This document is dated as of January 27, 2017

SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS. Certain of the discussions included in the following document may include certain “forward-looking statements” which involve known and unknown risks and uncertainties inherent in the operation of healthcare facilities. Actual actions or results may differ materially from those discussed below. Specific factors that might cause such differences include competition from other healthcare facilities in the service area of NYU Hospitals Center facilities, federal and state regulation of healthcare providers, and reimbursement policies of the state and federal governments and managed care organizations. In particular, statements preceded by, followed by or that include the words “believes,” “estimates,” “expects,” “anticipates,” “plans,” “intends,” “scheduled” or other similar expressions are or may constitute forward-looking statements.

QUARTERLY REPORT (UNAUDITED FINANCIAL INFORMATION) FOR THE THREE MONTHS ENDING NOVEMBER 30, 2016

Concerning NYU Hospitals Center The information in this report has been provided by NYU Hospitals Center

NYU HOSPITALS CENTER QUARTERLY REPORT FOR THE THREE MONTHS ENDING NOVEMBER 30, 2016

•

MANAGEMENT’S DISCUSSION & ANALYSIS ........................................................ 1

•

STATEMENT OF FINANCIAL POSITION................................................................. 8

•

STATEMENT OF OPERATIONS ................................................................................. 9

•

STATEMENT OF CHANGES IN NET ASSETS ....................................................... 10

•

STATEMENT OF CASH FLOWS ............................................................................... 11

•

UTILIZATION STATISTICS ....................................................................................... 12

•

PAYOR MIX BY DISCHARGES ................................................................................. 13

NYU HOSPITALS CENTER MANAGEMENT’S DISCUSSION & ANALYSIS OF RECENT FINANCIAL PERFORMANCE FOR THE THREE MONTHS ENDING NOVEMBER 30, 2016 Effective January 1, 2016, NYU Hospitals Center (“NYUHC”) and NYU Lutheran Medical Center based in Brooklyn (“Lutheran”), effectuated a full asset merger of Lutheran into NYUHC. In accordance with the Generally Accepted Accounting Principles ASC Topic 805, this transaction was accounted for by adopting the pooling of interest methodology with retrospective adjustments in prior period financial statements for the period in which the entities were under common control. Therefore, the accompanying financial statements for the year ended August 31, 2016 and for the three months ended November 30, 2016 reflect the financial position, operations, changes in net assets and cash flows of the NYUHC, including Lutheran, as if the merger had been completed on September 1, 2015. Presented below is Management’s discussion and analysis of NYUHC’s financial performance for the three month period ending November 30, 2016. Summary of Operations for the Three Months Ending November 30, 2016 and 2015 Results from Operations For the three months ending November 30, 2016, NYUHC recorded a gain from operations of $54.6 million or a 5.9% operating margin. Operating revenue was $930.2 million; 95% from patient revenue and 5% from other sources. Net patient service revenue totaled $879.8 million for the three months ending November 30, 2016, 50.4% from inpatient operations and 49.6% from outpatient operations. This represents a $75.0 million increase over the three months ending November 30, 2015. The Epic system was implemented at the Brooklyn campus for inpatient and outpatient registration, electronic medical records and billing at the end of August 2016. In the first weeks following the implementation, patient service volume was reduced due to clinical and administrative staff system acclimation and additional post-implementation training. In spite of this impact on volume, the revenue for the quarter remained better than the same period in the prior year for the combined organization. Management attributes the increase in net patient service revenue to continued growth in ambulatory services (including ambulatory surgery, cardiac catheterization, cardiac electrophysiology, Perlmutter Clinical Cancer Center, and musculoskeletal center visits), inpatient and outpatient payment rate increases, and continued improvement in revenue realization through revenue cycle initiatives. Net inpatient service revenue increased $17.2 million for the three month period ending November 30, 2016 compared to the prior year. Inpatient discharges, excluding routine newborn, decreased by 1,109 cases over the same period of the prior year. The case mix index through November 30, 2016 was 1.83. Net outpatient service revenue increased $57.8 million for the three month period ending November 30, 2016 compared to the prior year. Management attributes the growth in net outpatient service revenue from November 2015 to November 2016 primarily to increased volume arising from the continued expansion of the NYU School of Medicine (“NYUSoM”) Faculty Group Practices. Emergency room visits, excluding admissions, totaled 31,788 visits, an increase of 2,923 visits over the same period last year. Ambulatory services at the Perlmutter Clinical Cancer Center totaled 78,897; an increase of 11,624 1

