10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number:  000-55777

CNL Healthcare Properties II, Inc.

(Exact name of registrant as specified in its charter)

Maryland	47-4524619
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
CNL Center at City Commons 450 South Orange Avenue Orlando, Florida	32801
(Address of principal executive offices)	(Zip Code)
Registrant’s telephone number, including area code (407) 650-1000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒  No☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐    No☒

The number of shares of the registrant’s outstanding Class A, Class T and Class I common stock as of August 1, 2018 was 883,268 shares, 3,224,163 shares and 418,923 shares, respectively.

CNL HEALTHCARE PROPERTIES II, INC.AND SUBSIDIARIES

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Information (unaudited):	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30
Item 4.	Controls and Procedures	30
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
Signatures		34

Item 1. Financial Statements

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	June 30,			December 31,
ASSETS	2018			2017
Real estate investment properties, net	$	30,580,570		$	31,085,939
Restricted cash		15,700,018			110,999
Cash		7,455,217			12,310,920
Intangibles, net		4,262,741			4,653,504
Other assets		317,198			192,423
Total assets	$	58,315,744		$	48,353,785
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages and notes payable, net	$	19,574,527		$	19,532,986
Due to related parties		1,284,848			836,647
Accounts payable and accrued liabilities		756,825			1,023,909
Other liabilities		432,333			450,311
Total liabilities		22,048,533			21,843,853
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized; none issued or outstanding	―			―
Class A Common stock, $0.01 par value per share, 700,000,000 shares authorized; 878,939 and 808,011 shares issued and 866,325 and 808,011outstanding, respectively		8,663			8,080
Class T Common stock, $0.01 par value per share, 700,000,000 shares authorized; 3,013,406 and 2,049,223 shares issued and 3,010,868 and 2,049,223 outstanding, respectively		30,109			20,492
Class I Common stock, $0.01 par value per share, 100,000,000 shares authorized; 348,644 and 160,490 shares both issued and outstanding, respectively		3,487			1,605
Capital in excess of par value		40,355,933			28,984,932
Accumulated loss		(2,399,408	)		(1,658,977	)
Accumulated distributions		(1,731,573	)		(846,200	)
Total stockholders' equity		36,267,211			26,509,932
Total liabilities and stockholders' equity	$	58,315,744		$	48,353,785

See accompanying notes to condensed consolidated financial statements.

2

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Quarter Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Revenues:
Resident fees and services	$	1,140,235		$	1,071,441		$	2,264,760		$	1,082,870
Rental income and tenant reimbursements		421,426		―				830,242		―
Total revenues		1,561,661			1,071,441			3,095,002			1,082,870
Operating expenses:
Property operating expenses		801,005			600,739			1,589,386			609,425
General and administrative expenses		286,398			251,250			606,082			485,788
Acquisition fees and expenses	―			―				818		―
Property management fees		91,703			71,872			175,715			71,872
Depreciation and amortization		456,189			322,768			910,607			322,768
Total operating expenses		1,635,295			1,246,629			3,282,608			1,489,853
Operating loss		(73,634	)		(175,188	)		(187,606	)		(406,983	)
Other income (expense):
Interest and other income		40		―				62		―
Interest expense and loan cost amortization		(262,772	)		(186,868	)		(507,704	)		(206,194	)
Total other expense		(262,732	)		(186,868	)		(507,642	)		(206,194	)
Loss before income taxes		(336,366	)		(362,056	)		(695,248	)		(613,177	)
Income tax expense		13,827			29,625			45,183			29,625
Net loss	$	(350,193	)	$	(391,681	)	$	(740,431	)	$	(642,802	)
Class A common stock:
Net loss attributable to Class A stockholders	$	(76,220	)	$	(141,987	)	$	(170,229	)	$	(236,680	)
Net loss per share of Class A common stock outstanding (basic and diluted)	$	(0.09	)	$	(0.27	)	$	(0.20	)	$	(0.53	)
Weighted average number of Class A common shares outstanding (basic and diluted)		864,904			521,373			843,755			447,072
Distributions declared per Class A common share	$	0.1440		$	0.1440		$	0.2880		$	0.2490
Class T common stock:
Net loss attributable to Class T stockholders	$	(246,458	)	$	(240,892	)	$	(517,514	)	$	(394,424	)
Net loss per share of Class T common stock outstanding (basic and diluted)	$	(0.09	)	$	(0.27	)	$	(0.20	)	$	(0.53	)
Weighted average number of Class T common shares outstanding (basic and diluted)		2,796,686			884,554			2,565,097			745,041
Distributions declared per Class T common share	$	0.1175		$	0.1168		$	0.2354		$	0.1918
Class I common stock:
Net loss attributable to Class I stockholders	$	(27,515	)	$	(8,802	)	$	(52,688	)	$	(11,698	)
Net loss per share of Class I common stock outstanding (basic and diluted)	$	(0.09	)	$	(0.27	)	$	(0.20	)	$	(0.53	)
Weighted average number of Class I common shares outstanding (basic and diluted)		312,234			32,321			261,149			22,097
Distributions declared per Class I common share	$	0.1314		$	0.1337		$	0.2626		$	0.2387

See accompanying notes to condensed consolidated financial statements.

3

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND 2017

	Common Stock
	Class A						Class T						Class I				Capital in									Total
	Number			Par			Number			Par			Number		Par		Excess of			Accumulated			Accumulated			Stockholders'
	of Shares			Value			of Shares			Value			of Shares		Value		Par Value			Loss			Distributions			Equity
Balance at December 31, 2017		808,011		$	8,080			2,049,223		$	20,492			160,490	$	1,605	$	28,984,932		$	(1,658,977	)	$	(846,200	)	$	26,509,932
Subscriptions received for common stock, including distribution reinvestments		65,726			657			949,264			9,493			186,687		1,867		12,536,152		―			―				12,548,169
Stock dividends issued		5,202			52			14,919			149			1,467		15		(216	)	―			―			―
Redemptions of common stock		(12,614	)		(126	)		(2,538	)		(25	)	―		―			(152,130	)	―			―				(152,281	)
Stock issuance and offering costs	―			―			―			―			―		―			(1,012,805	)	―			―				(1,012,805	)
Net loss	―			―			―			―			―		―		―				(740,431	)	―				(740,431	)
Cash distributions declared	―			―			―			―			―		―		―			―				(885,373	)		(885,373	)
Balance at June 30, 2018		866,325		$	8,663			3,010,868		$	30,109			348,644	$	3,487	$	40,355,933		$	(2,399,408	)	$	(1,731,573	)	$	36,267,211
Balance at December 31, 2016		325,119		$	3,251			308,587		$	3,086			8,454	$	85	$	6,226,141		$	(342,447	)	$	(57,361	)	$	5,832,755
Subscriptions received for common stock, including distribution reinvestments		328,484			3,285			594,682			5,946			35,872		359		10,185,732		―			―				10,195,322
Stock dividends issued		3,408			34			5,268			53			130		1		(88	)	―			―			―
Stock issuance and offering costs	―			―			―			―			―		―			(826,698	)	―			―				(826,698	)
Net loss	―			―			―			―			―		―		―				(642,802	)	―				(642,802	)
Cash distributions declared	―			―			―			―			―		―		―			―				(245,776	)		(245,776	)
Balance at June 30, 2017		657,011		$	6,570			908,537		$	9,085			44,456	$	445	$	15,585,087		$	(985,249	)	$	(303,137	)	$	14,312,801

See accompanying notes to condensed consolidated financial statements.

4

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six Months Ended
	June 30,
	2018			2017
Operating activities:
Net cash flows used in operating activities	$	(84,809	)	$	(121,090	)
Investing activities:
Acquisition of property		(6,000	)		(21,847,988	)
Capital expenditures		(34,269	)		(17,000	)
Net cash used in investing activities		(40,269	)		(21,864,988	)
Financing activities:
Subscriptions received for common stock through primary offering		12,039,730			10,091,137
Payment of underwriting compensation		(641,724	)		(641,509	)
Payment of cash distributions, net of distribution reinvestments		(376,934	)		(141,591	)
Redemptions of common stock		(152,281	)		—
Proceeds from mortgages and notes payable		—			16,050,000
Payment of loan costs		(10,397	)		(206,706	)
Net cash flows provided by financing activities		10,858,394			25,151,331
Net increase in cash and restricted cash		10,733,316			3,165,253
Cash and restricted cash at beginning of period		12,421,919			6,360,241
Cash and restricted cash at end of period	$	23,155,235		$	9,525,494
Supplemental disclosure of non-cash investing and financing activities:
Amounts incurred but not paid (including amounts due to related parties):
Acquisition fees and expenses related to asset acquisition	$	—		$	6,131
Loan costs	$	—		$	1,328
Selling commissions and Dealer Manager fees	$	20,711		$	12,418
Annual distribution and stockholder servicing fee	$	1,177,044		$	339,877
Assumption of liabilities on acquisition of property	$	—		$	170,918

See accompanying notes to condensed consolidated financial statements.

5

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2018 (UNAUDITED)

1. Organization

CNL Healthcare Properties II, Inc. (“Company”) is a Maryland corporation organized on July 10, 2015 that intends to qualify and may elect to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with the year ending December 31, 2017 or, as determined by its board of directors, the Company’s first year of material operations.  The Company is sponsored by CNL Financial Group, LLC (“Sponsor” or “CNL”) and was formed primarily to acquire and manage a diversified portfolio of healthcare real estate and real estate-related assets that it believes will generate a steady current return and provide long-term value to its stockholders.  It intends to focus on investing, primarily in the United States, within the seniors housing, medical office, acute care and post-acute care sectors, as well as other types of real estate and real estate-related securities and loans.

The Company is externally managed and advised by CHP II Advisors, LLC, (“Advisor”) an affiliate of CNL.  The Advisor provides advisory services to the Company relating to substantially all aspects of its investments and operations, including real estate acquisitions, asset management and other operational matters.  During the period from July 10, 2015 to December 31, 2015, the Company sold 20,000 shares of common stock to the Advisor for an aggregate purchase price of $0.2 million, and these shares were converted into 20,000 Class A shares upon the filing of the Company’s Articles of Amendment and Restatement in March 2016.

On March 2, 2016, pursuant to a registration statement on Form S-11 under the Securities Act of 1933, the Company commenced its initial public offering of up to $1.75 billion (“Primary Offering”), in any combination, of Class A, Class T and Class I shares of common stock on a “best efforts” basis, which means that CNL Securities Corp. (“Dealer Manager”), an affiliate of the Sponsor, will use its best efforts but is not required to sell any specific amount of shares.  The Company also intends to offer up to $250 million, in any combination, of Class A, Class T and Class I shares to be issued pursuant to its distribution reinvestment plan (“Reinvestment Plan” and, together with the Primary Offering, the “Offering”).  The Company reserves the right to reallocate the shares offered between the Primary Offering and the Reinvestment Plan.  

From the time of the Company’s formation on July 10, 2015 (inception) through July 10, 2016, the Company had not commenced operations because the Company was in its development stage and had not received the minimum required offering amount of $2.0 million in shares of common stock.  The Company broke escrow in its Offering effective July 11, 2016, through the sale of 250,000 Class A shares to its Advisor for $2.5 million and commenced operations.

The Company contributes the net proceeds from its Offering to CHP II Partners, LP (“Operating Partnership”) in exchange for partnership interests.  The Company intends to own substantially all of its assets either directly or indirectly through the Operating Partnership in which the Company is the sole limited partner and its wholly-owned subsidiary, CHP II GP, LLC, is the sole general partner.  The Operating Partnership may own assets through: (1) a wholly-owned taxable REIT subsidiary (“TRS”), CHP II TRS Holding, Inc. (“TRS Holdings”) and (2) property owner subsidiaries, which are single purpose entities.  

The Company has and generally expects to lease its seniors housing properties to single member limited liability companies wholly-owned by TRS Holdings and engage independent third-party managers under management agreements to operate the properties as permitted under the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”) structures; however, the Company may also lease its properties to third-party tenants under triple-net or similar lease structures, where the tenant bears all or substantially all of the costs (including cost increases for real estate taxes, utilities, insurance and ordinary repairs).  Medical office, acute care and post-acute care properties have and will generally be leased on a triple-net, net or modified gross basis to third-party tenants.  In addition, the Company expects most investments will be wholly-owned, although, it may invest through partnerships with other entities where the Company believes it is appropriate and beneficial.  The Company expects to invest in a combination of stabilized assets, new property developments and properties which have not reached full stabilization.  Finally, the Company may invest in and originate mortgage, bridge or mezzanine loans or in entities that make investments similar to the foregoing investment types.  The Company would generally make loans to the owners of properties to enable them to acquire land, buildings, or to develop property.  In exchange, the owner generally grants the Company a first lien or collateralized interest in a participating mortgage collateralized by the property or by interests in the entity that owns the property.

6

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2018 (UNAUDITED)

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles in the United States (“GAAP”).  The unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which, in the opinion of management, are necessary for the fair statement of the Company’s results for the interim period presented.  Operating results for the quarter and six months ended June 30, 2018 may not be indicative of the results that may be expected for the year ending December 31, 2018.  Amounts as of December 31, 2017 included in the unaudited condensed consolidated financial statements have been derived from audited consolidated financial statements as of that date but do not include all disclosures required by GAAP.  These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

The accompanying condensed consolidated financial statements include the accounts of the Company, the Operating Partnership and its other subsidiaries.  All material intercompany accounts and transactions have been eliminated in consolidation.  

Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the Company’s condensed consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.

Restricted Cash — As of June 30, 2018, the Company had approximately $15.5 million on deposit with a potential lender for an anticipated acquisition.  This cash deposit represents restricted use funds under the requirements of the lender’s loan commitment letter until such time as the Company either uses the cash deposit to fund the anticipated acquisition or the Company breaks the loan commitment with the lender.  While the Company’s cash deposit exceeds federally insured amounts, the Company continues to monitor the lender and believes it is not exposed to any significant credit risk given the short-term nature of the restricted use of its cash deposit.

Adopted Accounting Pronouncements — In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” as a new ASC topic (Topic 606).  The core principle of this ASU is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The ASU further provides guidance for any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards (for example, lease contracts).  The FASB subsequently issued ASU 2015-14 to defer the effective date of ASU 2014-09 until annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, with earlier adoption permitted.  In addition, the FASB issued ASU 2017-05, "Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20)," which clarifies the scope of subtopic 610-20, that was issued as a part of ASU 2014-09, as it relates to in-substance nonfinancial assets and must be adopted concurrently with ASC 606.  Both ASUs can be adopted using one of two retrospective transition methods: (i) retrospectively to each prior reporting period presented or (ii) as a cumulative-effect adjustment as of the date of adoption.  The Company adopted these ASUs using the modified retrospective approach as its transition method on January 1, 2018; the adoption of which did not have a material impact to its consolidated financial statements.

7

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2018 (UNAUDITED)

2. Summary of Significant Accounting Policies (continued)

In August 2017, the FASB issued ASU 2017-12 “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which amended the hedge accounting model to better reflect an entity’s risk management activities. The ASU expands an entities ability to hedge nonfinancial and financial risk components as well as reduce the complexity related to fair value hedges of interest rate risk. The ASU further eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The ASU is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2018. The Company early adopted this ASU prospectively on January 1, 2018; the adoption of which did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements — In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842): Accounting for Leases,” which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors).  The ASU requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months.  The ASU further modifies lessors’ classification criteria for leases and the accounting for sales-type and direct financing leases.  The ASU will also require qualitative and quantitative disclosures designed to give financial statement users additional information on the amount, timing, and uncertainty of cash flows arising from leases. The ASU is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2018 with early adoption permitted.  The ASU is to be applied using a modified retrospective approach.  The Company expects that adoption will impact the Company’s consolidated financial statements and related financial statement disclosures; specifically, the Company’s consolidated financial position as it relates to the required presentation for arrangements such as ground or other leases in which the Company is the lessee. However, the Company does not expect the adoption of this ASU to have a material impact on the Company’s consolidated results of operations or cash flows.  In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” which includes a practical expedient for lessors allowing them to elect to not separate lease and non-lease components in a contract for the purpose of revenue recognition and disclosure if certain criteria are met.  The Company plans to elect the practical expedient and apply to all leases that qualify under the established criteria.

In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting”, which expands the scope to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payments. The amendments also clarify that this topic does not apply to share-based payments used to provide financing to the issuer or awards granted in conjunction with selling of goods or services to customers as a part of a contract accounted for under Revenue from Contracts with Customers (Topic 606).  The ASU is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2018.  The Company is currently assessing the impact of adoption of this ASU will have on the Company’s consolidated financial statements.

3. Revenue

Resident fees and services are operating revenues relating to the Company’s managed seniors housing property, which is operated under a RIDEA structure.  Resident fees and services directly relate to the provision of monthly goods and services that are generally bundled together under a single resident agreement.   The Company accounts for its resident agreements as a single performance obligation under ASC 606 given the Company’s overall promise to provide a series of stand-ready goods and services to its residents each month.  Resident fees and services are recorded in the period in which the goods are provided and the services performed and generally consist of (1) monthly rent, which covers occupancy of the residents’ unit as well as basic services, such as utilities, meals and certain housekeeping services, and (2) service level charges, such as assisted living care, memory care and ancillary services.  Resident agreements are generally short-term in nature, billed monthly in advance and cancelable by the residents with a 30-day notice.  Resident agreements may require the payment of upfront fees prior to moving into the community with any non-refundable portion of such fees being recorded as deferred revenue and amortized over the estimated resident stay.

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CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2018 (UNAUDITED)

3. Revenue(continued)

The following table represents the disaggregated revenue for resident fees and services during the six months ended June 30, 2018 and 2017:

	Six Months Ended June 30,
							Percentage
Type of Investment	Number of Units		Revenues				of Revenues
Resident fees and services:	2018	2017	2018		2017		2018			2017
Assisted living	67	67	$	1,651,054	$	806,985		72.9	%		74.5	%
Memory care	22	22		584,920		270,755		25.8	%		25.0	%
Other revenues	―	―		28,786		5,130		1.3	%		0.5	%
	89	89	$	2,264,760	$	1,082,870		100.0	%		100.0	%

4. Real Estate Acquisitions

The Company made no acquisitions during the six months ended June 30, 2018.

During the six months ended June 30, 2017, the Company acquired Summer Vista, a seniors housing community in Pensacola, Florida, for a purchase price of approximately $21.4 million.  In connection therewith, the Company incurred approximately $0.6 million of acquisition fees and expenses, which were capitalized as a component of the cost of the assets acquired and allocated on a relative fair value basis.

The seniors housing community features 89 residential units and is operated under a RIDEA structure pursuant to a five-year property management agreement with SRI Management, LLC (“Superior Residences”).

