Build NYC Resource Corp. YMCA Of Greater New York; Non-Profit Organizations Primary Credit Analyst: Nick N Waugh, San Francisco (1) 617-530-8342; nick.waugh@standardandpoors.com Secondary Contact: Carolyn McLean, New York (1) 212-438-2383; carolyn.mclean@standardandpoors.com Table Of Contents Rationale Outlook Enterprise Profile Financial Profile Related Criteria And Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 30, 2015 1
Build NYC Resource Corp. YMCA Of Greater New York; Non-Profit Organizations Credit Profile US$40.92 mil rev bnds (YMCA of Greater New York) ser 2015 due 08/01/2040 Long Term Rating A-/Stable New Build NYC Resource Corp, New York YMCA of Greater New York, New York 2012 Long Term Rating A-/Stable Affirmed New York City Indl Dev Agy, New York YMCA of Greater New York, New York New York City Indl Dev Agy (YMCA of Greater New York) 2006 Long Term Rating A-/Stable Affirmed Rationale Standard & Poor's Ratings Services assigned its 'A-' rating to Build NYC Resource Corp.'s series 2015 revenue bonds issued for the YMCA of Greater New York (the Y). Concurrently, we affirmed our 'A-' rating on the Y's existing debt. The outlook is stable. The rating reflects our opinion of the Y's long history of providing programs and services in New York City with numerous facilities across the city, consistently positive operating results on a generally accepted accounting principles (GAAP) basis, diverse revenue base, and high-quality management team. These strengths are partially offset by the Y's modest financial resources and endowment for the rating category, and ongoing capital needs. The rating further reflects our view of the Y's: Long operating history of programs and services in New York City; Consistently positive operating performance on a full-accrual basis, with a diverse revenue base; Lack of additional near-term debt plans and a modest pro forma debt burden; Partnership approach for capital development that limits the Y's debt relative to its extensive facilities; and Strong management team that intends to continue generating balanced to positive operating results. Partially offsetting credit factors, in our view, include the Y's: Modest financial resources, with fiscal 2014 expendable resources equal to 31% of operating expenses and 62% of pro forma debt; Relatively modest endowment; and Ongoing capital needs related to building programs and facilities renewal. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 30, 2015 2
We expect that the Y will use the $41 million series 2015 fixed-rate bonds to refund the series 2006 bonds ($32 million) and provide about $10 million for capital improvements. The bonds are an unsecured general obligation of the YMCA. Post issuance, the Y will have about $90 million in debt outstanding. Total debt includes $48 million in series 2012 bonds. The amortization schedule is conservatively front-loaded with a maximum annual debt service (MADS) equal to a modest 4.2% of fiscal 2014 expenses. This provides the Y some flexibility. We understand that the Y has no additional debt plans in the near term. The YMCA of Greater New York is the largest in the U.S. and the biggest and most diverse YMCA in the world. Founded in 1852, The YMCA of Greater New York serves over 500,000 New Yorkers each year. The Y operates in 22 full-service branches, summer camp facilities in upstate New York, and more than 110 public schools, parks, and community centers throughout the five boroughs of New York City. The Y delivers programs that promote youth development, healthy living, and social responsibility, with programs reaching about 250,000 children and teens each year. The Y welcomed a new president and CEO in July 2015, following the retirement of its long-serving leader. In addition to a distinguished 33-member board of directors, each branch has a board of managers, which pursues specific program, membership, and fiscal objectives in line with overall organizational plans. Outlook The stable outlook reflects our expectation that during the next two years, the Y will maintain stable demand for its programs and services, generate positive results on a GAAP basis, and maintain stable financial resources relative to the rating category. We also expect the Y will not issue additional debt. We do not expect to raise the rating during the outlook period due to the modest level of financial resources and slim operating margins. We would consider a deterioration of operating performance on a full-accrual basis, additional debt without a commensurate increase in financial resources, or a significant reduction of financial resources as negative rating factors. Enterprise Profile Management The Y's long-serving president and CEO, Jack Lund, retired in June 2015 after 40 years of service (including 11 years in New York). The board selected Sharon Greenberger, formerly the senior vice president for facilities and real estate at New York-Presbyterian Hospital as the new president and CEO effective July 2015. Ms. Greenberger previously served in a variety of executive roles at the New York Department of Education, the New York City School Construction Authority, New York University, and the City of New York. Aside from this significant change, senior leadership is stable with no turnover at key positions for several years. Management budgets conservatively, including a provision for depreciation expense, and provides frequent interim budget-to-actual results for board review. We consider these best practices. The board of directors is stable with only routine rotations per term limit requirements. The board operates under a standard committee structure. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 30, 2015 3