compared to the same period ended November 2015. Other Ambulatory and outpatient visits increased by 8,981 visits from the prior year. NYUHC recorded net realized and unrealized losses from investments of $(3.8) million for the three months ending November 30, 2016 compared to the prior year net return of $5.9 million. Other Revenue for the three months ending November 30, 2016 totaled $36.5 million compared to prior year result of $16.1 million. The increase was attributed to the favorable investment results from NYUHC’s captive insurance company of $5.2 million compared to a loss of $(9.3) million from the prior year and $5.7 million revenue recognized from the New York State Delivery System Reform Incentive Payment Program.(See “Other Discussions”) Operating expenses for the three months ending November 30, 2016 totaled $875.6 million. Expenses were comprised as follows: 48% in salaries and benefits; 45% in supplies and other and Superstorm Sandy disaster related costs; 5% in depreciation and amortization; and 2% in interest. Operating expenses increased $116.5 million for the three months ending November 30, 2016 compared to the same period in the prior year. Salaries, benefits and supply expenses were up by $72.6 million due to increases in ambulatory care and other patient service expansion at both the Manhattan and Brooklyn campuses. In addition, nursing, security and other staff were increased at the Brooklyn campus to enhance current service levels. Pharmaceutical expense totaled $45.5 million, which is $3.6 million lower than the prior year due to a $19.7 million benefit provided by the 340B drug program during the period. Programmatic support paid to New York University School of Medicine (“NYUSoM”) for physician services were increased by $13.2 million to further enhance clinical services to the Brooklyn campus. Implementation of the Epic system at the Brooklyn campus resulted in approximately $6.6 million of one-time post implementation training and support expenses in the period. In addition, increased IT support for Epic, PeopleSoft and other new information systems at Lutheran totaled approximately $7.0 million during the period. Depreciation expense increased by $12.6 million over the prior period due to new assets placed in service including the Energy Building which is now fully operational. As of November 30, 2016, NYUHC transferred $12.5 million to NYUSoM which is reported within the other changes in unrestricted net assets of the statements of operations. The proceeds are to support certain joint strategic programs that are expected to promote the common missions of the two institutions. In addition, for the three-months ending November 30, 2016, NYUHC incurred approximately $26.7 million of costs for administrative, supervisory and teaching services purchased from the NYUSoM. The following other changes in unrestricted net assets, after the gain from operations of $54.6 million, were recorded for the three months ending November 30, 2016, resulting in a $133.3 million net increase in unrestricted net assets: •

$(12.5) million in mission support payment to NYUSoM;

•

$(8.1) million investment return primarily attributable to market results in the underlying asset portfolio;

•

$94.1 million in pension and postretirement obligations;