The following summarizes the purchase price allocation for Summer Vista, and the related assets acquired and liabilities assumed in connection with the acquisition:

Land and land improvements	$	2,269,406
Buildings and building improvements		17,611,786
Furniture, fixtures and equipment		857,338
In-place lease intangibles (1)		1,286,507
Liabilities assumed		(170,918	)
Total purchase price consideration	$	21,854,119

FOOTNOTE:

⁽¹⁾ At the acquisition date, the weighted-average amortization period on the acquired in-place lease intangibles was approximately 2.5 years and is based on the expected unit turnover.

9

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2018 (UNAUDITED)

5. Real Estate Assets, net

The gross carrying amount and accumulated depreciation of the Company’s real estate assets as of June 30, 2018 and December 31, 2017 are as follows:

	June 30,			December 31,
	2018			2017
Land and land improvements	$	2,683,072		$	2,683,051
Building and building improvements		28,109,623			28,109,037
Furniture, fixtures and equipment		912,742			879,288
Less: accumulated depreciation		(1,124,867	)		(585,437	)
Real estate assets, net	$	30,580,570		$	31,085,939

Depreciation expense on the Company’s real estate assets, net was approximately $0.3 million and $0.5 million for the quarter and six months ended June 30, 2018, respectively, and approximately $0.2 million for both the quarter and six months ended June 30, 2017.

6. Intangibles, net

The gross carrying amount and accumulated amortization of the Company’s intangible assets and liabilities as of June 30, 2018 and December 31, 2017 are as follows:

	June 30,			December 31,
	2018			2017
In-place lease intangibles	$	3,495,754		$	3,495,632
Ground lease intangibles		1,543,910			1,543,824
Less: accumulated amortization		(776,923	)		(385,952	)
Intangible assets, net	$	4,262,741		$	4,653,504
Below-market lease intangibles	$	(340,409	)	$	(340,390	)
Less: accumulated amortization		15,276			—
Intangible liabilities, net (1)	$	(325,133	)	$	(340,390	)

FOOTNOTE:

⁽¹⁾ Intangible liabilities, net are included in other liabilities in the accompanying condensed consolidated balance sheets.

Amortization on the Company’s intangible assets was approximately $0.2 million and $0.4 million for the quarter and six months ended June 30, 2018, respectively, of which approximately $10,000 and $20,000 was treated as an increase of property operating expenses and approximately $0.2 million and $0.4 million was included in depreciation and amortization.  Amortization on the Company’s intangible assets was approximately $0.1 million for both the quarter and six months ended June 30, 2017, all of which was included in depreciation and amortization.

Amortization on the Company’s intangible liabilities was approximately $8,000 and $15,000 for the quarter and six months ended June 30, 2018, respectively, all of which was treated as an increase in rental income and tenant reimbursements.  There was no amortization expense on the Company’s intangible liabilities for the quarter and six months ended June 30, 2017.

10

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2018 (UNAUDITED)

7. Related Party Arrangements

The Company is externally advised and has no direct employees. All of the Company’s executive officers are executive officers, or on the board of managers of the Advisor. In addition, certain directors and officers hold similar positions with CNL Securities Corp., the Dealer Manager of the Offering and a wholly owned subsidiary of CNL. In connection with services provided to the Company, affiliates are entitled to the following fees:

Dealer Manager — In March 2017, the Company entered into an amended and restated dealer manager agreement pursuant to which the Dealer Manager receives a combined selling commission and dealer manager fee of up to 8.5% of the sale price for each Class A share and up to 4.75% of the sale price for each Class T share sold in the Primary Offering, all or a portion of which may be reallowed to participating broker dealers.  In addition, for Class T shares sold in the Primary Offering, the Dealer Manager may choose the respective amounts of the commission and dealer manager fee, provided that the selling commission shall not exceed 3.0% of the gross proceeds from the completed sale of such Class T shares.  

The Company has and will continue to pay a distribution and stockholder servicing fee, subject to certain underwriting compensation limits, with respect to the Class T and Class I shares sold in the Primary Offering in an annual amount equal to 1% and 0.50%, respectively, of the current gross offering price per Class T or Class I share, respectively, or if the Company is no longer offering shares in a public offering, the estimated per share value per Class T or Class I share, respectively.  The annual distribution and stockholder servicing fee will continue to be calculated as a percentage of the current gross offering price per Class T or Class I share until the Company reports an estimated per share value following the termination of the Primary Offering, at which point the distribution fee will be calculated based on the new estimated per share value, until such underwriting compensation limits are met or the shares are converted to Class A shares pursuant to the terms of the securities.

The Company records the annual distribution and stockholder servicing fees as a reduction to capital in excess of par value and measures the related liability in an amount equal to the maximum fees owed in relation to the Class T and Class I shares on the shares’ issuance date.  The liability is relieved over time, as the fees are paid to the Dealer Manager, or is adjusted if the fees are no longer owed on any Class T or Class I share that is redeemed or repurchased, as well as upon the earliest occurrence of: (i) a listing on a national securities exchange; (ii) a merger or consolidation of the Company with or into another entity, or the sale or other disposition of all or substantially all of the Company’s assets; (iii) after the termination of the Primary Offering in which the initial shares in the account were sold, the end of the month in which total underwriting compensation paid in the Primary Offering is not less than 10% of the gross proceeds from all share classes of the Primary Offering; (iv) the end of the month in which the total underwriting compensation paid in a Primary Offering with respect to shares purchased in a Primary Offering is not less than 8.5% of the gross offering price of those shares purchased in such Primary Offering (excluding shares purchased through the Reinvestment Plan and those received as stock dividends); or (v) any other conditions described in the Company’s prospectus.  

CNL Capital Markets, LLC — The Company will pay CNL Capital Markets, LLC, an affiliate of CNL, an annual fee payable monthly based on the average number of total investor accounts that will be open during the term of the capital markets service agreement pursuant to which certain administrative services are provided to the Company.  These services may include, but are not limited to, the facilitation and coordination of the transfer agent’s activities, client services and administrative call center activities, financial advisor administrative correspondence services, material distribution services and various reporting and troubleshooting activities.

11

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2018 (UNAUDITED)

7. Related Party Arrangements (continued)

Advisor — The Company will pay the Advisor a monthly asset management fee in an amount equal to 0.0667% of the monthly average of the sum of the Company’s and the Operating Partnership’s respective daily real estate asset value, without duplication, plus the outstanding principal amount of any loans made, plus the amount invested in other permitted investments.  For this purpose, “real estate asset value” equals the amount invested in wholly-owned properties, determined on the basis of cost, and in the case of properties owned by any joint venture or partnership in which the Company is a co-venturer or partner the portion of the cost of such properties paid by the Company, exclusive of acquisition fees and acquisition expenses and will not be reduced for any recognized impairment.  Any recognized impairment loss will not reduce the real estate asset value for the purposes of calculating the asset management fee.  The asset management fee, which will not exceed fees which are competitive for similar services in the same geographic area, may or may not be taken, in whole or in part as to any year, in the Advisor’s sole discretion.  All or any portion of the asset management fee not taken as to any fiscal year shall be deferred without interest and may be taken in such other fiscal year as the Advisor shall determine.

The Company will pay the Advisor a construction management fee of up to 1% of hard and soft costs associated with the initial construction or renovation of a property, or with the management and oversight of expansion projects and other capital improvements, in those cases in which the value of the construction, renovation, expansion or improvements exceeds (i) 10% of the initial purchase price of the property and (ii) $1 million in which case such fee will be due and payable as draws are funded for such projects.

The Advisor will receive an investment services fee of 2.25% of the purchase price of properties and funds advanced for loans or the amount invested in the case of other assets for services in connection with the selection, evaluation, structure and purchase of assets.  No investment services fee will be paid to the Advisor in connection with the Company’s purchase of securities.

The Advisor, its affiliates and related parties also are entitled to reimbursement of certain operating expenses in connection with their provision of services to the Company, including personnel costs, subject to the limitation that the Company will not reimburse the Advisor for any amount by which operating expenses exceed the greater of 2% of its average invested assets or 25% of its net income in any four consecutive fiscal quarters (“Expense Year”) unless approved by the independent directors.  The Company commenced its Primary Offering in March 2016 and made its first investment in March 2017.  For the Expense Year ended June 30, 2018, the Company’s total operating expenses were in excess of this limitation by approximately $0.4 million.  As of June 30, 2018, the Company had received cumulative approvals from its independent directors for total operating expenses in excess of this limitation of approximately $0.8 million.  The Company’s independent directors determined that the higher relationship of operating expenses to average invested assets was justified based on the level of capital raise, the limited number of investments to date, and the cost of operating a public company.

The Advisor will pay all other organizational and offering expenses incurred in connection with the formation of the Company, without reimbursement by the Company.  These expenses include, but are not limited to, Security and Exchange Commission (“SEC”) registration fees, Financial Industry Regulatory Authority (“FINRA”) filing fees, printing and mailing expenses, blue sky fees and expenses, legal fees and expenses, accounting fees and expenses, advertising and sales literature, transfer agent fees, due diligence expenses, personnel costs associated with processing investor subscriptions, escrow fees and other administrative expenses of the Offering.

For the quarter and six months ended June 30, 2018, the Company paid cash distributions of approximately $38,000, $76,000, respectively, and issued stock dividends of approximately 8,000 shares and 16,000 shares, respectively, to the Advisor.

12

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2018 (UNAUDITED)

7. Related Party Arrangements (continued)

Pursuant to an expense support arrangement, the Advisor has agreed to accept payment in restricted stock in lieu of cash for services rendered, in the event that the Company does not achieve established distribution coverage targets (“Expense Support Agreement”).  Under the terms of the Expense Support Agreement, for each quarter within a calendar expense support year, the Company will record a proportional estimate of the cumulative year-to-date period based on an estimate of the annual expense support expected for the calendar expense support year.  In exchange for services rendered and in consideration of the expense support provided under this arrangement, the Company shall issue, following each determination date, a number of shares of restricted stock equal to the quotient of the expense support amount provided by the Advisor for the preceding year divided by the board of directors’ most recent determination of net asset value (“NAV”) per share of the Class A common shares, if the board has made such a determination, or otherwise the most recent public offering price per Class A common share, on the terms and conditions and subject to the restrictions set forth in the Expense Support Agreement.  The restricted stock is subordinated and forfeited to the extent that shareholders do not receive a Priority Return on their Invested Capital (as such terms are defined in the Company’s prospectus), excluding for the purposes of calculating this threshold any shares of restricted stock owned by the Advisor.

The following fees for services rendered are expected to be settled in the form of restricted stock pursuant to the Expense Support Agreement for the quarter and six months ended June 30, 2018 and cumulatively as of June 30, 2018:

	Quarter Ended				Six Months Ended				As of
	June 30,				June 30,				June 30,
	2018		2017		2018		2017		2018
Fees for services rendered:
Asset management fees	$	70,800	$	42,800	$	141,600	$	43,260	$	271,966
Advisor personnel expenses  (1)		123,142		122,135		249,771		224,399		686,174
Total fees for services rendered	$	193,942	$	164,935	$	391,371	$	267,659	$	958,140
Then-current offering price or NAV	$	10.06	$	10.93	$	10.06	$	10.93	$	10.06
Restricted stock shares  (2)		19,279		15,090		38,904		24,488		95,243
Cash distributions on restricted stock  (3)	$	8,113	$	—	$	8,113	$	—	$	8,113
Stock dividends on restricted stock (4)		170	―			170	―			170

FOOTNOTES:

⁽¹⁾ Amounts consist of personnel and related overhead costs of the Advisor or its affiliates (which, in general, are those expenses relating to the Company’s administration on an on-going basis) that are reimbursable by the Company.

⁽²⁾ Represents restricted stock shares issued or expected to be issued to the Advisor as of June 30, 2018 pursuant to the Expense Support Agreement.  No fair value was assigned to the restricted stock shares as the shares are expected to be valued at zero upon issuance, which represents the lowest possible value estimated at vesting.  In addition, the restricted stock shares will be treated as unissued for financial reporting purposes until the vesting criteria are met.

⁽³⁾ The cash distributions have been recognized as compensation expense as issued and included in general and administrative expense in the accompanying condensed consolidated statements of operations.

⁽⁴⁾ The par value of the stock dividends has been recognized as compensation expense as issued and included in general and administrative expense in the accompanying condensed consolidated statements of operations.

13

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2018 (UNAUDITED)

7. Related Party Arrangements (continued)

The fees payable to the Dealer Manager for the quarter and six months ended June 30, 2018 and 2017, and related amounts unpaid as of June 30, 2018 and December 31, 2017 are as follows:

	Quarter Ended				Six Months Ended				Unpaid amounts as of  (1)
	June 30,				June 30,				June 30,		December 31,
	2018		2017		2018		2017		2018		2017
Selling commissions (2)	$	89,834	$	150,493	$	221,675	$	343,369	$	3,200	$	10,000
Dealer manager fees (2)		110,527		76,915		276,283		260,651		17,511		18,150
Distribution and stockholder servicing fees (2)		221,469		47,882		514,847		222,678		1,177,044		798,524
	$	421,830	$	275,290	$	1,012,805	$	826,698	$	1,197,755	$	826,674

The expenses incurred by and reimbursable to the Company’s related parties for the quarter and six months ended June 30, 2018 and 2017, and related amounts unpaid as of June 30, 2018 and December 31, 2017 are as follows:

	Quarter Ended				Six Months Ended				Unpaid amounts as of  (1)
	June 30,				June 30,				June 30,		December 31,
	2018		2017		2018		2017		2018		2017
Reimbursable expenses:
Operating expenses (3)	$	263,201	$	240,883	$	526,795	$	431,409	$	87,093		197,235
Acquisition fees and expenses		601		20,000		1,503		21,889	―		―
		263,802		260,883		528,298		453,298		87,093		197,235
Investment Service Fees (4)	―		―		―			481,500	―		―
Asset Management Fees (5)		70,800		42,800		141,600		43,260	―		―
	$	334,602	$	303,683	$	669,898	$	978,058	$	87,093	$	197,235

FOOTNOTES:

⁽¹⁾ Amounts are recorded as due to related parties in the accompanying condensed consolidated balance sheets.

⁽²⁾ Amounts are recorded as stock issuance and offering costs in the accompanying condensed consolidated statements of stockholders’ equity.

⁽³⁾ Amounts are recorded as general and administrative expenses in the accompanying condensed consolidated statements of operations unless such amounts represent prepaid expenses, which are capitalized in the accompanying condensed consolidated balance sheets. For the quarter and six months ended June 30, 2018, approximately $0.1 million and $0.2 million, respectively, of personnel expenses of affiliates of the Advisor are expected to be settled in accordance with the terms of the Expense Support Agreement and as such our general administrative expenses were reduced by approximately $0.1 million and $0.2 million, respectively. For the quarter and six months ended June 30, 2017, approximately $0.1 million and $0.2 million, respectively, of personnel expenses of affiliates of the Advisor were settled in accordance with the terms of the Expense Support Agreement.

⁽⁴⁾ For the quarter and six months ended June 30, 2018, the Company did not incur any investment services fees. For the six months ended June 30, 2017, the Company incurred approximately $0.5 million in investment services fees of which approximately $0.5 million was capitalized and included in real estate investment properties, net in the accompanying condensed consolidated balance sheets. No such fees were incurred for the quarter ended June 30, 2017.

⁽⁵⁾ For the quarter and six months ended June 30, 2018, the Company incurred approximately $0.1 million and $0.1 million, respectively, in asset management fees, all of which are expected to be settled in accordance with the terms of the Expense Support Agreement.  For the quarter and six months ended June 30, 2017, the Company incurred approximately $43,000 and $43,000 in asset management fees, respectively, all of which were settled in accordance with the terms of the Expense Support Agreement.

14

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2018 (UNAUDITED)

8. Equity

Subscription Proceeds — As of June 30, 2018 and 2017 , the Company had received aggregate subscription proceeds of approximately $44.0 million (4.2 million shares) and $16.8 million (1.6 million shares), respectively, both of which include $200,000 (20,000 shares) of subscription proceeds received from the Advisor prior to the commencement of the Offering, approximately $251,250 (25,125 shares) of subscription proceeds received in connection with a private placement made in 2016 and approximately $901,000 (90,000 shares) and $108,000 (10,800 shares), respectively, of subscription proceeds pursuant to the Reinvestment Plan.

Distributions — For the six months ended June 30, 2018 and 2017, the Company declared and paid cash distributions of approximately $0.9 million and $0.3 million, respectively, which were net of class-specific expenses.  In addition, the Company declared and issued stock dividends of approximately 22,000 and 9,000 shares of common stock during the six months ended June 30, 2018 and 2017, respectively.

For the six months ended June 30, 2018 and 2017, 100.0% of the cash distributions paid to stockholders were considered a return of capital to stockholders for federal income tax purposes.  No amounts distributed to stockholders for the six months ended June 30, 2018 and 2017 were required to be or have been treated by the Company as a return of capital for purposes of calculating the stockholders’ return on their invested capital as described in the Company’s advisory agreement.  The distribution of new common stock shares to recipients is non-taxable.

In June 2018, the Company’s board of directors declared a monthly cash distribution of $0.0480, less class-specific expenses, and a monthly stock dividend of 0.00100625 shares on each outstanding share of common stock on July 1, 2018, August 1, 2018 and September 1, 2018.  These distributions and dividends are to be paid and distributed by September 30, 2018.

Redemptions — During the six months ended June 30, 2018, the Company received requests for the redemption of common stock of approximately $25,000 in Class T shares and $127,000 in Class A shares, which were approved for redemption at an average price of $10.00 and $10.06, respectively, and paid in March 2018 and June 2018, respectively.  There were no redemptions requested during the six months ended June 30, 2017.

9. Income Taxes

The accompanying condensed consolidated financial statements include an interim tax provision for the quarter and six months ended June 30, 2018 and 2017 as the Company intends to qualify and may elect to be taxed as a REIT for U.S. federal income tax purposes beginning with the year ending December 31, 2017 or, as determined by its board of directors, the Company’s first year of material operations.  The Company recorded a total provision for income taxes of approximately $14,000 and $45,000 for the quarter and six months ended June 30, 2018, respectively, and $30,000 for both the quarter and six months ended June 30, 2017.  Of the approximate $45,000 in income tax expense for the six months ended June 30, 2018, approximately $43,000 represent current income tax expense, and approximately $2,000 represent a decrease to the Company’s net deferred tax assets which is primarily due to the reversal of the existing taxable temporary differences.  Of the approximate $30,000 in income tax expense for the six months ended June 30, 2017, $36,000 represents current income tax and $6,000 represents total deferred tax benefit.