Facilities The Y's 22 branches contain over 1.4 million of square feet and have an insured value of about $547 million. The Y owns all of the branches except for the recently opened Rockaway and Coney Island facilities. The facilities that the Y owns in New York have an average age of about 50 years, according to management. Despite ongoing maintenance and renovation of existing facilities, management indicates that capital needs remain significant. Management continually explores opportunities to replace and renovate older units. The organization partially meets its renewal, replacement, and expansion needs through partnering with private developers and the City of New York to build new facilities and upgrade existing branches. The Y opened three new facilities over the past 21 months in Prospect Park, the Rockaways, and Coney Island. Management reports that the facilities are fully staffed, and that demand for memberships is strong and consistent with budgeted expectations. The new Coney Island facility was created through a partnership with a developer, and the Y has use of the facility under a 40-year lease; the Y's lease payments were made in advance in June 2011. The Y booked a $19 million contribution (temporarily restricted funds) in fiscal 2014 to reflect the fair value of the use of the Coney Island branch for the next 40 years over the amount paid by the Y. The Y also closed on its Chinatown facility, where it had operated rent free for several years; the organization booked a $15 million capital contribution in fiscal 2014 to reflect this transaction. A total of $34 million of contributions were recorded in fiscal 2014 for the fair value of the properties in excess of the amount incurred by the Y to acquire the property or use the property for its economic life. The Y's ability to utilize partnerships to meet part of its facilities development needs is a credit strength. Financial Profile Operating performance The Y budgets conservatively and has historically generated break-even to positive operating performance on a GAAP basis, with positive results for the past four years. The Y had a $23.7 million surplus in fiscal 2014, a $2.7 million surplus (1.7% margin) in fiscal 2013, a $4.8 million surplus (3.1% margin) in fiscal 2012, and $1.8 million surplus (1.2% margin) in fiscal 2011. The fiscal 2014 surplus includes a $15 million unrestricted contribution for the Chinatown facility as previously mentioned, and about $400,000 released from restriction for the Coney Island facility lease. Excluding these contributions, the adjusted operating performance is solidly positive at about $8 million. With depreciation expense of $12 million, the Y's operations are consistently and solidly positive on a cash basis. The Y's revenue stream is diverse, with membership dues providing 41% of total revenues; programs services, 20%; housing, 17%; fee and grant revenues, 14%; and contributions, 6% of the fiscal 2015 budget. This is consistent with historical divisions. About 1% of revenues derive from endowment spending, which management determines by a policy of spending 5% of the 20-quarter average endowment market value. The revenue diversity provides flexibility and is a credit strength. Operating revenues have increased during the past five years. Revenues increased 23% in fiscal 2014 largely because of the one-time receipt of capital contributions, but also because of the opening of new facilities and growth across major revenue sources. Combined membership and program revenue increased about 6.2%, residence program revenues were up 6%, and government grants increased 13% in fiscal 2014 compared with the prior year levels. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 30, 2015 4
Retention averaged 62.1% for the five years ended Dec. 31, 2014, including 62.7% in fiscal 2014. Although retention is stable, it lags Y rates in other cities, partly due to the transient nature of New York's population; management would like to improve retention over time. Expense reductions, including staff reductions and time-management controls that began in fiscal 2008, helped to mitigate revenue reductions during the downturn, and have helped to maintain costs since. Expense growth has been modest in recent years due to tight internal controls. Expenses increased at a greater rate in fiscal 2014 due to the new facilities and additional government grants, but revenues are growing as well. We have a positive view of management's conservative budgeting approach. The Y expects another surplus in fiscal 2015. The Y's consistent generation of break-even to positive operating performance on a GAAP basis is a key credit strength, given the modest balance sheet. We expect operating surpluses will continue. Fundraising The Y is a good fundraiser and consistently raises between $8 million and $9 million in annual net unrestricted contributions. Fiscal 2014 was an exceptionally strong year for contributions, given the recognition of the Chinatown Y ($15 million) and the Coney Island facility ($19 million). The Y is wrapping up an $8 million capital campaign to raise funds to upgrade specific facilities. We expect that the Y will continue generating solid unrestricted gift revenues in the future, and that a larger campaign could emerge under the direction of the new president and CEO. Financial resources The Y's financial resources are light for the rating category, in our opinion. Expendable resources in fiscal 2014 are somewhat understated because of the large increase in plant property and equipment ($39 million) linked to the recognition of capital contributions, combined with a more modest increase in unrestricted net assets and essentially flat pro forma debt. Expendable resources were equal to 31% of operating expenses and 62% of pro forma debt, which we consider modest. Cash and investments, which is a more liberal measure of resources that includes restricted assets, were $68.5 million on Dec. 31, 2014, or 39% of expenses and 76% of pro forma debt. This level of cash and investments represents a new peak for the Y, but is similar to the $68 million in fiscal 2013. The cash balance was unusually high ($20 million) as of the fiscal year-end; however, we understand that management intends to spend funds on various capital projects during the next three years and that the cash will ultimately settle at about $10 million. The expected decline in resources makes the consistent generation of positive operating performance a key component in maintaining the rating. The YMCA's total investments, which consist of various trusts and board-designated endowments, was $56.8 million on Dec. 31, 2014, up from $43.9 million in 2011. The total pooled endowment of $49 million was invested in 79% equities, 16% fixed income, and 5% money market funds on Dec. 31, 2014, which is consistent with past allocations. We believe that the endowment is largely liquid, with about 88% of endowment assets classified as Level 1, and the rest classified as Level 2. The Y also has a beneficial interest in a perpetual trust with a fiscal 2014 market value of $8.6 million (classified as Level 3). The level of total endowment is modest relative to other not-for-profit rated entities in the category, but it is not inconsistent for a YMCA. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 30, 2015 5
Related Criteria And Research Related Criteria USPF Criteria: Non-Traditional Not-For-Profits, June 14, 2007 WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 30, 2015 6
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