•

$1.2 million in grants for capital asset acquisitions; and 2

• $4.0 million in net assets released from restrictions for hazard mitigation (following satisfaction of certain requirements related to Superstorm Sandy FEMA grants). Statement of Financial Position Highlights – November 30, 2016 As of November 30, 2016, cash and cash equivalents totaled $130.7 million and assets limited as to use (both Board designated and an internally designated capital and program reserve fund) totaled $680.9 million. The capital and program reserve fund is reported within current and long-term assets in the financial statements. As calculated under the Master Trust Indenture that secures all of NYUHC’s bonds, days cash on hand equated to 103 days for the period ended November 30, 2016. Patient accounts receivable were $503.2 million, and accounts payable and accrued expenses (including disaster related costs) were $197.0 million at November 30, 2016. NYUHC has existing lines of credit with four commercial banks with an aggregate available amount of $500.0 million. Interest is payable on each of these lines of credit at LIBOR plus a spread of 60-70 basis points. As of November 30, 2016, total draws of $255.1 million had been made on these lines of credit. Current Activities In October 2016, NYU Langone Health System (the “Health System”) entered into an Affiliation Agreement with Winthrop University Hospital Association (“Winthrop”), a 591 bed acute care hospital located in Mineola, New York. The two-phase transaction contemplates the Health System becoming the sole corporate member of Winthrop, and no later than five years after the closing of phase one, Winthrop will merge with and into NYUHC, with the NYUHC being the successor entity. With Winthrop’s multiple ambulatory sites on Long Island and network of employed physicians, the affiliation is intended to support the Health System’s expansion throughout Queens, Nassau and Suffolk Counties. Completion of the proposed affiliation is subject to various regulatory and third party approvals and is expected to occur by spring 2017. There can be no assurance that all necessary regulatory approvals will be obtained. Superstorm Sandy Update New York University (“NYU”), on behalf of NYUHC, has initiated lawsuits against its primary insurer, Factory Mutual Insurance Company, and Turner Construction Company to recover additional insurance proceeds, but the ultimate outcome cannot be determined at this time and therefore no revenue relating to these lawsuits has been recorded for the three months ended November 30, 2016. Commitments Relating to the Merger of Lutheran Medical Center into NYUHC NYUHC and the Health System have committed $190.0 million of funding for the Brooklyn Campus over a five year period. The funding is comprised of $50 million to be used for investment in capital projects for clinical programs; $100 million to implement new electronic patient health record, billing, financial and other administrative information systems; and $40 million for investment in other capital projects and equipment. NYUHC expects to fund these commitments through existing investments, cash generated from operations, and proceeds from previously issued bonds. As of November 30, 2016, approximately $126.3 million has been funded. 3

Other Discussions NYUHC is also considering affiliating with other acute care hospitals located outside of Manhattan in areas where NYUHC believes that there may be a sufficient number of NYUHC-affiliated physicians to support such an affiliation. Other than the Health System affiliation with Winthrop noted above, no additional letters of intent or other binding documents have been executed in connection with such potential affiliations, and there can be no assurance any affiliations will be completed. NYUHC is the lead hospital in the NYU Lutheran PPS (formerly known as the Brooklyn Bridges PPS), a network of hospitals, primary care practices and other healthcare providers participating in the Delivery System Reform Incentive Payment Program (“DSRIP”). DSRIP is a New York State initiative to restructure the health care delivery system by reinvesting in the Medicaid program, with the primary goal of reducing avoidable hospital use by 25% over five years. After Lutheran merged into NYUHC, NYUHC met the criteria of a safety net provider to participate as a performing provider in DSRIP, because it meets the percentage requirements for Medicaid patients (35% for outpatient and 30% for inpatient). In 2015, the DSRIP program announced that approximately $127.8 million had been allocated to NYU Lutheran, as lead hospital of the NYU Lutheran PPS, of which $5.7 million was recorded as other revenue within the Statement of Operations as of November 30, 2016. To be eligible to receive the full amount of this allocation, the NYU Lutheran PPS must meet certain benchmarks and performance metrics over five years. There can be no assurance such requirements will be satisfied. In addition, in March 2016, NYUHC received two awards as part of the Capital Restructuring Financing Program to fund NYU Lutheran PPS projects at the Brooklyn Campus - approximately $29.2 million to fund the enterprise clinical platform implementation, and approximately $7.8 million to construct an observation unit. The awards are contingent upon meeting certificate of need and certain other regulatory approvals. Update on Campus Transformation Plan First Avenue Campus In 2007, the Medical Center Board of Trustees approved a campus transformation plan for the First Avenue Campus which provided for construction by NYUHC of an 830,200 square foot, 22-story clinical facility (the “Kimmel Pavilion”) and a 75,000 square foot facility housing a cogeneration and electric service plant serving the First Avenue Campus and NYUHC’s Department of Radiation Oncology (the “Energy Building”) and construction by NYUSM of a 300,000 square foot Science Building to house NYUSM’s research facilities (to be funded by New York University). Construction of the Kimmel Pavilion was originally scheduled to be completed in 2018. The project is to be funded by previously issued debt, philanthropy, and cash generated from operations. Actual spending totaled $707.5 million through November 2016, and an additional $741.5 million is budgeted through project completion. Construction of the Energy Building was completed in the summer of 2016. The Energy Building was funded by previously issued debt and cash generated from operations. NYUHC has established an internally designated fund which may be used by NYUHC to fund the Kimmel Pavilion and the Energy Building to the extent debt, philanthropy and cash flows are insufficient. As of November 30, 2016, the fund had $680.9 million of unrestricted assets.