10. Commitments and Contingencies

From time to time, the Company may be a party to legal proceedings in the ordinary course of, or incidental to the normal course of, its business, including proceedings to enforce its contractual or statutory rights.  While the Company cannot predict the outcome of these legal proceedings with certainty, based upon currently available information, the Company does not believe the final outcome of any pending or threatened legal proceeding will have a material adverse effect on its results of operations or financial condition.

15

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2018 (UNAUDITED)

11. Subsequent Events

During the period from July 1, 2018 through August 1, 2018, the Company received additional subscription proceeds of approximately $3.1 million (0.3 million shares).

16

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Caution Concerning Forward-Looking Statements

Statements contained under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q for the fiscal quarter and six months ended June 30, 2018 (“Quarterly Report”) that are not statements of historical or current fact may constitute “forward-looking statements” within the meaning of the Federal Private Securities Litigation Reform Act of 1995.  The Company intends that such forward-looking statements be subject to the safe harbor created by Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”).  Forward-looking statements are statements that do not relate strictly to historical or current facts, but reflect management’s current understandings, intentions, beliefs, plans, expectations, assumptions and/or predictions regarding the future of the Company’s business and its performance, the economy, and other future conditions and forecasts of future events and circumstances.  Forward-looking statements are typically identified by words such as “believes,” “expects,” “anticipates,” “intends,” “estimates,” “plans,” “continues,” “pro forma,” “may,” “will,” “seeks,” “should,” “could” and words and terms of similar substance in connection with discussions of future operating or financial performance, business strategy and portfolios, projected growth prospects, cash flows, costs and financing needs, legal proceedings, amount and timing of anticipated future distributions, estimates of per share net asset value of the Company’s common stock, and/or other matters.  The Company’s forward-looking statements are not guarantees of future performance.  While the Company’s management believes its forward-looking statements are reasonable, such statements are inherently susceptible to uncertainty and changes in circumstances.  As with any projection or forecast, forward-looking statements are necessarily dependent on assumptions, data and/or methods that may be incorrect or imprecise, and may not be realized.  The Company’s forward-looking statements are based on management’s current expectations and a variety of risks, uncertainties and other factors, many of which are beyond the Company’s ability to control or accurately predict.  Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the Company’s actual results could differ materially from those set forth in the forward-looking statements due to a variety of risks, uncertainties and other factors.  Given these uncertainties, the Company cautions you not to place undue reliance on such statements.  

For further information regarding risks and uncertainties associated with the Company’s business, and other important factors that could cause the Company’s actual results to vary materially from those expressed or implied in its forward-looking statements, please refer to the risk factors listed and described in the Company’s  Annual Report on Form 10-K for the year ended December 31, 2017, as well as Part II, Item 1A in our Quarterly Report on Form 10-Q for the quarter end March 31, 2018, copies of which may be obtained from the Company’s website at www.cnlhealthcarepropertiesii.com.

All written and oral forward-looking statements attributable to the Company or persons acting on its behalf are qualified in their entirety by this cautionary note. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to, and expressly disclaims any obligation to, publicly release the results of any revisions to its forward-looking statements to reflect new information, changed assumptions, the occurrence of unanticipated subsequent events or circumstances, or changes to future operating results over time, except as otherwise required by law.

Introduction

The following discussion is based on the condensed consolidated financial statements as of June 30, 2018 (unaudited) and December 31, 2017.  Amounts as of December 31, 2017, included in the unaudited condensed consolidated financial statements have been derived from the audited consolidated financial statements as of that date.  This information should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto, as well as the audited consolidated financial statements, notes thereto and management’s discussion and analysis included in our Annual Report on Form 10-K for the year ended December 31, 2017.

17

Overview

CNL Healthcare Properties II, Inc. (referred to herein as “we”, “us”, “our” or the “Company”) is a Maryland corporation that incorporated on July 10, 2015 and intends to qualify and may elect to be taxed as a REIT for U.S. federal income tax purposes beginning with the year ending December 31, 2017 or, as determined by the board of directors, the first year in which we commence material operations.

We are externally managed and advised by our Advisor, CHP II Advisors, LLC.  Our Advisor is responsible for managing our day-to-day affairs and for identifying and making acquisitions and investments on our behalf.  We had no operations prior to the commencement of our Primary Offering.  

Our investment focus is on acquiring a diversified portfolio of healthcare real estate or real estate-related assets, primarily in the United States, within the seniors housing, medical office, post-acute care and acute care asset classes. The types of seniors housing that we may acquire include active adult communities (age-restricted and age-targeted housing), independent and assisted living facilities, continuing care retirement communities, and memory care facilities.  The types of medical office properties that we may acquire include medical office buildings, specialty medical and diagnostic service facilities, surgery centers, outpatient rehabilitation facilities, and other facilities designed for clinical services. The types of post-acute care facilities that we may acquire include skilled nursing facilities, long-term acute care hospitals and inpatient rehabilitative facilities.  The types of acute care facilities that we may acquire include general acute care hospitals and specialty surgical hospitals.  We view, manage and evaluate our portfolio homogeneously as one collection of healthcare assets with a common goal of maximizing revenues and property income regardless of the asset class or asset type.

We are committed to investing the proceeds of our Offering through strategic investment types aimed to maximize stockholder value by generating sustainable cash flow growth and increasing the value of our healthcare assets.  We have and generally expect to lease seniors housing properties to single member limited liability companies wholly-owned by TRS Holdings and engage independent third-party managers under management agreements to operate the properties as permitted under RIDEA structures; however, we may also lease our properties to third-party tenants under triple-net or similar lease structures, where the tenant bears all or substantially all of the costs (including cost increases for real estate taxes, utilities, insurance and ordinary repairs).  Medical office, post-acute care and acute care properties have and generally will be leased on a triple-net, net or modified gross basis to third-party tenants.  In addition, we expect most investments will be wholly owned, although, we may invest through partnerships with other entities where we believe it is appropriate and beneficial.   We expect to invest in a combination of stabilized assets, new property developments and properties which have not reached full stabilization.  Finally, we also may invest in and originate mortgage, bridge or mezzanine loans or in entities that make investments similar to the foregoing investment types.  We generally make loans to the owners of properties to enable them to acquire land, buildings, or to develop property.  In exchange, the owner generally grants us a first lien or collateralized interest in a participating mortgage collateralized by the property or by interests in the entity that owns the property.

From the commencement of our Offering until September 15, 2017, our net investment value per share for Class A, Class T and Class I shares was $10.00 per share, which was based on the “amount available for investment/net investment amount” percentage shown in the Estimated Use of Proceeds section of our prospectus.  From September 16, 2017 until March 13, 2018 our board of directors adopted an estimated NAV of $10.00 per share for each class of our common stock.  On March 14, 2018, our board of directors adopted an estimated NAV of $10.06 per share for each class of our common stock outstanding as of December 31, 2017.  For additional information on the determination of our estimated NAV, please refer to our Current Report on Form 8-K, filed with the SEC on March 15, 2018.

Portfolio Overview

We believe recent demographic trends and compelling supply and demand indicators present a strong case for an investment focus on healthcare real estate or real estate-related assets. We believe that the healthcare sector will continue to provide attractive opportunities as compared to other asset sectors over the long-term.  

18

As of August 1, 2018, our healthcare investment portfolio consisted of interests in one seniors housing property and one medical office building (“MOB”).  Our seniors housing property, Summer Vista, is operated under a RIDEA structure pursuant to a property management agreement with SRI Management, LLC, which represents our only RIDEA operator as of August 1, 2018.  Our MOB, Mid America Surgery Institute, consisted of five tenants with the largest tenant, Mid America Surgery Institute, accounting for 50.6% of total rentable square feet.

While we are not directly impacted by the performance of our third-party tenants, we believe that the financial and operational performance of our tenants provides an indication about the stability of our tenants and their ability to pay rent. To the extent that our tenants or property managers experience operating difficulties and become unable to generate sufficient cash to make rent payments to us, there could be a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. Our tenants and property managers are generally contractually required to provide this information to us in accordance with their respective lease and/or management agreements. Therefore, in order to mitigate the aforementioned risk, we monitor our investments through a variety of methods determined by the type of property.

Management reviews certain operating and other statistical measures of the underlying property such as occupancy levels and revenue per occupied unit (“RevPOU”), which we define as total revenue before charges for ancillary and care services offered at the community divided by average number of occupied units. As of June 30, 2018, 99% of resident units were occupied at Summer Vista.  The average monthly RevPOU as of June 30, 2018 and 2017 was $4,059 and $3,845 for assisted living units, respectively, and $4,415 and $4,014 for memory care units, respectively.  As of June 30, 2018, there were 42 residents on a waitlist indicating interest for units as they become available.  

Similarly, within the medical office class, management reviews operating statistics of the underlying properties, including occupancy levels and monthly rent per square foot.  As of June 30, 2018, Mid America Surgery was 100% leased to five tenants with a remaining weighted average lease term of approximately 8.7 years.  The average monthly rent per square foot as of June 30, 2018 was $2.19.  

We monitor the performance of our third-party operator(s) to stay abreast of material changes in the operations of underlying property by (1) reviewing the current, historical and prospective operating margins (measured by earnings before interest, taxes, depreciation, amortization and facility rent), (2) monitoring trends in the source of our revenue, including relative mix of payors (including Medicare, Medicaid, etc.) and private payors (including commercial insurance and private pay patients), (3) evaluating the effect of evolving healthcare legislation and other regulations on our profitability and liquidity, and (4) reviewing the competition and demographics of the local and surrounding areas in which we operate.

Liquidity and Capital Resources

General

Our primary source of capital for items other than acquisitions of real estate is expected to be the net proceeds from our Offering.  We will use such amounts for investments in properties and other permitted investments, as well as the payment or reimbursement of fees and expenses relating to the selection, acquisition and development of properties and other permitted investments.  Generally, once we are fully invested, we expect to meet cash needs for items other than acquisitions from our cash flows from operations, and we expect to meet cash needs for acquisitions from net proceeds from our Offering and borrowings.  However, until such time as we are fully invested, we may use proceeds from our Offering and/or borrowings to pay all or a portion of our operating expenses, distributions and debt service.

The number of properties and other permitted investments we may acquire or make will depend on the number of shares sold through our Offering and the resulting net proceeds available for investment.  If the number of shares sold is substantially less than the maximum amount of the Offering, we would likely make a limited number of investments resulting in our healthcare real estate portfolio being less diversified in terms of the type, number and amount of investments.  If our healthcare real estate portfolio is concentrated in a small number of investments, the value of an investment in us will fluctuate with the performance of the specific assets we acquire and, therefore, expose our stockholders to increased risk.  In addition, many of our operating expenses as a public company are fixed regardless of the number of investments in our healthcare real estate portfolio.  Therefore, an inability to raise substantial funds in our Offering or otherwise would increase our fixed operating expenses as a percentage of gross income and, in turn, reduce the amount of proceeds available for distribution to our stockholders.

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We intend to strategically leverage our real estate assets and use debt as a means of providing additional funds for the acquisition of properties and the diversification of our portfolio.  Our ability to increase our diversification through borrowings could be adversely affected by credit market conditions, which could result in lenders reducing or limiting funds available for loans, including loans collateralized by real estate.  We may also be negatively impacted by rising interest rates on any unhedged variable rate debt or the timing of when we seek to refinance existing debt.  During times when interest rates on mortgage loans are high or financing is otherwise unavailable on a timely basis, we may purchase certain properties for cash with the intention of obtaining a mortgage loan for a portion of the purchase price at a later time.  Potential future sources of capital include proceeds from collateralized or uncollateralized financings from banks or other lenders.  If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures.  As of June 30, 2018 and December 31, 2017, our debt leverage ratio was approximately 33.6% and 40.4% of the aggregate carrying value of our assets, respectively.

Sources of Liquidity and Capital Resources

Common Stock Subscriptions

We have received gross offering proceeds in sufficient to satisfy the minimum offering amounts in all states where we are conducting our offering except Pennsylvania.

For the six months ended June 30, 2018 and 2017, we received aggregate subscription proceeds of approximately $12.0 million (1.2 million shares) and $10.1 million (0.9 million shares), respectively, and approximately $0.5 million (0.05 million shares) and $0.1 million (0.01 million shares), respectively, of subscription proceeds received pursuant to our Reinvestment Plan.  

For the period from July 1, 2018 through August 1, 2018, we received additional subscription proceeds of approximately $3.1 million (0.3 million shares).  We expect to continue to raise capital under our Offering.

Indebtedness

During the six months ended June 30, 2018, we did not borrow any additional proceeds.  

During the six months ended June 30, 2017, we borrowed approximately $16.1 million in connection with our acquisition of Summer Vista.  In December 2017, we paid the sum of approximately $2.2 million of the original outstanding principal balance of the Summer Vista Loan, and as a result, interest payable on the Summer Vista Loan was reduced to a rate equal to the sum of LIBOR plus 2.70% in accordance with the terms of the Summer Vista Loan.  We may prepay, without a penalty, all or any part of the Summer Vista Loan at any time.  

Expense Support Agreement

During the quarter and six months ended June 30, 2018 and 2017, our cash flows from operating activities was positively impacted by the Expense Support Agreement with our Advisor pursuant to which our Advisor has agreed to accept payment in restricted stock in lieu of cash for services rendered, in the event that the Company does not achieve established distribution coverage targets (as defined in the Expense Support Agreement).  For the quarter and six months ended June 30, 2018, approximately $0.2 million and $0.4 million are expected to be settled in the form of restricted stock pursuant to the Expense Support Agreement.  For the quarter and six months ended June 30, 2017, $0.2 million and $0.3 million, respectively, of asset management fees and Advisor personnel expenses have been settledin the form of restricted stock pursuant to the Expense Support Agreement.  Any amounts settled, and for which restricted stock shares will be issued, pursuant to the Expense Support Agreement are permanently settled and we have no further obligation to pay such amounts to our Advisor.

Refer to Item 1. “Financial Statements” – Note 7. “Related Party Arrangements” for additional information.

Uses of Liquidity and Capital Resources

Real Estate Acquisition

There were no properties acquired during the six months ended June 30, 2018.  During the six months ended June 30, 2017, we acquired Summer Vista for a total purchase price consideration of approximately $21.8 million.  We expect to continue to expand our healthcare investment portfolio through additional acquisitions as we raise additional capital from our Offering.

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In July 2018, we entered into a purchase agreement to acquire a seniors housing community in Riverview, Florida consisting of 92 units (62 assisted living and 30 memory care units) for a purchase price of approximately $25.5 million, exclusive of closing costs and purchase price adjustments.  In connection therewith, we escrowed an earnest money deposit of $150,000 which as of the date of this filing is refundable. The acquisition is expected to close during the third quarter of 2018 and is subject to certain contingencies, including completion of due diligence, licensing and obtaining financing. There can be no assurance that any or all contingencies will be satisfied and that the transaction will ultimately be completed, which in either event the deposit would be applied toward the purchase price or refunded to us.  

Net Cash Used In Operating Activities

We experienced cash used in operating activities for the six months ended June 30, 2018 of approximately $0.1 million as compared to cash used in operating activities of approximately $0.1 million for the six months ended June 30, 2017.  We generally expect to meet future cash needs for general and administrative expenses, debt service and distributions from the net operating income (“NOI”) from our properties.

Underwriting Compensation

From the time we broke escrow through March 2017, we had a maximum combined sales commissions, dealer manager fees and ongoing annual distribution and stockholder servicing fees (“Maximum Underwriting Fees”) payable to the Dealer Manager and participating broker-dealers totaling 9.75% of the gross proceeds for each share class of common stock sold in the Primary Offering.  In March 2017, we entered into an amended and restated dealer manager agreement, which reduced the Maximum Underwriting Fees from 9.75% to 8.5% of the gross proceeds for each share class of common stock sold in the Primary Offering.  The aforementioned reduction to our Maximum Underwriting Fees resulted in a lower amount of commissions and fees being paid to the Dealer Manager and provided for increased net proceeds from our Primary Offering to be available for investment.

For the six months ended June 30, 2018 and 2017, we paid approximately $0.6 million and $0.6 million, respectively, in underwriting compensation.  Under the terms of the Primary Offering, our Dealer Manager is entitled to receive selling commissions, dealer manager fees and/or annual distribution and stockholder servicing fees, which are based on the respective share class of our common stock sold, all or a portion of which may be reallowed to participating broker dealers.

Distributions

In order to qualify as a REIT, we will be required to make distributions, other than capital gain distributions, to our stockholders each year in the amount of at least 90% of our taxable income.  We may make distributions in the form of cash or other property, including distributions of our own securities.  We expect to have little, if any, cash flows from operations available for distribution until we make substantial investments.  There may be a delay between the sale of our common stock and the purchase of properties or other investments, which could result in a delay in our ability to generate cash flows to cover distributions to our stockholders.  Therefore, we may determine to pay some or all of our cash distributions from sources other than cash flows from operations, such as from cash flows provided by financing activities, a component of which may include the proceeds of our Offering and/or borrowings, whether collateralized by our assets or unsecured.  We have not established any limit on the extent to which we may use borrowings or proceeds of our Offering to pay distributions, and there is no assurance we will be able to sustain distributions at any level.

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The following table details our cash distributions per share and our total cash distributions paid, including distribution reinvestments, for the six months ended June 30, 2018 and 2017 (in thousands except per share data):

	Cash Distributions per Share (1)							Cash Distributions Paid (2)						Cash Flows
Periods	Class A Share			Class T Share		Class I Share		Cash Distributions Declared		Distribution Reinvestments		Cash Distributions net of Distribution Reinvestments		Provided by (Used in) Operating Activities (3)
2018 Quarters
First	$	0.1440	$		0.1178	$	0.1312	$	402	$	225	$	177	$	157
Second		0.1440			0.1175		0.1314		483		283		200		(242	)
Year	$	0.2880	$		0.2353	$	0.2626	$	885	$	508	$	377	$	(85	)
2017 Quarters
First	$	0.1050	$		0.0750	$	0.1050	$	73	$	28	$	45	$	(154	)
Second		0.1440			0.1168		0.1337		173		76		97		33
Year	$	0.2490	$		0.1918	$	0.2387	$	246	$	104	$	142	$	(121	)

FOOTNOTES:

⁽¹⁾ Our board of directors authorized monthly cash distributions on the outstanding shares of all classes of our common stock, beginning in August 2016 and continuing each month through March 31, 2017, in monthly amounts equal to $0.0350 per share, less class-specific expenses with respect to each class.  Beginning April 1, 2017 and continuing each month through June 30, 2018, monthly cash distributions on the outstanding shares of all classes of our common stock were declared in monthly amounts equal to $0.0480 per share, less class-specific expenses with respect to each class.

⁽²⁾ Represents cash distributions declared, the amount of distributions reinvested in additional shares through our Reinvestment Plan and the amount of Offering proceeds used to fund cash distributions.

