, respectively.

Weighted-Average Fee-Earning Assets Under Management increased 21%, or $3.9 billion, from the first quarter of 2008 to $22.7 billion.

Limited Partner Capital Deployed totaled $215.1 million for the first quarter of 2009, a decrease from the $369.2 million and $258.6 million deployed in the first and fourth quarters of 2008, respectively.

Marketable Alternative Asset Management (MAAM)

MAAM had revenues of $99.5 million, compared with negative revenues of $(55.7) million for the fourth quarter of 2008 and positive revenues of $30.0 million for the first quarter of 2008. MAAM had positive performance fees, net of investment losses, of $6.7 million in the first quarter of 2009. The change from the first quarter of 2008 was driven by an increase in performance fees and decreases in investment losses.

Net Fee Related Earnings from Operations were $14.4 million for the first quarter of 2009, a decrease from $26.3 million for the first quarter of 2008 and $21.7 million for the fourth quarter of 2008. The main driver of the change from the first quarter of 2008 was a decrease in management fees. Economic Net Income was $14.4 million for the first quarter of 2009 as compared to negative $(44.6) million for the first quarter of 2008.

Compensation and Benefits were $61.1 million, up from $40.3 million in the fourth quarter of 2008 and $56.3 million for the first quarter of 2008. The increase from the fourth quarter of 2008 was principally driven by performance related compensation and the increase from the first quarter of 2008 stemmed from the acquisition of GSO in March 2008.

Weighted-Average Fee-Earning Assets Under Management for the first quarter of 2009 totaled $43.2 billion compared with $48.8 billion for the first quarter of 2008, an 11% decrease due to net depreciation in the fair value of investments, redemptions and Blackstone’s decision to eliminate two of its single-manager hedge funds.

Limited Partner Capital Deployed totaled $208.4 million for the first quarter of 2009, up from $19.4 million for the first quarter of 2008, primarily from activity in certain of Blackstone’s credit-oriented funds. Limited Partner Capital Deployed decreased 38% from the fourth quarter of 2008.

Financial Advisory

Revenues were $92.0 million for the first quarter of 2009, up 29% compared to the first quarter of 2008 and down 13% from the fourth quarter of 2008. An increase in Blackstone’s restructuring and reorganization advisory services business revenues was the primary driver for the increase from the first quarter of 2008.

Net Fee Related Earnings from Operations were $24.7 million for the first quarter of 2009, an increase of $22.1 million as compared to the first quarter of 2008 and $3.9 million from the fourth quarter of 2008. The primary catalyst for the increase from the first quarter of 2008 was higher restructuring and reorganization advisory services business revenues, partially offset by higher compensation. Economic Net Income was $27.1 million for the first quarter of 2009 as compared to $13.1 million for the first quarter of 2008.

Compensation and Benefits were $51.0 million, down from $56.9 million in the fourth quarter of 2008 and up from $47.0 million for the first quarter of 2008.

CAPITAL AND LIQUIDITY

For Economic Net Income purposes, the weighted-average fully diluted unit count (the “Adjusted Units”) for the first quarters of 2009 and 2008 was 1,132.2 million units and 1,127.2 million units, respectively.

The total number of units used in calculating cash distributions was 1,093.4 million units for the first quarter of 2009 and 1,082.2 million units for the first quarter of 2008.

As of March 31, 2009, Blackstone had $776.3 million in cash, $400.1 million invested in liquid Blackstone Funds and $81.9 million in outstanding borrowings. Blackstone has a new committed revolving credit facility for $850 million, which will be effective May 11, 2009 when the current facility expires.

Standard & Poor’s recently issued Blackstone an investment grade Single A rating, noting a stable outlook.(a)

(a) Rating agency ratings are not a recommendation to buy, sell or hold any security and they may be revised or withdrawn at any time by the rating agency.

DISTRIBUTION

The Blackstone Group L.P. has declared a quarterly distribution of $0.30 per common unit to record holders of common units at the close of business on May 29, 2009. This distribution will be paid on June 12, 2009.

Public common unitholders will continue to receive a priority distribution ahead of Blackstone personnel and others through 2009, but the amount of those distributions in respect of 2009 will be based on the amount of Adjusted Cash Flows from Operations generated in 2009 available for distributions and could fall below $1.20.

No distributions will be paid in respect of the first quarter of 2009 to Blackstone personnel and others with respect to their Blackstone Holdings Partnership units.

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Blackstone will host a conference call on May 6, 2009 at 10:00 a.m. ET to discuss first quarter 2009 results. The conference call can be accessed by dialing (888) 713-4211 (U.S. domestic) or +1 (617) 213-4864 (international) pass code 38820314. 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 94584511, 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 corporate private equity funds, real estate funds, funds of hedge funds, credit-oriented 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.