4

On December 14, 2016, a fire occurred at the Kimmel construction site that resulted in damage to the unfinished building. The loss is insured and the residual cost to the Hospital, if any, is not expected to be material. Management is currently assessing whether the required repair work will have an impact on the anticipated project completion date. Cobble Hill ED NYUHC currently operates the Cobble Hill Emergency Department pursuant to a sublease from Fortis Property Group (“Fortis”), which is developing the former Long Island College Hospital campus for residential purposes. Pursuant to agreements among NYUHC, Fortis and the State University of New York (“SUNY”), once demolition and remediation of adjacent premises is completed, SUNY is expected to deed the cleared site to NYUHC at no cost, and NYUHC intends to construct a medical services building. The demolition of the existing site is currently underway by Fortis, which is projecting that the cleared site will be turned over to NYUHC for construction in the first quarter of calendar 2017. Assuming the site is cleared and conveyed to NYUHC as anticipated by Fortis, the project is expected to be completed in the second quarter of calendar 2019. NYUHC is currently planning the configuration of services to be offered at this site. Brooklyn Campus As part of the integration of the former Lutheran facilities, NYUHC is currently considering both near term and longer term enhancements to the Brooklyn campus. For example, in the next one to three years, NYUHC may repurpose some of the existing rehabilitation beds at Augustana for use as acute care beds. Any such conversion would require approval from the New York State Department of Health (“DOH”). In addition, management is developing a long range plan for the Brooklyn facilities that is currently expected to include new construction or substantial renovation anticipated to occur over the next five to ten years. No specific design configurations or cost estimates have been presented to or approved by the NYUHC board, although management believes the costs are likely to be material. Management currently anticipates that such costs would be funded from income generated from operations and potentially additional debt. Any borrowing in connection with such future plans would be made in compliance with the requirements of the Master Trust Indenture. Completion of the long range plan for the Brooklyn facilities is dependent on internal and external approvals and is subject to market conditions and other factors.

5

NYU HOSPITALS CENTER NOTES TO FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDING NOVEMBER 30, 2016

NOTE 1:

FINANCIAL INFORMATION The financial information furnished herein is unaudited and thus is subject to change; however, in the opinion of management, the information reflects all adjustments that are necessary to fairly state the financial position of NYUHC, and the results of its operations and changes in its unrestricted net assets for the interim periods indicated. NYUHC presumes that users of this interim financial information have read or have access to NYUHC audited financial statements and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The Financial Statements of NYUHC for the fiscal year ended August 31, 2016 are on file at www.emma.msrb.org and the information contained therein is hereby incorporated in this Quarterly Report. Patient volumes and net operating revenues are subject to seasonal variations caused by a number of factors, including, but not necessarily limited to, seasonal cycles of illness, climate and weather conditions, vacation patterns of both hospital patients and admitting physicians and other factors relating to the timing of elective hospital procedures. Interim operating results are not necessarily representative of operations for a full year for various reasons, including levels of occupancy and other patient volumes, interest rates, unusual or non-recurring items and other seasonal fluctuations. These same considerations apply to all year-to-year comparisons.