⁽³⁾ For the six months ended June 30, 2018 and 2017, our net loss was approximately $0.7 million and $0.6 million, respectively, while cash distributions declared were approximately $0.9 million and $0.2 million, respectively.  For the six months ended June 30, 2018 and 2017, 18% and 13%, respectively, of cash distributions declared to stockholders were considered to be funded with cash provided by operating activities as calculated on a quarterly basis for GAAP purposes and approximately 82% and 87%, respectively, were considered to be funded with proceeds from our Offering. For the six months ended June 30, 2018 and 2017, 100% of the cash distributions paid to stockholders were considered a return of capital to stockholders for federal income tax purposes.

In June 2018, the Company’s board of directors declared a monthly cash distribution of $0.0480, less class-specific expenses, and a monthly stock dividend of 0.00100625 shares on each outstanding share of common stock on July 1, 2018, August 1, 2018 and September 1, 2018.  These distributions and dividends are to be paid and distributed by September 30, 2018.

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Common Stock Redemptions

Our redemption plan allows our stockholders who have held shares for at least one year to request that we redeem between 25% and 100% of their shares, provided that if a stockholder presents fewer than all of their shares for redemption, the stockholder must retain at least $5,000 worth of shares based on the most recent public primary offering price per share or, subsequent to the termination of the public primary offering period for the shares, the then estimated NAV per share. If we have sufficient funds available to do so and if we choose, in our sole discretion, to redeem shares, the number of shares we may redeem in any calendar year and the price at which they are redeemed are subject to conditions and limitations, including:

• At no time during a 12-month period may we redeem more than 5% of the weighted average number of shares of our common stock outstanding at the beginning of such 12-month period;

• Redemption pricing shall be at our then-current NAV per share as published from time to time in our Annual Report on Form 10-K, Quarterly Report on Form 10-Q or Current Report on Form 8-K; and

• The aggregate amount of funds under the redemption plan will be determined on a quarterly basis in the sole discretion of our board of directors, and may be less than but shall not exceed the aggregate proceeds from our distribution reinvestment plan during that quarter.  There is no guarantee that any funds will be set aside under the distribution reinvestment plan or otherwise made available for the redemption plan during any period during which redemptions may be requested.

Our board of directors has the ability, in their sole discretion, to amend or suspend the redemption plan or to waive any specific conditions if it is deemed to be in our best interest.  

During the quarter and six months ended June 30, 2018, we received requests for the redemption of common stock of approximately $127,000 and $152,000, respectively.  The redemptions were approved by our board of directors and paid in March 2018 and June 2018, respectively.  

No other redemption requests were made during quarter and six months ended June 30, 2018 and 2017.  The redemptions were funded by proceeds from our Reinvestment Plan.

Results of Operations

The following discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto.

Quarter and six months ended June 30, 2018 as compared to quarter and six months ended June 30, 2017

• Resident fees and services for the quarter and six months ended June 30, 2018 was approximately $1.1 million and $2.3 million, respectively, as compared to approximately $1.1 million for both the quarter and six months ended June 30, 2017.  As a result of our seniors housing investment, Summer Vista, being acquired on March 31, 2017, the prior period consisted of allocated pro-rations at closing plus one quarter of resident fees and services while the current period included an entire two quarters of resident fees and services.

• Rental income and tenant reimbursements for the quarter and six months ended June 30, 2018 was approximately $0.4 million and $0.8 million, respectively, related entirely to our Mid America Surgery property, which was acquired on December 27, 2017.  There was no rental income and tenant reimbursements for the quarter and six months ended June 30, 2017.

• Property operating expenses were approximately $0.8 million and $1.6 million for the quarter and six months ended June 30, 2018, respectively, as compared to approximately $0.6 million for both the quarter and six months ended June 30, 2017, respectively.  As a result of our seniors housing investment, Summer Vista, being acquired on March 31, 2017, the prior period consisted of allocated pro-rations at closing plus one quarter of operating expenses for our Summer Vista property while the current period included an entire two quarters of operating expenses for both of our investment properties.

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• General and administrative expenses for the quarter and six months ended June 30, 2018 were approximately $0.3 million and $0.6 million, respectively, as compared to $0.3 million and $0.5 million for quarter and six months ended June 30, 2017, respectively, and were comprised primarily of directors’ and officers’ insurance, accounting and legal fees, Advisor personnel expenses and board of director fees. However, these Advisor personnel expenses have been or are expected to be settled in the form of restricted stock pursuant to the Expense Support Agreement and as such our general and administrative expenses were reduced by approximately $0.1 million and $0.2 million for the quarter and six months ended June 30, 2018, respectively, and $0.1 million and $0.2 million for the quarter and six months ended June 30, 2017, respectively.  Until such time that we meet established distribution coverage targets, our Advisor has agreed to accept payment in the form of restricted stock in lieu of cash.  

• Property management fees were approximately $0.1 million and $0.2 million for both the quarter and six months ended June 30, 2018 as compared to $0.1 million for both the quarter and six months ended June 30, 2017 and relate entirely to the operations of our investment properties.  Property management fees increased as a result of an acquisition on and subsequent to March 31, 2017.

• Acquisition fees and expenses were less than $1,000 for both the quarter and six months ended June 30, 2018, all of which occurred during the first quarter of 2018 and related to us exploring new acquisition opportunities, as compared to approximately $0.6 million for the quarter and six months ended June 30, 2017, all of which occurred during the first quarter of 2017.  All of the 2017 acquisition fees and expenses were capitalized as a component of the cost of the assets acquired and allocated on a relative fair value basis.

• Asset management fees for the quarter and six months ended June 30, 2018 were approximately $0.1 and $0.1 million as compared to $43,000 for both the quarter and six months ended June 30, 2017.  These asset management fees have been or are expected to be settled in the form of restricted stock pursuant to the Expense Support Agreement. Until such time that we meet established distribution coverage targets, our Advisor has agreed to accept payment in the form of restricted stock in lieu of cash.  

• Depreciation and amortization expenses were approximately $0.5 million and $0.9 million for the quarter and six months ended June 30, 2018 as compared to $0.3 million for both the quarter and six months ended June 30, 2017 and relate entirely to the operations of our investment properties.  

• Interest expense and loan cost amortization for the quarter and six months ended June 30, 2018 was approximately $0.3 million $0.5 million as compared to approximately $0.2 million for both the quarter and six months ended June 30, 2017.  The increase relates to the Summer Vista and Mid America Surgery loans being outstanding for the entire period in 2018; whereas in 2017 interest expenses related to one quarter and one day of interest on our Summer Vista Loan as well as the notes issued in connection with our private placement (“Notes”).  

• Income tax expense for the quarter and six months ended June 30, 2018 was approximately $14,000 and $45,000.  For both the quarter and six months ended June 30, 2017, we had income tax expense of approximately $30,000.  The income tax expense is related entirely to TRS Holdings and as such the increase across periods is primarily reflective of the acquisition of our first property, Summer Vista, on March 31, 2017.

We are not aware of any material trends or uncertainties, favorable or unfavorable, that may be reasonably anticipated to have a material impact on either capital resources or the revenues and income to be derived from the acquisition and operation of properties and other permitted investments, other than those referred to in the risk factors identified in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017 as well as on Form 10-Q for the quarter end March 31, 2018.

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Net Operating Income

We generally expect to meet future cash needs for general and administrative expenses, debt service and distributions from NOI.  We define NOI, a non-GAAP measure, as total revenues and services less property operating expenses and property management fees.  We use NOI as a key performance metric for internal monitoring and planning purposes, including the preparation of annual operating budgets and monthly operating reviews, as well as to facilitate analysis of future investment and business decisions.  It does not represent cash flows generated from operating activities in accordance with GAAP and should not be considered to be an alternative to net income or loss (determined in accordance with GAAP) as an indication of our operating performance or to be an alternative to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity.  We believe the presentation of this non-GAAP measure is important to the understanding of our operating results for the periods presented because it is an indicator of the return on property investment and provides a method of comparing property performance over time.  In addition, we have aggregated NOI on a “same-store” basis only for comparable properties that we have owned during the entirety of all periods presented.  Non-same-store NOI represents aggregated NOI from acquisitions after April 1, 2017 or January 1, 2017, which are excluded as we did not own those properties during the entirety of all periods presented.  In understanding our operating results in the accompanying condensed consolidated financial statements, it is important to understand how the growth in our assets has impacted our results.

The chart below illustrates our net losses and NOI for the quarter and six months ended June 30, 2018 and 2017 (in thousands) and the amount invested in properties as of June 30, 2018 and 2017 (in millions):

	Quarter Ended											Six Months Ended
	June 30,						Change					June 30,						Change
	2018			2017			$		%			2018			2017			$		%
Net loss	$	(350	)	$	(392	)						$	(740	)	$	(643	)
Adjusted to exclude:
General and administrative expenses		286			251								606			486
Acquisition fees and expenses	―			―									1		―
Depreciation and amortization		456			323								911			323
Other expenses, net of other income		263			187								508			206
Income tax expense		14			30								45			30
NOI	$	669		$	399		$	270		67.7	%	$	1,331		$	402		$	929		231.1	%
Less: Non-same-store NOI		(231	)	―									(1,331	)		(402	)
Same-store NOI	$	438		$	399		$	39		9.8	%	$	—		$	—
Invested in operating properties, end    of period (in millions)	$	35.4		$	21.4							$	35.4		$	21.4

Overall, our NOI for the quarter and six months ended June 30, 2018 increased by approximately $0.3 million and $0.9 million, respectively, as compared to the same period in the prior year.  Our non-same-store NOI of approximately $0.2 million for the quarter ended June 30, 2018 related to our acquisition of Mid America Surgery Institute in December 2017.  Our same-store NOI for the quarter ended June 30, 2018 increased by approximately $39,000, or 9.8%, as compared to the same period in the prior year.  The increase in same-store NOI related to our acquisition of Summer Vista Assisted Living in March 2017 and improved financial performance across periods.

Funds from Operations and Modified Funds from Operations

Due to certain unique operating characteristics of real estate companies, as discussed below, the North American Real Estate Investment Trust (“NAREIT”) promulgated a measure known as Funds From Operations (“FFO”), which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT.  The use of FFO is recommended by the REIT industry as a supplemental performance measure.  FFO is not equivalent to net income or loss as determined under GAAP.

We define FFO, a non-GAAP measure, consistent with the standards approved by the Board of Governors of NAREIT.  NAREIT defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property, real estate asset impairment write-downs, plus depreciation and amortization of real

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estate related assets, and after adjustments for unconsolidated partnerships and joint ventures.  Our FFO calculation complies with NAREIT’s policy described above.

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or is requested or required by lessees for operational purposes in order to maintain the value of the property. We believe that, because real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative.  Historical accounting for real estate involves the use of GAAP.  Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP.  Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income or loss. However, FFO and Modified Funds From Operations (“MFFO”), as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or loss in its applicability in evaluating operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.

Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses for business combinations from a capitalization/depreciation model) to an expensed-as-incurred model that were put into effect in 2009, and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP and accounted for as operating expenses.  Our management believes these fees and expenses do not affect our overall long-term operating performance.  Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation.  While other start up entities may also experience significant acquisition activity during their initial years, we believe that non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after acquisition activity ceases.  Due to the above factors and other unique features of publicly registered, non-listed REITs, the Investment Program Association (“IPA”), an industry trade group, has standardized a measure known as MFFO which the IPA has recommended as a supplemental measure for publicly registered non-listed REITs and which we believe to be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT.  MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended.  We believe that because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we acquired our properties and once our portfolio is in place.  By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our properties have been acquired.  We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry.

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We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: MFFO, or the Practice Guideline, issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income or loss: acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above and below market leases and liabilities (which are adjusted in order to remove the impact of GAAP straight-line adjustments from rental revenues); accretion of discounts and amortization of premiums on debt investments,  mark-to-market adjustments included in net income; gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, and unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized.

Our MFFO calculation complies with the IPA’s Practice Guideline described above. In calculating MFFO, we exclude acquisition related expenses. Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income or loss. These expenses are paid in cash by us.  All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property.

Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-listed REITs which have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter.  As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner.  We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence that the use of such measures is useful to investors.  For example, acquisition costs are funded from our subscription proceeds and other financing sources and not from operations.  By excluding expensed acquisition costs, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties.

Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different non-listed REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way and as such comparisons with other REITs may not be meaningful.  Furthermore, FFO and MFFO are not necessarily indicative of cash flows available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations, as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders.  FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance.  MFFO is useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete.  FFO and MFFO are not useful measures in evaluating NAV because impairments are taken into account in determining NAV but not in determining FFO and MFFO.

Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments we use to calculate FFO or MFFO.  In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO.

27

The following table presents a reconciliation of net loss to FFO and MFFO for the quarter and six months ended June 30, 2018 and 2017 (in thousands, except per share data):

	Quarter Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Net loss	$	(350	)	$	(392	)	$	(740	)	$	(643	)
Adjustments to reconcile net loss to FFO:
Depreciation and amortization		456			323			911			323
Total FFO		106			(69	)		171			(320	)
Straight-line rent adjustments		(11	)	―				(43	)	―
Amortization of above and below market intangibles		2		―				5		―
Acquisition fees and expenses	―			―				1		―
Total MFFO	$	97		$	(69	)	$	134		$	(320	)
Class A common stock:
Weighted average number of Class A common shares    outstanding (1)		865			521			844			447
Net loss per share of Class A common stock    outstanding (basic and diluted)	$	(0.09	)	$	(0.27	)	$	(0.20	)	$	(0.53	)
FFO per share of Class A common stock outstanding    (basic and diluted)	$	0.02		$	(0.05	)	$	0.04		$	(0.26	)
MFFO per share of Class A common stock outstanding    (basic and diluted)	$	0.02		$	(0.05	)	$	0.03		$	(0.26	)
Class T common stock:
Weighted average number of Class T common shares    outstanding (1)		2,797			885			2,565			745
Net loss per share of Class T common stock    outstanding (basic and diluted)	$	(0.09	)	$	(0.27	)	$	(0.20	)	$	(0.53	)
FFO per share of Class T common stock outstanding    (basic and diluted)	$	0.02		$	(0.05	)	$	0.04		$	(0.26	)
MFFO per share of Class T common stock outstanding    (basic and diluted)	$	0.02		$	(0.05	)	$	0.03		$	(0.26	)
Class I common stock:
Weighted average number of Class I common shares    outstanding (1)		312			32			261			22
Net loss per share of Class I common stock    outstanding (basic and diluted)	$	(0.09	)	$	(0.27	)	$	(0.20	)	$	(0.53	)
FFO per share of Class I common stock outstanding    (basic and diluted)	$	0.02		$	(0.05	)	$	0.04		$	(0.26	)
MFFO per share of Class I common stock outstanding    (basic and diluted)	$	0.02		$	(0.05	)	$	0.03		$	(0.26	)

FOOTNOTE:

⁽¹⁾ For the purposes of determining the weighted average number of shares of common stock outstanding, stock dividends are treated as if such shares were outstanding as of July 11, 2016 (the date we commenced operations).

28

Related Party Transactions

We have entered into agreements with our Advisor and its affiliates, whereby we agree to pay certain fees to, or reimburse certain expenses of, our Advisor or its affiliates for acquisition and advisory services, selling commissions, dealer manager fees, asset management fees and reimbursement of operating costs.

Our Advisor and its affiliates and related parties also are entitled to reimbursement of certain operating expenses in connection with their provision of services to us, including personnel costs, subject to the limitation that, beginning on the earlier of the Expense Year after (i) we make our first investment or (ii) six months after the commencement of the Offering, we will not reimburse the Advisor for any amount by which operating expenses exceed the greater of 2% of our average invested assets or 25% of our net income in any Expense Year unless approved by the independent directors.  We commenced our Offering in March 2016 and made our first investment in March 2017.  For the Expense Year ended June 30, 2018, our total operating expenses were in excess of this limitation by approximately $0.4 million.  As of June 30, 2018, we had received cumulative approvals by our independent directors for total operating expenses in excess of this limitation of approximately $0.8 million.

Our independent directors determined that the higher relationship of operating expenses to average invested assets was justified based on the level of capital raise, the limited number of investments to date, and the cost of operating a public company.

As of June 30, 2018, our Advisor has incurred aggregate other organizational and offering expenses of approximately $6.8 million, which are not eligible for reimbursement by us.  These expenses include, but are not limited to, SEC registration fees, FINRA filing fees, printing and mailing expenses, blue sky fees and expenses, legal fees and expenses, accounting fees and expenses, advertising and sales literature, transfer agent fees, due diligence expenses, personnel costs associated with processing investor subscriptions, escrow fees and other administrative expenses of the Offering.  

See Item 1. “Financial Statements” – Note 7. “Related Party Arrangements” in the accompanying condensed consolidated financial statements for additional information.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of June 30, 2018.

Contractual Obligations

The following table presents our contractual obligations by payment period as of June 30, 2018 (in thousands):

	Payments Due by Period
	2018		2019-2020		2021-2022		Thereafter		Total
Mortgages and notes payable (principal and interest)	$	499	$	7,855	$	14,386	$	1,991	$	24,731
	$	499	$	7,855	$	14,386	$	1,991	$	24,731

Critical Accounting Policies and Estimates

See Item 1. “Financial Statements” for a summary of our significant accounting policies.

Recent Accounting Pronouncements

See Item 1. “Financial Statements” for a summary of the impact of recent accounting pronouncements.

29

Item 3. Quantitative and Qualitative Disclosures about Market Risks

We may be exposed to financial market risks, specifically changes in interest rates to the extent we borrow money to acquire properties or to make loans and other permitted investments.  Our management objectives related to interest rate risk will be to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs.  To achieve our objectives, we expect to borrow primarily at fixed rates or variable rates with the lowest margins available, and in some cases, with the ability to convert variable rates to fixed rates.  With regard to variable rate financing, we will assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating interest rate protection opportunities through swaps or caps.

We expect to hold our fixed-rate note obligations to maturity (or prepayment) and the amounts due under such instruments would be limited to the outstanding principal balance, any accrued and unpaid interest and any prepayment premiums. Accordingly, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed-rate note obligations, would have a significant impact on our operations.  The fair market value of the Notes was approximately $0.3 million as of June 30, 2018, which was determined using discounted cash flows based on current rates and spreads we would expect to obtain for similar borrowings.

The following is a schedule as of June 30, 2018 of our variable rate debt maturities for the remainder of 2018 and each of the next four years and thereafter (principal maturities only) (in thousands):

	Expected Maturities
	2018		2019		2020		2021		2022		Thereafter		Total		Fair Value (1)
Variable rate debt	$	32	$	199	$	5,811	$	224	$	13,234	$	—	$	19,500	$	19,576
Average interest rate on variable rate debt	LIBOR + 2.70%		LIBOR + 2.70%		LIBOR + 2.22%		LIBOR + 2.70%		LIBOR + 2.70%		LIBOR + 2.70%		LIBOR + 2.56%

FOOTNOTE:

(1) The estimated fair value of our variable rate debt was determined using discounted cash flows based on current rates and spreads we would expect to obtain for similar borrowings.