NOTE 2:

BASIS OF PRESENTATION The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States applied on a basis substantially consistent with that of the August 31, 2016 audited financial statements of NYUHC. They do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

NOTE 3:

USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, including estimated uncollectible accounts receivable for services to patients and the valuation of investments, and liabilities including estimated settlements with third party payors and malpractice insurance liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements. Estimates also affect the amounts of revenue and expenses reported during the period. There is at least a reasonable possibility that certain estimates will change by material amounts in the near term. Actual results could differ from those estimates.

6

NOTE 4:

RETIREMENT PLANS

NYUHC provides pension and similar benefits to its employees through several plans, including various multiemployer plans for union employees, a qualified noncontributory defined benefit plan primarily for eligible nonunion employees of NYUHC and certain of its related organizations, and a nonqualified defined benefit plan for certain executives. NYUHC also provides pension and similar benefits to certain employees through a defined contribution plan. NYUHC funds the noncontributory defined benefit plans in accordance with the minimum funding requirement of the Employee Retirement Income Security Act of 1974 (“ERISA”), plus additional amounts that NYUHC may deem appropriate from time to time. The Pension Protection Act of 2006 required certain changes to the minimum funding requirements, among other provisions, commencing in 2008. Amounts contributed to the defined benefit plans are based on actuarial valuations. Contributions to union plans are based on union employee gross salary levels and rates required under union contractual arrangements. Contributions to NYUHC’s defined contribution plan are generally based on percentages of annual salaries. Pension expense included in the statements of operations and changes in net assets for the three months ending November 30, 2016 totaled $24.5 million.

7

NYU Hospitals Center Statement of Financial Position (Amounts In Thousands)

(Unaudited) November 2016 Assets Current assets: Cash and cash equivalents Marketable securities Assets whose use is limited Assets whose use is limited - board designated Patient accounts receivable, less allowances for uncollectibles Due from related organizations Contributions receivable - current Inventories Other current assets Total current assets

$

Marketable securities Assets whose use is limited Assets whose use is limited - board designated Contribution receivable - long term Other assets Disaster recoveries receivable, less current portion Due from related organizations less current portion Property, plant and equipment, net Total assets

$

Liabilities and net assets Current liabilities: Current portion of long-term debt Accounts payable and accrued expenses Accounts payable and accrued expenses - disaster related Accrued salaries and related benefits Accrued interest payable Current portion of accrued postretirement liabilities Disaster recoveries - deferred revenues Deferred Revenues - others Due to related organization Other current liabilities Total current liabilities

$

130,745 3,805 15,977 22,826

(Audited) August 2016

$

174,414 3,790 6,141 20,001

503,245 68,311 30,724 47,095 106,934 929,662

478,671 30,724 48,158 96,039 857,938

22,565 84,073 658,110 99,691 150,543 44,681 9,500 2,984,546 4,983,371

22,664 88,945 770,874 98,624 145,620 44,681 9,500 2,867,965 4,906,811

$

44,202 191,004 5,953 118,863 27,265 1,956 84,254 11,693 2,163 40,720 528,073

50,584 201,358 5,815 128,262 10,897 1,956 84,430 11,338 25,086 41,811 561,537

Long-term debt, less current portion Accrued pension liabilities Accrued postretirement liabilities Other liabilities Total liabilities

1,728,002 232,360 68,380 246,691 2,803,506

1,620,123 360,540 77,548 241,743 2,861,491

Net assets: Unrestricted Temporarily restricted Permanently restricted Total net assets Total liabilities and net assets

1,779,093 387,724 13,048 2,179,865 4,983,371

1,645,814 386,458 13,048 2,045,320 4,906,811

$

8

$

NYU Hospitals Center Statement Of Operations For the Three Months Ending November 30, 2016 (Amounts In Thousands)

Operating revenue Net patient service revenue Grants and sponsored programs Affiliations Contributions Endowment distribution and return on short-term investments Commerical insurance recoveries Disaster recovery reimbursement Other revenue Net assets released from restrictions for operating purposes Total operating revenue

(Unaudited) November 2016

(Unaudited) November 2015

$

$

879,837 539 4,002 2,801 4,315 155 36,451

804,850 127 4,128 957 4,272 317 321 16,060

2,075 930,175

3,302 834,333

303,005 112,741 396,010 47,602 15,286 924 875,568

273,417 96,987 334,475 35,278 16,225 2,644 759,026

Gain from operations

54,607

75,307

Other items Gain on disposals of property, plant and equipment Disaster recovery reimbursement for capital Grants for capital asset acquisitions Investment return in excess of (less than) endowment distribution, net Mission based payment to NYUSoM

21 1,200 (8,086) (12,500)

20 2,290 1,669 (12,500)

35,242

66,786

94,090 3,947 133,279

(2,243) 15,000 189 7,309 87,041

Operating expenses Salaries and wages Employee benefits Supplies and other Depreciation and amortization Interest Disaster related activities Total operating expenses

Excess of revenue over expenses Changes in pension & postretirement obligations Equity Transfer Net assets released from restrictions for capital purposes Net assets released from restrictions for hazard mitigation Net change in unrestricted net assets

$

9

$

10

Net assets at beginning of year Excess of revenue over expenses Net assets released from restrictions for operations Net assets released from restrictions for capital purposes Net assets released from restrictions for hazard mitigation Change in pension and postretirement plans Gifts, bequests and other items Equity Transfer Investment return, net Appropriation of endowment distribution Total changes in net assets Net assets at end of year

$ 1,645,814 35,242 3,947 94,090 133,279 $ 1,779,093

$ 386,458 $ (2,075) (3,947) 7,387 162 (261) 1,266 $ 387,724 $

13,048 13,048

$ 2,045,320 35,242 (2,075) 94,090 7,387 162 (261) 134,545 $ 2,179,865

(Unaudited) For the Three Months Ending November 30, 2016 Temporarily Permanently Unrestricted Restricted Restricted Total

NYU Hospitals Center Statement of Changes in Net Assets (Amounts In Thousands)

$ 1,437,299 $ 228,654 7,756 70,130 (111,162) 13,137 208,515 $ 1,645,814 $

461,164 $ (13,525) (7,756) (70,130) 16,956 793 (1,044) (74,706) 386,458 $

13,045 3 3 13,048

(Audited) Year Ended August 31, 2016 Temporarily Permanently Unrestricted Restricted Restricted

$ 1,911,508 228,654 (13,525) (111,162) 16,959 13,137 793 (1,044) 133,812 $ 2,045,320

Total

11

12

13

3,215

35%

1,455 1,380 2,755 271 55 9,131

Medicaid

Blue Cross

Managed Care

Commercial & Other

Self-Pay Total 1% 100%

3%

30%

15%

16%

158 5,005

142

490

313

2,156

1,746

November 2016

November 2016

Medicare

Brooklyn Campus

Manhattan Campus

For the Three Months Ending November 30, 2016

Payor Mix by Discharges (Excluding Routine Newborn)

NYU Hospitals Center

3% 100%

3%

10%

6%

43%

35%

213 14,136

413

3,245

1,693

3,611

4,961

November 2016

Total NYUHC

2% 100%

3%

23%

12%

26%

35%

66 9,031

279

2,664

1,385

1,388

3,249

November 2015

Manhattan Campus

1% 100%

3%

29%

15%

15%

36%

116 6,120

245

427

345

2,743

2,244

2% 100%

4%

7%

6%

45%

37%

November 2015

Brooklyn Campus

182 15,151

524

3,091

1,730

4,131

5,493

1% 100%

3%

20%

11%

27%

36%

November 2015

Total NYUHC