Management estimates that a one-percentage point increase or decrease in LIBOR in 2018, compared to LIBOR rates as of June 30, 2018, would result in fluctuation of interest expense on our variable rate debt of approximately $0.2 million for the year ended December 31, 2018. This sensitivity analysis contains certain simplifying assumptions, and although it gives an indication of our exposure to changes in interest rates, it is not intended to predict future results and actual results will likely vary given that our sensitivity analysis on effects of changes in LIBOR does not factor in a potential change in variable rate debt levels, any offsetting gains on interest swap contracts, or the impact of any LIBOR floors or caps.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures are effective at the reasonable assurance level as of the end of the period covered by this report to provide reasonable assurance that information required to be disclosed by us in the reports we filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the relevant SEC rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Controls Over Financial Reporting

During the most recent fiscal quarter, there were no changes in our internal controls over financial reporting (as defined under Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

30

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be a party to legal proceedings in the ordinary course of, or incidental to the normal course of, our business, including proceedings to enforce our contractual or statutory rights.  While we cannot predict the outcome of these legal proceedings with certainty, based upon currently available information, we do not believe the final outcome of any pending or threatened legal proceeding will have a material adverse effect on our results of operations or financial condition.

Item 1A. Risk Factors

There have been no material changes in our assessment of our risk factors from those set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 as well as on Form 10-Q for the quarter end March 31, 2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

During the period covered by this quarterly report, we did not sell any equity securities that were not registered under the Securities Act of 1933.

Use of Proceeds from Registered Securities

On March 2, 2016, our Registration Statement on Form S-11 (File No. 333-206017), covering a public offering of up to $2.0 billion shares of common stock, was initially declared effective under the Securities Act of 1933, as amended.  Our Primary Offering commenced on a “best efforts” basis wherein we are offering, in any combination, three classes of our common stock: Class A shares, Class T shares and Class I shares.  There are differing selling fees and commissions for each class of common stock.  We will also pay annual distribution and stockholder servicing fees, subject to certain underwriting compensation limits, on the Class T and Class I shares sold in the Primary Offering.  This is a continuous offering that will end no later than March 2, 2019, unless extended in accordance with applicable securities laws.  

The use of proceeds from our Primary Offering was as follows as of June 30, 2018 (in thousands):

	Total			Payments to Affiliates (1)			Payments to Others
Aggregate price of offering amount registered (2)	$	1,750,000
Shares sold (3)		4,059
Aggregate amount sold (3)	$	42,609
Payment of underwriting compensation (4)		(1,962	)	$	(1,962	)	$	—
Net offering proceeds to the issuer		40,647
Purchases of real estate and development costs		(13,574	)	―				(13,574	)
Payment of investment services fees and acquisition expenses		(1,029	)	―				(1,029	)
Payment of capital expenditures		(57	)	―				(57	)
Redemptions of common stock		(152	)	―				(152	)
Payment of operating expenses (5)		(242	)	―				(242	)
Repayments of mortgages and notes payable (5)		(2,150	)	―				(2,150	)
Distributions to stockholders (5)		(383	)		(187	)		(196	)
Remaining proceeds from the Offering	$	23,060

FOOTNOTES:

⁽¹⁾ Represents direct or indirect payments to directors, officers, or general partners of the issuer or their associates; to persons owning 10% or more of any class of equity securities of the issuer; and to affiliates of the issuer.

31

⁽²⁾ We are also offering, in any combination, up to $250 million of Class A, Class T and Class I shares pursuant to our Reinvestment Plan and reserve the right to reallocate shares of common stock between our Reinvestment Plan and our Primary Offering.

⁽³⁾ Excludes all shares issued as stock dividends, all shares issued pursuant to our Reinvestment Plan, $200,000 of unregistered shares issued to our Advisor in a private transaction exempt from the registration requirements pursuant to section 4(a)(2) of the Securities Act of 1933, as amended, and $251,250 of unregistered equity securities sold in our private placement.

⁽⁴⁾ Underwriting compensation includes selling commissions and fees paid to the Dealer Manager; all or a portion of which may be reallowed to participating broker-dealers.

⁽⁵⁾ Until such time as we have sufficient operating cash flows from our assets, we will pay cash distributions, debt service and/or operating expenses from net proceeds of our Offering.  The amounts presented above represent the net proceeds used for such purposes.

Issuer Purchases of Equity Securities

The following details our repurchases of securities between April 1, 2018 and June 30, 2018:

Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased under the plan		Maximum number of shares that may yet be purchased under the plan (1)
April 1, 2018 through April 30, 2018	―		―		―			84,745
May 1, 2018 through May 31, 2018	―		―		―			84,745
June 1, 2018 through June 30, 2018		12,614	$	10.06		12,614		72,131
Total		12,614	$	10.06		12,614

FOOTNOTE:

(1) This represents the maximum number of shares which can be redeemed under the redemption plan and is subject to a five percent limitation in a rolling 12-month period as described above.  However, we are not obligated to redeem such amounts and this does not take into account the amount the board of directors has determined to redeem or whether there are sufficient proceeds under the redemption plan.  Under the redemption plan, we can, at our discretion, use the full amount of the proceeds from the sale of shares under our Reinvestment Plan attributable to any month to redeem shares presented for redemption during such month.  Any amount of proceeds from our Reinvestment Plan, which is available for redemptions but which is unused, may be carried over to the next succeeding calendar quarter for use in addition to the amount of proceeds from our Reinvestment Plan that would otherwise be available for redemptions.

Item 3. Defaults Upon Senior Securities - None

Item 4. Mine Safety Disclosure –Not Applicable

Item 5. Other Information - None

32

Item 6. Exhibits

The following exhibits are included, or incorporated by reference in this Quarterly Report on Form 10-Q for the quarter and six months ended June 30, 2018 (and are numbered in accordance with Item 601 of Regular S-K).

Exhibit No.	Description
3.1	Second Articles of Amendment and Restatement (Previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 15, 2017 and incorporated herein by reference.)
3.2	Amended and Restated Bylaws (Previously filed as Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed May 6, 2016 and incorporated herein by reference.)
4.1	Form of Subscription Agreement (Previously included as Appendix B to the Prospectus filed with the Company’s Post-Effective Amendment No. 8 to the Registration Statement on Form S-11 (File No. 333-206017), filed April 13, 2018 and incorporated herein by reference.)
4.2	Distribution Reinvestment Plan (Previously filed as Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q filed May 6, 2016 and incorporated herein by reference.)
4.3	Amended and Restated Redemption Plan (Previously filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K filed April 17, 2017 and incorporated herein by reference.)
4.4	Statement regarding transfer restrictions, preferences, limitations and rights of holders of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates) (Previously filed as Exhibit 4.4 to the Company’s Pre-Effective Amendment No. 2 to Registration Statement on Form S-11 (File No. 333-206017), filed January 15, 2016 and incorporated herein by reference.)
10.1	Asset Purchase Agreement between The Crossings At Riverview, LLC, SSL Riverview, LLC and CHP II Partners, LP, dated July 3, 2018 (Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 5, 2018 and incorporated herein by reference.)
31.1	Certification of Chief Executive Officer of CNL Healthcare Properties II, Inc., Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
31.2	Certification of Chief Financial Officer of CNL Healthcare Properties II, Inc., Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.1	Certification of Chief Executive Officer and Chief Financial Officer of CNL Healthcare Properties II, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
101	The following materials from CNL Healthcare Properties II, Inc. Quarterly Report on Form 10-Q for the quarter and six months ended June 30, 2018, formatted in XBRL (Extensible Business Reporting Language); (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements.

33

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on the 9th day of August 2018.

CNL HEALTHCARE PROPERTIES II, INC.
By:	/s/ Stephen H. Mauldin
	STEPHEN H. MAULDIN
	Chief Executive Officer and President
	(Principal Executive Officer)
By:	/s/ Ixchell C. Duarte
	IXCHELL C. DUARTE
	Chief Financial Officer, Senior Vice President and Treasurer
	(Principal Financial Officer)

34

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

OF CNL HEALTHCARE PROPERTIES II, INC.

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Stephen H. Mauldin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CNL Healthcare Properties II, Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date:  August 9, 2018	By:	/s/ Stephen H. Mauldin
		STEPHEN H. MAULDIN
		Chief Executive Officer and President
		(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

OF CNL HEALTHCARE PROPERTIES II, INC.

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ixchell C. Duarte, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CNL Healthcare Properties II, Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date:  August 9, 2018	By:	/s/ Ixchell C. Duarte
		IXCHELL C. DUARTE
		Chief Financial Officer, Senior Vice President and Treasurer
		(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of CNL Healthcare Properties II, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2018, as filed with the United States Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen H. Mauldin, Chief Executive Officer and Ixchell C. Duarte, Chief Financial Officer, Senior Vice President and Treasurer of the Company, each certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  August 9, 2018	By:	/s/ Stephen H. Mauldin
		Stephen H. Mauldin
		Chief Executive Officer and President
Date:  August 9, 2018	By:	/s/ Ixchell C. Duarte
		Ixchell C. Duarte
		Chief Financial Officer, Senior Vice President and Treasurer

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2018	Aug. 01, 2018
Document And Entity Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Trading Symbol	CHPII
Entity Registrant Name	CNL Healthcare Properties II, Inc.
Entity Central Index Key	0001648383
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Class A Common Stock
Document And Entity Information [Line Items]
Entity Common Stock, Shares Outstanding		883,268
Class T Common Stock
Document And Entity Information [Line Items]
Entity Common Stock, Shares Outstanding		3,224,163
Class I Common Stock
Document And Entity Information [Line Items]
Entity Common Stock, Shares Outstanding		418,923

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
ASSETS
Real estate investment properties, net	$ 30,580,570	$ 31,085,939
Restricted cash	15,700,018	110,999
Cash	7,455,217	12,310,920
Intangibles, net	4,262,741	4,653,504
Other assets	317,198	192,423
Total assets	58,315,744	48,353,785
Liabilities:
Mortgages and notes payable, net	19,574,527	19,532,986
Due to related parties	1,284,848	836,647
Accounts payable and accrued liabilities	756,825	1,023,909
Other liabilities	432,333	450,311
Total liabilities	22,048,533	21,843,853
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized; none issued or outstanding
Capital in excess of par value	40,355,933	28,984,932
Accumulated loss	(2,399,408)	(1,658,977)
Accumulated distributions	(1,731,573)	(846,200)
Total stockholders' equity	36,267,211	26,509,932
Total liabilities and stockholders' equity	58,315,744	48,353,785
Class A Common Stock
Stockholders' equity:
Common stock value	8,663	8,080
Total stockholders' equity	8,663	8,080
Class T Common Stock
Stockholders' equity:
Common stock value	30,109	20,492
Total stockholders' equity	30,109	20,492
Class I Common Stock
Stockholders' equity:
Common stock value	3,487	1,605
Total stockholders' equity	$ 3,487	$ 1,605

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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) - $ / shares	Jun. 30, 2018	Dec. 31, 2017
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Class A Common Stock
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	700,000,000	700,000,000
Common stock, shares issued	878,939	808,011
Common stock, shares outstanding	866,325	808,011
Class T Common Stock
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	700,000,000	700,000,000
Common stock, shares issued	3,013,406	2,049,223
Common stock, shares outstanding	3,010,868	2,049,223
Class I Common Stock
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	348,644	160,490
Common stock, shares outstanding	348,644	160,490

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Revenues:
Rental income and tenant reimbursements	$ 421,426		$ 830,242
Total revenues	1,561,661	$ 1,071,441	3,095,002	$ 1,082,870
Operating expenses:
Property operating expenses	801,005	600,739	1,589,386	609,425
General and administrative expenses	286,398	251,250	606,082	485,788
Acquisition fees and expenses			818
Depreciation and amortization	456,189	322,768	910,607	322,768
Total operating expenses	1,635,295	1,246,629	3,282,608	1,489,853
Operating loss	(73,634)	(175,188)	(187,606)	(406,983)
Other income (expense):
Interest and other income	40		62
Interest expense and loan cost amortization	(262,772)	(186,868)	(507,704)	(206,194)
Total other expense	(262,732)	(186,868)	(507,642)	(206,194)
Loss before income taxes	(336,366)	(362,056)	(695,248)	(613,177)
Income tax expense	13,827	29,625	45,183	29,625
Net loss attributable to common stockholders	(350,193)	(391,681)	(740,431)	(642,802)
Health Care Resident Service
Revenues:
Resident fees and services	1,140,235	1,071,441	2,264,760	1,082,870
Management Service
Operating expenses:
Property management fees	91,703	71,872	175,715	71,872
Class A Common Stock
Other income (expense):
Net loss attributable to common stockholders	$ (76,220)	$ (141,987)	$ (170,229)	$ (236,680)
Net loss per share of common stock outstanding (basic and diluted)	$ (0.09)	$ (0.27)	$ (0.20)	$ (0.53)
Weighted average number of common shares outstanding (basic and diluted)	864,904	521,373	843,755	447,072
Distributions declared per common share	$ 0.1440	$ 0.1440	$ 0.2880	$ 0.2490
Class T Common Stock
Other income (expense):
Net loss attributable to common stockholders	$ (246,458)	$ (240,892)	$ (517,514)	$ (394,424)
Net loss per share of common stock outstanding (basic and diluted)	$ (0.09)	$ (0.27)	$ (0.20)	$ (0.53)
Weighted average number of common shares outstanding (basic and diluted)	2,796,686	884,554	2,565,097	745,041
Distributions declared per common share	$ 0.1175	$ 0.1168	$ 0.2354	$ 0.1918
Class I Common Stock
Other income (expense):
Net loss attributable to common stockholders	$ (27,515)	$ (8,802)	$ (52,688)	$ (11,698)
Net loss per share of common stock outstanding (basic and diluted)	$ (0.09)	$ (0.27)	$ (0.20)	$ (0.53)
Weighted average number of common shares outstanding (basic and diluted)	312,234	32,321	261,149	22,097
Distributions declared per common share	$ 0.1314	$ 0.1337	$ 0.2626	$ 0.2387

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) - USD ($)	Total	Capital in Excess of Par Value	Accumulated Loss	Accumulated Distributions	Class A Common Stock	Class T Common Stock	Class I Common Stock
Beginning Balance at Dec. 31, 2016	$ 5,832,755	$ 6,226,141	$ (342,447)	$ (57,361)	$ 3,251	$ 3,086	$ 85
Beginning Balance (in shares) at Dec. 31, 2016					325,119	308,587	8,454
Subscriptions received for common stock, including distribution reinvestments	$ 10,195,322	10,185,732			$ 3,285	$ 5,946	$ 359
Subscriptions received for common stock, including distribution reinvestments (in shares)	1,600,000				328,484	594,682	35,872
Stock dividends issued		(88)			$ 34	$ 53	$ 1
Stock dividends issued (in shares)	9,000				3,408	5,268	130
Stock issuance and offering costs	$ (826,698)	(826,698)
Net loss	(642,802)		(642,802)
Cash distributions declared	(245,776)			(245,776)
Ending Balance at Jun. 30, 2017	14,312,801	15,585,087	(985,249)	(303,137)	$ 6,570	$ 9,085	$ 445
Ending Balance (in shares) at Jun. 30, 2017					657,011	908,537	44,456
Beginning Balance at Dec. 31, 2017	26,509,932	28,984,932	(1,658,977)	(846,200)	$ 8,080	$ 20,492	$ 1,605
Beginning Balance (in shares) at Dec. 31, 2017					808,011	2,049,223	160,490
Subscriptions received for common stock, including distribution reinvestments	$ 12,548,169	12,536,152			$ 657	$ 9,493	$ 1,867
Subscriptions received for common stock, including distribution reinvestments (in shares)	4,200,000				65,726	949,264	186,687
Stock dividends issued		(216)			$ 52	$ 149	$ 15
Stock dividends issued (in shares)	9,000				5,202	14,919	1,467
Redemptions of common stock	$ (152,281)	(152,130)			$ (126)	$ (25)
Redemptions of common stock, shares					(12,614)	(2,538)
Stock issuance and offering costs	(1,012,805)	(1,012,805)
Net loss	(740,431)		(740,431)
Cash distributions declared	(885,373)			(885,373)
Ending Balance at Jun. 30, 2018	$ 36,267,211	$ 40,355,933	$ (2,399,408)	$ (1,731,573)	$ 8,663	$ 30,109	$ 3,487
Ending Balance (in shares) at Jun. 30, 2018					866,325	3,010,868	348,644

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CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) - USD ($)	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Operating activities:
Net cash flows used in operating activities	$ (84,809)	$ (121,090)
Investing activities:
Acquisition of property	(6,000)	(21,847,988)
Capital expenditures	(34,269)	(17,000)
Net cash used in investing activities	(40,269)	(21,864,988)
Financing activities:
Subscriptions received for common stock through primary offering	12,039,730	10,091,137
Payment of underwriting compensation	(641,724)	(641,509)
Payment of cash distributions, net of distribution reinvestments	(376,934)	(141,591)
Redemptions of common stock	(152,281)
Proceeds from mortgages and notes payable		16,050,000
Payment of loan costs	(10,397)	(206,706)
Net cash flows provided by financing activities	10,858,394	25,151,331
Net increase in cash and restricted cash	10,733,316	3,165,253
Cash and restricted cash at beginning of period	12,421,919	6,360,241
Cash and restricted cash at end of period	23,155,235	9,525,494
Amounts incurred but not paid (including amounts due to related parties):
Acquisition fees and expenses related to asset acquisition		6,131
Loan costs		1,328
Selling commissions and Dealer Manager fees	20,711	12,418
Annual distribution and stockholder servicing fee	$ 1,177,044	339,877
Assumption of liabilities on acquisition of property		$ 170,918

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Organization

6 Months Ended

Jun. 30, 2018

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Organization

1. Organization

CNL Healthcare Properties II, Inc. (“Company”) is a Maryland corporation organized on July 10, 2015 that intends to qualify and may elect to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with the year ending December 31, 2017 or, as determined by its board of directors, the Company’s first year of material operations.  The Company is sponsored by CNL Financial Group, LLC (“Sponsor” or “CNL”) and was formed primarily to acquire and manage a diversified portfolio of healthcare real estate and real estate-related assets that it believes will generate a steady current return and provide long-term value to its stockholders.  It intends to focus on investing, primarily in the United States, within the seniors housing, medical office, acute care and post-acute care sectors, as well as other types of real estate and real estate-related securities and loans.

The Company is externally managed and advised by CHP II Advisors, LLC, (“Advisor”) an affiliate of CNL.  The Advisor provides advisory services to the Company relating to substantially all aspects of its investments and operations, including real estate acquisitions, asset management and other operational matters.  During the period from July 10, 2015 to December 31, 2015, the Company sold 20,000 shares of common stock to the Advisor for an aggregate purchase price of $0.2 million, and these shares were converted into 20,000 Class A shares upon the filing of the Company’s Articles of Amendment and Restatement in March 2016.

On March 2, 2016, pursuant to a registration statement on Form S-11 under the Securities Act of 1933, the Company commenced its initial public offering of up to $1.75 billion (“Primary Offering”), in any combination, of Class A, Class T and Class I shares of common stock on a “best efforts” basis, which means that CNL Securities Corp. (“Dealer Manager”), an affiliate of the Sponsor, will use its best efforts but is not required to sell any specific amount of shares.  The Company also intends to offer up to $250 million, in any combination, of Class A, Class T and Class I shares to be issued pursuant to its distribution reinvestment plan (“Reinvestment Plan” and, together with the Primary Offering, the “Offering”).  The Company reserves the right to reallocate the shares offered between the Primary Offering and the Reinvestment Plan.  

From the time of the Company’s formation on July 10, 2015 (inception) through July 10, 2016, the Company had not commenced operations because the Company was in its development stage and had not received the minimum required offering amount of $2.0 million in shares of common stock.  The Company broke escrow in its Offering effective July 11, 2016, through the sale of 250,000 Class A shares to its Advisor for $2.5 million and commenced operations.

The Company contributes the net proceeds from its Offering to CHP II Partners, LP (“Operating Partnership”) in exchange for partnership interests.  The Company intends to own substantially all of its assets either directly or indirectly through the Operating Partnership in which the Company is the sole limited partner and its wholly-owned subsidiary, CHP II GP, LLC, is the sole general partner.  The Operating Partnership may own assets through: (1) a wholly-owned taxable REIT subsidiary (“TRS”), CHP II TRS Holding, Inc. (“TRS Holdings”) and (2) property owner subsidiaries, which are single purpose entities.  

The Company has and generally expects to lease its seniors housing properties to single member limited liability companies wholly-owned by TRS Holdings and engage independent third-party managers under management agreements to operate the properties as permitted under the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”) structures; however, the Company may also lease its properties to third-party tenants under triple-net or similar lease structures, where the tenant bears all or substantially all of the costs (including cost increases for real estate taxes, utilities, insurance and ordinary repairs).  Medical office, acute care and post-acute care properties have and will generally be leased on a triple-net, net or modified gross basis to third-party tenants.  In addition, the Company expects most investments will be wholly-owned, although, it may invest through partnerships with other entities where the Company believes it is appropriate and beneficial.  The Company expects to invest in a combination of stabilized assets, new property developments and properties which have not reached full stabilization.  Finally, the Company may invest in and originate mortgage, bridge or mezzanine loans or in entities that make investments similar to the foregoing investment types.  The Company would generally make loans to the owners of properties to enable them to acquire land, buildings, or to develop property.  In exchange, the owner generally grants the Company a first lien or collateralized interest in a participating mortgage collateralized by the property or by interests in the entity that owns the property.

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles in the United States (“GAAP”).  The unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which, in the opinion of management, are necessary for the fair statement of the Company’s results for the interim period presented.  Operating results for the quarter and six months ended June 30, 2018 may not be indicative of the results that may be expected for the year ending December 31, 2018.  Amounts as of December 31, 2017 included in the unaudited condensed consolidated financial statements have been derived from audited consolidated financial statements as of that date but do not include all disclosures required by GAAP.  These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

The accompanying condensed consolidated financial statements include the accounts of the Company, the Operating Partnership and its other subsidiaries.  All material intercompany accounts and transactions have been eliminated in consolidation.  

Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the Company’s condensed consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.

Restricted Cash — As of June 30, 2018, the Company had approximately $15.5 million on deposit with a potential lender for an anticipated acquisition.  This cash deposit represents restricted use funds under the requirements of the lender’s loan commitment letter until such time as the Company either uses the cash deposit to fund the anticipated acquisition or the Company breaks the loan commitment with the lender.  While the Company’s cash deposit exceeds federally insured amounts, the Company continues to monitor the lender and believes it is not exposed to any significant credit risk given the short-term nature of the restricted use of its cash deposit.

Adopted Accounting Pronouncements — In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” as a new ASC topic (Topic 606).  The core principle of this ASU is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The ASU further provides guidance for any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards (for example, lease contracts).  The FASB subsequently issued ASU 2015-14 to defer the effective date of ASU 2014-09 until annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, with earlier adoption permitted.  In addition, the FASB issued ASU 2017-05, "Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20)," which clarifies the scope of subtopic 610-20, that was issued as a part of ASU 2014-09, as it relates to in-substance nonfinancial assets and must be adopted concurrently with ASC 606.  Both ASUs can be adopted using one of two retrospective transition methods: (i) retrospectively to each prior reporting period presented or (ii) as a cumulative-effect adjustment as of the date of adoption.  The Company adopted these ASUs using the modified retrospective approach as its transition method on January 1, 2018; the adoption of which did not have a material impact to its consolidated financial statements.

2. Summary of Significant Accounting Policies (continued)

In August 2017, the FASB issued ASU 2017-12 “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which amended the hedge accounting model to better reflect an entity’s risk management activities. The ASU expands an entities ability to hedge nonfinancial and financial risk components as well as reduce the complexity related to fair value hedges of interest rate risk. The ASU further eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The ASU is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2018. The Company early adopted this ASU prospectively on January 1, 2018; the adoption of which did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements — In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842): Accounting for Leases,” which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors).  The ASU requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months.  The ASU further modifies lessors’ classification criteria for leases and the accounting for sales-type and direct financing leases.  The ASU will also require qualitative and quantitative disclosures designed to give financial statement users additional information on the amount, timing, and uncertainty of cash flows arising from leases. The ASU is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2018 with early adoption permitted.  The ASU is to be applied using a modified retrospective approach.  The Company expects that adoption will impact the Company’s consolidated financial statements and related financial statement disclosures; specifically, the Company’s consolidated financial position as it relates to the required presentation for arrangements such as ground or other leases in which the Company is the lessee. However, the Company does not expect the adoption of this ASU to have a material impact on the Company’s consolidated results of operations or cash flows.  In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” which includes a practical expedient for lessors allowing them to elect to not separate lease and non-lease components in a contract for the purpose of revenue recognition and disclosure if certain criteria are met.  The Company plans to elect the practical expedient and apply to all leases that qualify under the established criteria.

In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting”, which expands the scope to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payments. The amendments also clarify that this topic does not apply to share-based payments used to provide financing to the issuer or awards granted in conjunction with selling of goods or services to customers as a part of a contract accounted for under Revenue from Contracts with Customers (Topic 606).  The ASU is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2018.  The Company is currently assessing the impact of adoption of this ASU will have on the Company’s consolidated financial statements.

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Revenue

6 Months Ended

Jun. 30, 2018

Revenue From Contract With Customer [Abstract]

Revenue

3. Revenue

Resident fees and services are operating revenues relating to the Company’s managed seniors housing property, which is operated under a RIDEA structure.  Resident fees and services directly relate to the provision of monthly goods and services that are generally bundled together under a single resident agreement.   The Company accounts for its resident agreements as a single performance obligation under ASC 606 given the Company’s overall promise to provide a series of stand-ready goods and services to its residents each month.  Resident fees and services are recorded in the period in which the goods are provided and the services performed and generally consist of (1) monthly rent, which covers occupancy of the residents’ unit as well as basic services, such as utilities, meals and certain housekeeping services, and (2) service level charges, such as assisted living care, memory care and ancillary services.  Resident agreements are generally short-term in nature, billed monthly in advance and cancelable by the residents with a 30-day notice.  Resident agreements may require the payment of upfront fees prior to moving into the community with any non-refundable portion of such fees being recorded as deferred revenue and amortized over the estimated resident stay.

3. Revenue (continued)

The following table represents the disaggregated revenue for resident fees and services during the six months ended June 30, 2018 and 2017:

	Six Months Ended June 30,
							Percentage
Type of Investment	Number of Units		Revenues				of Revenues
Resident fees and services:	2018	2017	2018		2017		2018			2017
Assisted living	67	67	$	1,651,054	$	806,985		72.9	%		74.5	%
Memory care	22	22		584,920		270,755		25.8	%		25.0	%
Other revenues	―	―		28,786		5,130		1.3	%		0.5	%
	89	89	$	2,264,760	$	1,082,870		100.0	%		100.0	%

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Real Estate Acquisitions

6 Months Ended

Jun. 30, 2018

Business Combinations [Abstract]

Real Estate Acquisitions

4. Real Estate Acquisitions

The Company made no acquisitions during the six months ended June 30, 2018.

During the six months ended June 30, 2017, the Company acquired Summer Vista, a seniors housing community in Pensacola, Florida, for a purchase price of approximately $21.4 million.  In connection therewith, the Company incurred approximately $0.6 million of acquisition fees and expenses, which were capitalized as a component of the cost of the assets acquired and allocated on a relative fair value basis.

The seniors housing community features 89 residential units and is operated under a RIDEA structure pursuant to a five-year property management agreement with SRI Management, LLC (“Superior Residences”).

The following summarizes the purchase price allocation for Summer Vista, and the related assets acquired and liabilities assumed in connection with the acquisition:

Land and land improvements	$	2,269,406
Buildings and building improvements		17,611,786
Furniture, fixtures and equipment		857,338
In-place lease intangibles (1)		1,286,507
Liabilities assumed		(170,918	)
Total purchase price consideration	$	21,854,119

FOOTNOTE:

⁽¹⁾ At the acquisition date, the weighted-average amortization period on the acquired in-place lease intangibles was approximately 2.5 years and is based on the expected unit turnover.

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Real Estate Assets, net

6 Months Ended

Jun. 30, 2018

Real Estate [Abstract]

Real Estate Assets, net

5. Real Estate Assets, net

The gross carrying amount and accumulated depreciation of the Company’s real estate assets as of June 30, 2018 and December 31, 2017 are as follows:

	June 30,			December 31,
	2018			2017
Land and land improvements	$	2,683,072		$	2,683,051
Building and building improvements		28,109,623			28,109,037
Furniture, fixtures and equipment		912,742			879,288
Less: accumulated depreciation		(1,124,867	)		(585,437	)
Real estate assets, net	$	30,580,570		$	31,085,939

Depreciation expense on the Company’s real estate assets, net was approximately $0.3 million and $0.5 million for the quarter and six months ended June 30, 2018, respectively, and approximately $0.2 million for both the quarter and six months ended June 30, 2017.

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Intangibles, net

6 Months Ended

Jun. 30, 2018

Goodwill And Intangible Assets Disclosure [Abstract]

Intangibles, net

6. Intangibles, net

The gross carrying amount and accumulated amortization of the Company’s intangible assets and liabilities as of June 30, 2018 and December 31, 2017 are as follows:

	June 30,			December 31,
	2018			2017
In-place lease intangibles	$	3,495,754		$	3,495,632
Ground lease intangibles		1,543,910			1,543,824
Less: accumulated amortization		(776,923	)		(385,952	)
Intangible assets, net	$	4,262,741		$	4,653,504
Below-market lease intangibles	$	(340,409	)	$	(340,390	)
Less: accumulated amortization		15,276			—
Intangible liabilities, net (1)	$	(325,133	)	$	(340,390	)

FOOTNOTE:

⁽¹⁾ Intangible liabilities, net are included in other liabilities in the accompanying condensed consolidated balance sheets.

Amortization on the Company’s intangible assets was approximately $0.2 million and $0.4 million for the quarter and six months ended June 30, 2018, respectively, of which approximately $10,000 and $20,000 was treated as an increase of property operating expenses and approximately $0.2 million and $0.4 million was included in depreciation and amortization.  Amortization on the Company’s intangible assets was approximately $0.1 million for both the quarter and six months ended June 30, 2017, all of which was included in depreciation and amortization.

Amortization on the Company’s intangible liabilities was approximately $8,000 and $15,000 for the quarter and six months ended June 30, 2018, respectively, all of which was treated as an increase in rental income and tenant reimbursements.  There was no amortization expense on the Company’s intangible liabilities for the quarter and six months ended June 30, 2017.

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Related Party Arrangements

6 Months Ended

Jun. 30, 2018

Related Party Transactions [Abstract]

Related Party Arrangements

7. Related Party Arrangements

The Company is externally advised and has no direct employees. All of the Company’s executive officers are executive officers, or on the board of managers of the Advisor. In addition, certain directors and officers hold similar positions with CNL Securities Corp., the Dealer Manager of the Offering and a wholly owned subsidiary of CNL. In connection with services provided to the Company, affiliates are entitled to the following fees:

Dealer Manager — In March 2017, the Company entered into an amended and restated dealer manager agreement pursuant to which the Dealer Manager receives a combined selling commission and dealer manager fee of up to 8.5% of the sale price for each Class A share and up to 4.75% of the sale price for each Class T share sold in the Primary Offering, all or a portion of which may be reallowed to participating broker dealers.  In addition, for Class T shares sold in the Primary Offering, the Dealer Manager may choose the respective amounts of the commission and dealer manager fee, provided that the selling commission shall not exceed 3.0% of the gross proceeds from the completed sale of such Class T shares.  

The Company has and will continue to pay a distribution and stockholder servicing fee, subject to certain underwriting compensation limits, with respect to the Class T and Class I shares sold in the Primary Offering in an annual amount equal to 1% and 0.50%, respectively, of the current gross offering price per Class T or Class I share, respectively, or if the Company is no longer offering shares in a public offering, the estimated per share value per Class T or Class I share, respectively.  The annual distribution and stockholder servicing fee will continue to be calculated as a percentage of the current gross offering price per Class T or Class I share until the Company reports an estimated per share value following the termination of the Primary Offering, at which point the distribution fee will be calculated based on the new estimated per share value, until such underwriting compensation limits are met or the shares are converted to Class A shares pursuant to the terms of the securities.

The Company records the annual distribution and stockholder servicing fees as a reduction to capital in excess of par value and measures the related liability in an amount equal to the maximum fees owed in relation to the Class T and Class I shares on the shares’ issuance date.  The liability is relieved over time, as the fees are paid to the Dealer Manager, or is adjusted if the fees are no longer owed on any Class T or Class I share that is redeemed or repurchased, as well as upon the earliest occurrence of: (i) a listing on a national securities exchange; (ii) a merger or consolidation of the Company with or into another entity, or the sale or other disposition of all or substantially all of the Company’s assets; (iii) after the termination of the Primary Offering in which the initial shares in the account were sold, the end of the month in which total underwriting compensation paid in the Primary Offering is not less than 10% of the gross proceeds from all share classes of the Primary Offering; (iv) the end of the month in which the total underwriting compensation paid in a Primary Offering with respect to shares purchased in a Primary Offering is not less than 8.5% of the gross offering price of those shares purchased in such Primary Offering (excluding shares purchased through the Reinvestment Plan and those received as stock dividends); or (v) any other conditions described in the Company’s prospectus.  

CNL Capital Markets, LLC — The Company will pay CNL Capital Markets, LLC, an affiliate of CNL, an annual fee payable monthly based on the average number of total investor accounts that will be open during the term of the capital markets service agreement pursuant to which certain administrative services are provided to the Company.  These services may include, but are not limited to, the facilitation and coordination of the transfer agent’s activities, client services and administrative call center activities, financial advisor administrative correspondence services, material distribution services and various reporting and troubleshooting activities.

7. Related Party Arrangements (continued)

Advisor — The Company will pay the Advisor a monthly asset management fee in an amount equal to 0.0667% of the monthly average of the sum of the Company’s and the Operating Partnership’s respective daily real estate asset value, without duplication, plus the outstanding principal amount of any loans made, plus the amount invested in other permitted investments.  For this purpose, “real estate asset value” equals the amount invested in wholly-owned properties, determined on the basis of cost, and in the case of properties owned by any joint venture or partnership in which the Company is a co-venturer or partner the portion of the cost of such properties paid by the Company, exclusive of acquisition fees and acquisition expenses and will not be reduced for any recognized impairment.  Any recognized impairment loss will not reduce the real estate asset value for the purposes of calculating the asset management fee.  The asset management fee, which will not exceed fees which are competitive for similar services in the same geographic area, may or may not be taken, in whole or in part as to any year, in the Advisor’s sole discretion.  All or any portion of the asset management fee not taken as to any fiscal year shall be deferred without interest and may be taken in such other fiscal year as the Advisor shall determine.

The Company will pay the Advisor a construction management fee of up to 1% of hard and soft costs associated with the initial construction or renovation of a property, or with the management and oversight of expansion projects and other capital improvements, in those cases in which the value of the construction, renovation, expansion or improvements exceeds (i) 10% of the initial purchase price of the property and (ii) $1 million in which case such fee will be due and payable as draws are funded for such projects.

The Advisor will receive an investment services fee of 2.25% of the purchase price of properties and funds advanced for loans or the amount invested in the case of other assets for services in connection with the selection, evaluation, structure and purchase of assets.  No investment services fee will be paid to the Advisor in connection with the Company’s purchase of securities.

The Advisor, its affiliates and related parties also are entitled to reimbursement of certain operating expenses in connection with their provision of services to the Company, including personnel costs, subject to the limitation that the Company will not reimburse the Advisor for any amount by which operating expenses exceed the greater of 2% of its average invested assets or 25% of its net income in any four consecutive fiscal quarters (“Expense Year”) unless approved by the independent directors.  The Company commenced its Primary Offering in March 2016 and made its first investment in March 2017.  For the Expense Year ended June 30, 2018, the Company’s total operating expenses were in excess of this limitation by approximately $0.4 million.  As of June 30, 2018, the Company had received cumulative approvals from its independent directors for total operating expenses in excess of this limitation of approximately $0.8 million.  The Company’s independent directors determined that the higher relationship of operating expenses to average invested assets was justified based on the level of capital raise, the limited number of investments to date, and the cost of operating a public company.

The Advisor will pay all other organizational and offering expenses incurred in connection with the formation of the Company, without reimbursement by the Company.  These expenses include, but are not limited to, Security and Exchange Commission (“SEC”) registration fees, Financial Industry Regulatory Authority (“FINRA”) filing fees, printing and mailing expenses, blue sky fees and expenses, legal fees and expenses, accounting fees and expenses, advertising and sales literature, transfer agent fees, due diligence expenses, personnel costs associated with processing investor subscriptions, escrow fees and other administrative expenses of the Offering.

For the quarter and six months ended June 30, 2018, the Company paid cash distributions of approximately $38,000, $76,000, respectively, and issued stock dividends of approximately 8,000 shares and 16,000 shares, respectively, to the Advisor.

7. Related Party Arrangements (continued)

Pursuant to an expense support arrangement, the Advisor has agreed to accept payment in restricted stock in lieu of cash for services rendered, in the event that the Company does not achieve established distribution coverage targets (“Expense Support Agreement”).  Under the terms of the Expense Support Agreement, for each quarter within a calendar expense support year, the Company will record a proportional estimate of the cumulative year-to-date period based on an estimate of the annual expense support expected for the calendar expense support year.  In exchange for services rendered and in consideration of the expense support provided under this arrangement, the Company shall issue, following each determination date, a number of shares of restricted stock equal to the quotient of the expense support amount provided by the Advisor for the preceding year divided by the board of directors’ most recent determination of net asset value (“NAV”) per share of the Class A common shares, if the board has made such a determination, or otherwise the most recent public offering price per Class A common share, on the terms and conditions and subject to the restrictions set forth in the Expense Support Agreement.  The restricted stock is subordinated and forfeited to the extent that shareholders do not receive a Priority Return on their Invested Capital (as such terms are defined in the Company’s prospectus), excluding for the purposes of calculating this threshold any shares of restricted stock owned by the Advisor.

The following fees for services rendered are expected to be settled in the form of restricted stock pursuant to the Expense Support Agreement for the quarter and six months ended June 30, 2018 and cumulatively as of June 30, 2018:

	Quarter Ended				Six Months Ended				As of
	June 30,				June 30,				June 30,
	2018		2017		2018		2017		2018
Fees for services rendered:
Asset management fees	$	70,800	$	42,800	$	141,600	$	43,260	$	271,966
Advisor personnel expenses  (1)		123,142		122,135		249,771		224,399		686,174
Total fees for services rendered	$	193,942	$	164,935	$	391,371	$	267,659	$	958,140
Then-current offering price or NAV	$	10.06	$	10.93	$	10.06	$	10.93	$	10.06
Restricted stock shares  (2)		19,279		15,090		38,904		24,488		95,243
Cash distributions on restricted stock  (3)	$	8,113	$	—	$	8,113	$	—	$	8,113
Stock dividends on restricted stock (4)		170	―			170	―			170

FOOTNOTES:

⁽¹⁾ Amounts consist of personnel and related overhead costs of the Advisor or its affiliates (which, in general, are those expenses relating to the Company’s administration on an on-going basis) that are reimbursable by the Company.

⁽²⁾ Represents restricted stock shares issued or expected to be issued to the Advisor as of June 30, 2018 pursuant to the Expense Support Agreement.  No fair value was assigned to the restricted stock shares as the shares are expected to be valued at zero upon issuance, which represents the lowest possible value estimated at vesting.  In addition, the restricted stock shares will be treated as unissued for financial reporting purposes until the vesting criteria are met.

⁽³⁾ The cash distributions have been recognized as compensation expense as issued and included in general and administrative expense in the accompanying condensed consolidated statements of operations.

⁽⁴⁾ The par value of the stock dividends has been recognized as compensation expense as issued and included in general and administrative expense in the accompanying condensed consolidated statements of operations.

7. Related Party Arrangements (continued)

The fees payable to the Dealer Manager for the quarter and six months ended June 30, 2018 and 2017, and related amounts unpaid as of June 30, 2018 and December 31, 2017 are as follows:

	Quarter Ended				Six Months Ended				Unpaid amounts as of  (1)
	June 30,				June 30,				June 30,		December 31,
	2018		2017		2018		2017		2018		2017
Selling commissions (2)	$	89,834	$	150,493	$	221,675	$	343,369	$	3,200	$	10,000
Dealer manager fees (2)		110,527		76,915		276,283		260,651		17,511		18,150
Distribution and stockholder servicing fees (2)		221,469		47,882		514,847		222,678		1,177,044		798,524
	$	421,830	$	275,290	$	1,012,805	$	826,698	$	1,197,755	$	826,674

The expenses incurred by and reimbursable to the Company’s related parties for the quarter and six months ended June 30, 2018 and 2017, and related amounts unpaid as of June 30, 2018 and December 31, 2017 are as follows:

	Quarter Ended				Six Months Ended				Unpaid amounts as of  (1)
	June 30,				June 30,				June 30,		December 31,
	2018		2017		2018		2017		2018		2017
Reimbursable expenses:
Operating expenses (3)	$	263,201	$	240,883	$	526,795	$	431,409	$	87,093		197,235
Acquisition fees and expenses		601		20,000		1,503		21,889	―		―
		263,802		260,883		528,298		453,298		87,093		197,235
Investment Service Fees (4)	―		―		―			481,500	―		―
Asset Management Fees (5)		70,800		42,800		141,600		43,260	―		―
	$	334,602	$	303,683	$	669,898	$	978,058	$	87,093	$	197,235

FOOTNOTES:

⁽¹⁾ Amounts are recorded as due to related parties in the accompanying condensed consolidated balance sheets.

⁽²⁾ Amounts are recorded as stock issuance and offering costs in the accompanying condensed consolidated statements of stockholders’ equity.

⁽³⁾ Amounts are recorded as general and administrative expenses in the accompanying condensed consolidated statements of operations unless such amounts represent prepaid expenses, which are capitalized in the accompanying condensed consolidated balance sheets. For the quarter and six months ended June 30, 2018, approximately $0.1 million and $0.2 million, respectively, of personnel expenses of affiliates of the Advisor are expected to be settled in accordance with the terms of the Expense Support Agreement and as such our general administrative expenses were reduced by approximately $0.1 million and $0.2 million, respectively. For the quarter and six months ended June 30, 2017, approximately $0.1 million and $0.2 million, respectively, of personnel expenses of affiliates of the Advisor were settled in accordance with the terms of the Expense Support Agreement.

⁽⁴⁾ For the quarter and six months ended June 30, 2018, the Company did not incur any investment services fees. For the six months ended June 30, 2017, the Company incurred approximately $0.5 million in investment services fees of which approximately $0.5 million was capitalized and included in real estate investment properties, net in the accompanying condensed consolidated balance sheets. No such fees were incurred for the quarter ended June 30, 2017.

⁽⁵⁾ For the quarter and six months ended June 30, 2018, the Company incurred approximately $0.1 million and $0.1 million, respectively, in asset management fees, all of which are expected to be settled in accordance with the terms of the Expense Support Agreement.  For the quarter and six months ended June 30, 2017, the Company incurred approximately $43,000 and $43,000 in asset management fees, respectively, all of which were settled in accordance with the terms of the Expense Support Agreement.

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Equity

6 Months Ended

Jun. 30, 2018

Equity [Abstract]

Equity

8. Equity

Subscription Proceeds — As of June 30, 2018 and 2017 , the Company had received aggregate subscription proceeds of approximately $44.0 million (4.2 million shares) and $16.8 million (1.6 million shares), respectively, both of which include $200,000 (20,000 shares) of subscription proceeds received from the Advisor prior to the commencement of the Offering, approximately $251,250 (25,125 shares) of subscription proceeds received in connection with a private placement made in 2016 and approximately $901,000 (90,000 shares) and $108,000 (10,800 shares), respectively, of subscription proceeds pursuant to the Reinvestment Plan.

Distributions — For the six months ended June 30, 2018 and 2017, the Company declared and paid cash distributions of approximately $0.9 million and $0.3 million, respectively, which were net of class-specific expenses.  In addition, the Company declared and issued stock dividends of approximately 22,000 and 9,000 shares of common stock during the six months ended June 30, 2018 and 2017, respectively.

For the six months ended June 30, 2018 and 2017, 100.0% of the cash distributions paid to stockholders were considered a return of capital to stockholders for federal income tax purposes.  No amounts distributed to stockholders for the six months ended June 30, 2018 and 2017 were required to be or have been treated by the Company as a return of capital for purposes of calculating the stockholders’ return on their invested capital as described in the Company’s advisory agreement.  The distribution of new common stock shares to recipients is non-taxable.

In June 2018, the Company’s board of directors declared a monthly cash distribution of $0.0480, less class-specific expenses, and a monthly stock dividend of 0.00100625 shares on each outstanding share of common stock on July 1, 2018, August 1, 2018 and September 1, 2018.  These distributions and dividends are to be paid and distributed by September 30, 2018.

Redemptions — During the six months ended June 30, 2018, the Company received requests for the redemption of common stock of approximately $25,000 in Class T shares and $127,000 in Class A shares, which were approved for redemption at an average price of $10.00 and $10.06, respectively, and paid in March 2018 and June 2018, respectively.  There were no redemptions requested during the six months ended June 30, 2017.

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Income Taxes

6 Months Ended

Jun. 30, 2018

Income Tax Disclosure [Abstract]

Income Taxes

9. Income Taxes

The accompanying condensed consolidated financial statements include an interim tax provision for the quarter and six months ended June 30, 2018 and 2017 as the Company intends to qualify and may elect to be taxed as a REIT for U.S. federal income tax purposes beginning with the year ending December 31, 2017 or, as determined by its board of directors, the Company’s first year of material operations.  The Company recorded a total provision for income taxes of approximately $14,000 and $45,000 for the quarter and six months ended June 30, 2018, respectively, and $30,000 for both the quarter and six months ended June 30, 2017.  Of the approximate $45,000 in income tax expense for the six months ended June 30, 2018, approximately $43,000 represent current income tax expense, and approximately $2,000 represent a decrease to the Company’s net deferred tax assets which is primarily due to the reversal of the existing taxable temporary differences.  Of the approximate $30,000 in income tax expense for the six months ended June 30, 2017, $36,000 represents current income tax and $6,000 represents total deferred tax benefit.

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Commitment and Contingencies

6 Months Ended

Jun. 30, 2018

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

10. Commitments and Contingencies

From time to time, the Company may be a party to legal proceedings in the ordinary course of, or incidental to the normal course of, its business, including proceedings to enforce its contractual or statutory rights.  While the Company cannot predict the outcome of these legal proceedings with certainty, based upon currently available information, the Company does not believe the final outcome of any pending or threatened legal proceeding will have a material adverse effect on its results of operations or financial condition.

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Subsequent Events

6 Months Ended

Jun. 30, 2018

Subsequent Events [Abstract]

Subsequent Events

11. Subsequent Events

During the period from July 1, 2018 through August 1, 2018, the Company received additional subscription proceeds of approximately $3.1 million (0.3 million shares).

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Basis of Presentation and Consolidation

Basis of Presentation and Consolidation — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles in the United States (“GAAP”).  The unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which, in the opinion of management, are necessary for the fair statement of the Company’s results for the interim period presented.  Operating results for the quarter and six months ended June 30, 2018 may not be indicative of the results that may be expected for the year ending December 31, 2018.  Amounts as of December 31, 2017 included in the unaudited condensed consolidated financial statements have been derived from audited consolidated financial statements as of that date but do not include all disclosures required by GAAP.  These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

The accompanying condensed consolidated financial statements include the accounts of the Company, the Operating Partnership and its other subsidiaries.  All material intercompany accounts and transactions have been eliminated in consolidation.  

Use of Estimates

Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the Company’s condensed consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.

Restricted Cash

Restricted Cash — As of June 30, 2018, the Company had approximately $15.5 million on deposit with a potential lender for an anticipated acquisition.  This cash deposit represents restricted use funds under the requirements of the lender’s loan commitment letter until such time as the Company either uses the cash deposit to fund the anticipated acquisition or the Company breaks the loan commitment with the lender.  While the Company’s cash deposit exceeds federally insured amounts, the Company continues to monitor the lender and believes it is not exposed to any significant credit risk given the short-term nature of the restricted use of its cash deposit.

Adopted Accounting Pronouncements

Adopted Accounting Pronouncements — In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” as a new ASC topic (Topic 606).  The core principle of this ASU is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The ASU further provides guidance for any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards (for example, lease contracts).  The FASB subsequently issued ASU 2015-14 to defer the effective date of ASU 2014-09 until annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, with earlier adoption permitted.  In addition, the FASB issued ASU 2017-05, "Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20)," which clarifies the scope of subtopic 610-20, that was issued as a part of ASU 2014-09, as it relates to in-substance nonfinancial assets and must be adopted concurrently with ASC 606.  Both ASUs can be adopted using one of two retrospective transition methods: (i) retrospectively to each prior reporting period presented or (ii) as a cumulative-effect adjustment as of the date of adoption.  The Company adopted these ASUs using the modified retrospective approach as its transition method on January 1, 2018; the adoption of which did not have a material impact to its consolidated financial statements.

2. Summary of Significant Accounting Policies (continued)

In August 2017, the FASB issued ASU 2017-12 “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which amended the hedge accounting model to better reflect an entity’s risk management activities. The ASU expands an entities ability to hedge nonfinancial and financial risk components as well as reduce the complexity related to fair value hedges of interest rate risk. The ASU further eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The ASU is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2018. The Company early adopted this ASU prospectively on January 1, 2018; the adoption of which did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

Recent Accounting Pronouncements — In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842): Accounting for Leases,” which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors).  The ASU requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months.  The ASU further modifies lessors’ classification criteria for leases and the accounting for sales-type and direct financing leases.  The ASU will also require qualitative and quantitative disclosures designed to give financial statement users additional information on the amount, timing, and uncertainty of cash flows arising from leases. The ASU is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2018 with early adoption permitted.  The ASU is to be applied using a modified retrospective approach.  The Company expects that adoption will impact the Company’s consolidated financial statements and related financial statement disclosures; specifically, the Company’s consolidated financial position as it relates to the required presentation for arrangements such as ground or other leases in which the Company is the lessee. However, the Company does not expect the adoption of this ASU to have a material impact on the Company’s consolidated results of operations or cash flows.  In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” which includes a practical expedient for lessors allowing them to elect to not separate lease and non-lease components in a contract for the purpose of revenue recognition and disclosure if certain criteria are met.  The Company plans to elect the practical expedient and apply to all leases that qualify under the established criteria.

In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting”, which expands the scope to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payments. The amendments also clarify that this topic does not apply to share-based payments used to provide financing to the issuer or awards granted in conjunction with selling of goods or services to customers as a part of a contract accounted for under Revenue from Contracts with Customers (Topic 606).  The ASU is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2018.  The Company is currently assessing the impact of adoption of this ASU will have on the Company’s consolidated financial statements.

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Revenue (Tables)

6 Months Ended

Jun. 30, 2018

Revenue From Contract With Customer [Abstract]

Schedule of Disaggregated Revenue for Resident Fees and Services

The following table represents the disaggregated revenue for resident fees and services during the six months ended June 30, 2018 and 2017:

	Six Months Ended June 30,
							Percentage
Type of Investment	Number of Units		Revenues				of Revenues
Resident fees and services:	2018	2017	2018		2017		2018			2017
Assisted living	67	67	$	1,651,054	$	806,985		72.9	%		74.5	%
Memory care	22	22		584,920		270,755		25.8	%		25.0	%
Other revenues	―	―		28,786		5,130		1.3	%		0.5	%
	89	89	$	2,264,760	$	1,082,870		100.0	%		100.0	%

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Real Estate Acquisitions (Tables)

6 Months Ended

Jun. 30, 2018

Business Combinations [Abstract]

Summary of Purchase Price Allocation and Related Assets Acquired and Liabilities Assumed

The following summarizes the purchase price allocation for Summer Vista, and the related assets acquired and liabilities assumed in connection with the acquisition:

Land and land improvements	$	2,269,406
Buildings and building improvements		17,611,786
Furniture, fixtures and equipment		857,338
In-place lease intangibles (1)		1,286,507
Liabilities assumed		(170,918	)
Total purchase price consideration	$	21,854,119

FOOTNOTE:

⁽¹⁾ At the acquisition date, the weighted-average amortization period on the acquired in-place lease intangibles was approximately 2.5 years and is based on the expected unit turnover.

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Real Estate Assets, net (Tables)

6 Months Ended

Jun. 30, 2018

Real Estate [Abstract]

Schedule of Real Estate Assets

The gross carrying amount and accumulated depreciation of the Company’s real estate assets as of June 30, 2018 and December 31, 2017 are as follows:

	June 30,			December 31,
	2018			2017
Land and land improvements	$	2,683,072		$	2,683,051
Building and building improvements		28,109,623			28,109,037
Furniture, fixtures and equipment		912,742			879,288
Less: accumulated depreciation		(1,124,867	)		(585,437	)
Real estate assets, net	$	30,580,570		$	31,085,939

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Intangibles, net (Tables)

6 Months Ended

Jun. 30, 2018

Goodwill And Intangible Assets Disclosure [Abstract]

Schedule of Gross Carrying Amount and Accumulated Amortization of Intangibles

The gross carrying amount and accumulated amortization of the Company’s intangible assets and liabilities as of June 30, 2018 and December 31, 2017 are as follows:

	June 30,			December 31,
	2018			2017
In-place lease intangibles	$	3,495,754		$	3,495,632
Ground lease intangibles		1,543,910			1,543,824
Less: accumulated amortization		(776,923	)		(385,952	)
Intangible assets, net	$	4,262,741		$	4,653,504
Below-market lease intangibles	$	(340,409	)	$	(340,390	)
Less: accumulated amortization		15,276			—
Intangible liabilities, net (1)	$	(325,133	)	$	(340,390	)

FOOTNOTE:

⁽¹⁾ Intangible liabilities, net are included in other liabilities in the accompanying condensed consolidated balance sheets.

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Related Party Arrangements (Tables)

6 Months Ended

Jun. 30, 2018

Related Party Arrangement, Fees and Expenses Incurred By, Reimbursable, Settled and Paid

The expenses incurred by and reimbursable to the Company’s related parties for the quarter and six months ended June 30, 2018 and 2017, and related amounts unpaid as of June 30, 2018 and December 31, 2017 are as follows:

	Quarter Ended				Six Months Ended				Unpaid amounts as of  (1)
	June 30,				June 30,				June 30,		December 31,
	2018		2017		2018		2017		2018		2017
Reimbursable expenses:
Operating expenses (3)	$	263,201	$	240,883	$	526,795	$	431,409	$	87,093		197,235
Acquisition fees and expenses		601		20,000		1,503		21,889	―		―
		263,802		260,883		528,298		453,298		87,093		197,235
Investment Service Fees (4)	―		―		―			481,500	―		―
Asset Management Fees (5)		70,800		42,800		141,600		43,260	―		―
	$	334,602	$	303,683	$	669,898	$	978,058	$	87,093	$	197,235

FOOTNOTES:

⁽¹⁾ Amounts are recorded as due to related parties in the accompanying condensed consolidated balance sheets.

⁽²⁾ Amounts are recorded as stock issuance and offering costs in the accompanying condensed consolidated statements of stockholders’ equity.

⁽³⁾ Amounts are recorded as general and administrative expenses in the accompanying condensed consolidated statements of operations unless such amounts represent prepaid expenses, which are capitalized in the accompanying condensed consolidated balance sheets. For the quarter and six months ended June 30, 2018, approximately $0.1 million and $0.2 million, respectively, of personnel expenses of affiliates of the Advisor are expected to be settled in accordance with the terms of the Expense Support Agreement and as such our general administrative expenses were reduced by approximately $0.1 million and $0.2 million, respectively. For the quarter and six months ended June 30, 2017, approximately $0.1 million and $0.2 million, respectively, of personnel expenses of affiliates of the Advisor were settled in accordance with the terms of the Expense Support Agreement.

⁽⁴⁾ For the quarter and six months ended June 30, 2018, the Company did not incur any investment services fees. For the six months ended June 30, 2017, the Company incurred approximately $0.5 million in investment services fees of which approximately $0.5 million was capitalized and included in real estate investment properties, net in the accompanying condensed consolidated balance sheets. No such fees were incurred for the quarter ended June 30, 2017.

⁽⁵⁾ For the quarter and six months ended June 30, 2018, the Company incurred approximately $0.1 million and $0.1 million, respectively, in asset management fees, all of which are expected to be settled in accordance with the terms of the Expense Support Agreement.  For the quarter and six months ended June 30, 2017, the Company incurred approximately $43,000 and $43,000 in asset management fees, respectively, all of which were settled in accordance with the terms of the Expense Support Agreement.

Dealer Manager

Related Party Arrangement, Fees and Expenses Incurred By, Reimbursable, Settled and Paid

The fees payable to the Dealer Manager for the quarter and six months ended June 30, 2018 and 2017, and related amounts unpaid as of June 30, 2018 and December 31, 2017 are as follows:

	Quarter Ended				Six Months Ended				Unpaid amounts as of  (1)
	June 30,				June 30,				June 30,		December 31,
	2018		2017		2018		2017		2018		2017
Selling commissions (2)	$	89,834	$	150,493	$	221,675	$	343,369	$	3,200	$	10,000
Dealer manager fees (2)		110,527		76,915		276,283		260,651		17,511		18,150
Distribution and stockholder servicing fees (2)		221,469		47,882		514,847		222,678		1,177,044		798,524
	$	421,830	$	275,290	$	1,012,805	$	826,698	$	1,197,755	$	826,674

Expense Support Agreement

Related Party Arrangement, Fees and Expenses Incurred By, Reimbursable, Settled and Paid

The following fees for services rendered are expected to be settled in the form of restricted stock pursuant to the Expense Support Agreement for the quarter and six months ended June 30, 2018 and cumulatively as of June 30, 2018:

	Quarter Ended				Six Months Ended				As of
	June 30,				June 30,				June 30,
	2018		2017		2018		2017		2018
Fees for services rendered:
Asset management fees	$	70,800	$	42,800	$	141,600	$	43,260	$	271,966
Advisor personnel expenses  (1)		123,142		122,135		249,771		224,399		686,174
Total fees for services rendered	$	193,942	$	164,935	$	391,371	$	267,659	$	958,140
Then-current offering price or NAV	$	10.06	$	10.93	$	10.06	$	10.93	$	10.06
Restricted stock shares  (2)		19,279		15,090		38,904		24,488		95,243
Cash distributions on restricted stock  (3)	$	8,113	$	—	$	8,113	$	—	$	8,113
Stock dividends on restricted stock (4)		170	―			170	―			170

FOOTNOTES:

⁽¹⁾ Amounts consist of personnel and related overhead costs of the Advisor or its affiliates (which, in general, are those expenses relating to the Company’s administration on an on-going basis) that are reimbursable by the Company.

⁽²⁾ Represents restricted stock shares issued or expected to be issued to the Advisor as of June 30, 2018 pursuant to the Expense Support Agreement.  No fair value was assigned to the restricted stock shares as the shares are expected to be valued at zero upon issuance, which represents the lowest possible value estimated at vesting.  In addition, the restricted stock shares will be treated as unissued for financial reporting purposes until the vesting criteria are met.

⁽³⁾ The cash distributions have been recognized as compensation expense as issued and included in general and administrative expense in the accompanying condensed consolidated statements of operations.

⁽⁴⁾ The par value of the stock dividends has been recognized as compensation expense as issued and included in general and administrative expense in the accompanying condensed consolidated statements of operations.

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Organization - Additional Information (Details) - USD ($)	1 Months Ended	6 Months Ended
	Aug. 01, 2018	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2015	Dec. 31, 2017	Jul. 11, 2016	Mar. 02, 2016
Organization Consolidation And Presentation Of Financial Statements Disclosure [Line Items]
Common stock, shares sold	300,000	4,200,000	1,600,000
Aggregate purchase price		$ 12,548,169	$ 10,195,322
Minimum offering amount		$ 2,000,000
Initial Public Offering
Organization Consolidation And Presentation Of Financial Statements Disclosure [Line Items]
Common stock, value authorized							$ 1,750,000,000
Reinvestment Plan
Organization Consolidation And Presentation Of Financial Statements Disclosure [Line Items]
Common stock, value authorized							$ 250,000,000
Advisor
Organization Consolidation And Presentation Of Financial Statements Disclosure [Line Items]
Common stock, shares sold				20,000
Aggregate purchase price				$ 200,000
Class A Common Stock
Organization Consolidation And Presentation Of Financial Statements Disclosure [Line Items]
Common stock, shares sold		65,726	328,484
Aggregate purchase price		$ 657	$ 3,285
Sale of common stock, shares		878,939			808,011
Sale of common stock, value		$ 8,663			$ 8,080
Class A Common Stock | Advisor
Organization Consolidation And Presentation Of Financial Statements Disclosure [Line Items]
Conversion of shares				20,000
Sale of common stock, shares						250,000
Sale of common stock, value						$ 2,500,000

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Summary of Significant Accounting Policies - Additional Information (Details) $ in Millions	Jun. 30, 2018 USD ($)
Accounting Policies [Abstract]
Restricted cash on deposit for an anticipated acquisition	$ 15.5

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Revenue - Schedule of Disaggregated Revenue for Resident Fees and Services (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($) ResidentialUnit	Jun. 30, 2017 USD ($) ResidentialUnit
Disaggregation Of Revenue [Line Items]
Resident fees and services: Number of Units | ResidentialUnit			89	89
Resident fees and services: Percentage of Revenues			100.00%	100.00%
Health Care Resident Service
Disaggregation Of Revenue [Line Items]
Resident fees and services: Revenues	$ 1,140,235	$ 1,071,441	$ 2,264,760	$ 1,082,870
Assisted Living
Disaggregation Of Revenue [Line Items]
Resident fees and services: Number of Units | ResidentialUnit			67	67
Resident fees and services: Percentage of Revenues			72.90%	74.50%
Assisted Living | Health Care Resident Service
Disaggregation Of Revenue [Line Items]
Resident fees and services: Revenues			$ 1,651,054	$ 806,985
Memory Care
Disaggregation Of Revenue [Line Items]
Resident fees and services: Number of Units | ResidentialUnit			22	22
Resident fees and services: Percentage of Revenues			25.80%	25.00%
Memory Care | Health Care Resident Service
Disaggregation Of Revenue [Line Items]
Resident fees and services: Revenues			$ 584,920	$ 270,755
Other Revenues
Disaggregation Of Revenue [Line Items]
Resident fees and services: Percentage of Revenues			1.30%	0.50%
Other Revenues | Health Care Resident Service
Disaggregation Of Revenue [Line Items]
Resident fees and services: Revenues			$ 28,786	$ 5,130

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Real Estate Acquisitions - Additional Information (Details)	6 Months Ended
	Jun. 30, 2018 USD ($) Property Residential	Jun. 30, 2017 USD ($)
Business Acquisition [Line Items]
Number of properties acquired | Property	0
Acquisition fees and expenses	$ 818
Superior Residences
Business Acquisition [Line Items]
Property management agreement period	5 years
Summer Vista
Business Acquisition [Line Items]
Purchase price		$ 21,400,000
Acquisition fees and expenses		$ 600,000
Number of residential units | Residential	89

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Real Estate Acquisitions - Summary of Purchase Price Allocation and Related Assets Acquired and Liabilities Assumed (Details) - Mid America Surgery Institute And Summer Vista Assisted Living	Jun. 30, 2018 USD ($)
Business Acquisition [Line Items]
Land and land improvements	$ 2,269,406
Buildings and building improvements	17,611,786
Furniture, fixtures and equipment	857,338
In-place lease intangibles	1,286,507	[1]
Liabilities assumed	(170,918)
Total purchase price consideration	$ 21,854,119

[1] At the acquisition date, the weighted-average amortization period on the acquired in-place lease intangibles was approximately 2.5 years and is based on the expected unit turnover.

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Real Estate Acquisitions - Summary of Purchase Price Allocation and Related Assets Acquired and Liabilities Assumed (Parenthetical) (Details)	6 Months Ended
	Jun. 30, 2018
Summer Vista
Business Acquisition [Line Items]
Weighted average amortization period on acquired in-place lease intangibles	2 years 6 months

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Real Estate Assets, net - Schedule of Real Estate Assets (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Real Estate [Abstract]
Land and land improvements	$ 2,683,072	$ 2,683,051
Building and building improvements	28,109,623	28,109,037
Furniture, fixtures and equipment	912,742	879,288
Less: accumulated depreciation	(1,124,867)	(585,437)
Real estate assets, net	$ 30,580,570	$ 31,085,939

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Real Estate Assets, net - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Real Estate Assets,Net [Member]
Real Estate Properties [Line Items]
Depreciation expense	$ 0.3	$ 0.2	$ 0.5	$ 0.2

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Intangibles, net - Schedule of Gross Carrying Amount and Accumulated Amortization of Intangibles (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Goodwill And Intangible Assets Disclosure [Abstract]
In-place lease intangibles	$ 3,495,754	$ 3,495,632
Ground lease intangibles	1,543,910	1,543,824
Less: accumulated amortization	(776,923)	(385,952)
Intangible assets, net	4,262,741	4,653,504
Below-market lease intangibles	(340,409)	(340,390)
Less: accumulated amortization	15,276
Intangible liabilities, net	$ (325,133)	$ (340,390)

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Intangibles, net - Additional Information (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Finite Lived Intangible Assets And Liabilities [Line Items]
Amortization expense on intangible assets	$ 200,000		$ 400,000
Amortization of intangible liabilities		$ 0		$ 0
Property Operating Expenses
Finite Lived Intangible Assets And Liabilities [Line Items]
Amortization expense on intangible assets	10,000		20,000
Depreciation And Amortization
Finite Lived Intangible Assets And Liabilities [Line Items]
Amortization expense on intangible assets	200,000	$ 100,000	400,000	$ 100,000
Rental Income from Operating Leases
Finite Lived Intangible Assets And Liabilities [Line Items]
Amortization of intangible liabilities	$ 8,000		$ 15,000

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Related Party Arrangements - Additional Information (Details) - USD ($)	1 Months Ended	3 Months Ended	6 Months Ended
	Mar. 31, 2017	Jun. 30, 2018	Jun. 30, 2018	Jun. 30, 2017
Related Party Transaction [Line Items]
Cash distributions paid			$ 376,934	$ 141,591
Stock dividends issued			9,000	9,000
Advisor
Related Party Transaction [Line Items]
Monthly asset management fee as percentage of real estate value			0.0667%
Initial purchase price of property percentage			10.00%
Property management fee due and payable		$ 1,000,000	$ 1,000,000
Investment service fee as percentage of purchase price of properties			2.25%
Investment services fee			$ 0
Operating expenses in excess of limitation			400,000
Operating expenses in excess of limitation approved			800,000
Cash distributions paid		$ 38,000	$ 76,000
Stock dividends issued		8,000	16,000
Class A Common Stock
Related Party Transaction [Line Items]
Stock dividends issued			5,202	3,408
Class T Common Stock
Related Party Transaction [Line Items]
Distribution and stockholder servicing fee			1.00%
Stock dividends issued			14,919	5,268
Class I Common Stock
Related Party Transaction [Line Items]
Distribution and stockholder servicing fee			0.50%
Stock dividends issued			1,467	130
Maximum | Advisor
Related Party Transaction [Line Items]
Construction management fee as percentage of hard and soft costs			1.00%
Operating expenses reimbursement percentage of average invested assets			2.00%
Operating expenses reimbursement percentage of net income			25.00%
Maximum | Class A Common Stock
Related Party Transaction [Line Items]
Selling commission and dealer manager fee	8.50%
Maximum | Class T Common Stock
Related Party Transaction [Line Items]
Selling commission and dealer manager fee	4.75%
Selling commission	3.00%
Minimum
Related Party Transaction [Line Items]
Underwriting compensation percentage on gross proceeds from shares of primary offering			10.00%
Underwriting compensation percentage on gross offering price from shares of primary offering			8.50%

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Related Party Arrangements - Summary of Fees for Services Rendered Expected to be Settled in Restricted Stock (Details) - USD ($)		3 Months Ended		6 Months Ended
		Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Fees for services rendered:
Asset management fees	[1]	$ 70,800	$ 42,800	$ 141,600	$ 43,260
Stock dividends on restricted stock				9,000	9,000
Expense Support Agreement
Fees for services rendered:
Asset management fees		70,800	42,800	$ 141,600	$ 43,260
Advisor personnel expenses	[2]	123,142	122,135	249,771	224,399
Total fees for services rendered		193,942	$ 164,935	391,371	$ 267,659
Asset management fees		271,966		271,966
Advisor personnel expenses	[2]	686,174		686,174
Total fees for services rendered		$ 958,140		$ 958,140
Then-current offering price or NAV		$ 10.06	$ 10.93	$ 10.06	$ 10.93
Then-current offering price or NAV		$ 10.06		$ 10.06
Expense Support Agreement | Restricted Stock
Fees for services rendered:
Restricted stock shares	[3]	19,279	15,090	38,904	24,488
Cash distributions on restricted stock	[4]	$ 8,113		$ 8,113
Stock dividends on restricted stock	[5]	170		170
Restricted stock shares	[3]	95,243		95,243
Cash distributions on restricted stock	[4]	$ 8,113		$ 8,113
Stock dividends on restricted stock	[5]	170		170

[1] For the quarter and six months ended June 30, 2018, the Company incurred approximately $0.1 million and $0.1 million, respectively, in asset management fees, all of which are expected to be settled in accordance with the terms of the Expense Support Agreement. For the quarter and six months ended June 30, 2017, the Company incurred approximately $43,000 and $43,000 in asset management fees, respectively, all of which were settled in accordance with the terms of the Expense Support Agreement.

[2] Amounts consist of personnel and related overhead costs of the Advisor or its affiliates (which, in general, are those expenses relating to the Company’s administration on an on-going basis) that are reimbursable by the Company.

[3] Represents restricted stock shares issued or expected to be issued to the Advisor as of June 30, 2018 pursuant to the Expense Support Agreement. No fair value was assigned to the restricted stock shares as the shares are expected to be valued at zero upon issuance, which represents the lowest possible value estimated at vesting. In addition, the restricted stock shares will be treated as unissued for financial reporting purposes until the vesting criteria are met.

[4] The cash distributions have been recognized as compensation expense as issued and included in general and administrative expense in the accompanying condensed consolidated statements of operations.

[5] The par value of the stock dividends has been recognized as compensation expense as issued and included in general and administrative expense in the accompanying condensed consolidated statements of operations.

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Related Party Arrangements - Summary of Fees for Services Rendered Expected to be Settled in Restricted Stock (Parenthetical) (Details)	6 Months Ended
	Jun. 30, 2018 USD ($)
Related Party Transactions [Abstract]
Restricted stock fair value	$ 0

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Related Party Arrangements - Fees and Expenses Incurred and Reimbursable to Affiliates and Related Parties (Details) - USD ($)		3 Months Ended		6 Months Ended
		Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Related Party Transaction [Line Items]
Distribution and stockholder servicing fees				$ 1,177,044	$ 339,877
Acquisition fees and expenses				818
Total reimbursable expenses		$ 263,802	$ 260,883	528,298	453,298
Investment Service Fees	[1]				481,500
Asset Management Fees	[2]	70,800	42,800	141,600	43,260
Total reimbursable expenses, net		334,602	303,683	669,898	978,058
Operating expenses, Unpaid amount	[3]	87,093		87,093		$ 197,235
Total reimbursable expenses due	[3]	87,093		87,093		197,235
Related parties, Unpaid amount	[3]	87,093		87,093		197,235
Reimbursable Expense
Related Party Transaction [Line Items]
Operating expenses	[4]	263,201	240,883	526,795	431,409
Acquisition fees and expenses		601	20,000	1,503	21,889
Dealer Manager
Related Party Transaction [Line Items]
Selling commissions	[5]	89,834	150,493	221,675	343,369
Dealer manager fees	[5]	110,527	76,915	276,283	260,651
Distribution and stockholder servicing fees	[5]	221,469	47,882	514,847	222,678
Total offering expenses		421,830	$ 275,290	1,012,805	$ 826,698
Selling commissions, Unpaid amount	[3]	3,200		3,200		10,000
Dealer Manager fees, Unpaid amount	[3]	17,511		17,511		18,150
Distribution and stockholder servicing fees, Unpaid amount	[3]	1,177,044		1,177,044		798,524
Total offering expenses unpaid	[3]	$ 1,197,755		$ 1,197,755		$ 826,674

[1] For the quarter and six months ended June 30, 2018, the Company did not incur any investment services fees. For the six months ended June 30, 2017, the Company incurred approximately $0.5 million in investment services fees of which approximately $0.5 million was capitalized and included in real estate investment properties, net in the accompanying condensed consolidated balance sheets. No such fees were incurred for the quarter ended June 30, 2017.

[2] For the quarter and six months ended June 30, 2018, the Company incurred approximately $0.1 million and $0.1 million, respectively, in asset management fees, all of which are expected to be settled in accordance with the terms of the Expense Support Agreement. For the quarter and six months ended June 30, 2017, the Company incurred approximately $43,000 and $43,000 in asset management fees, respectively, all of which were settled in accordance with the terms of the Expense Support Agreement.

[3] Amounts are recorded as due to related parties in the accompanying condensed consolidated balance sheets.

[4] Amounts are recorded as general and administrative expenses in the accompanying condensed consolidated statements of operations unless such amounts represent prepaid expenses, which are capitalized in the accompanying condensed consolidated balance sheets. For the quarter and six months ended June 30, 2018, approximately $0.1 million and $0.2 million, respectively, of personnel expenses of affiliates of the Advisor are expected to be settled in accordance with the terms of the Expense Support Agreement and as such our general administrative expenses were reduced by approximately $0.1 million and $0.2 million, respectively. For the quarter and six months ended June 30, 2017, approximately $0.1 million and $0.2 million, respectively, of personnel expenses of affiliates of the Advisor were settled in accordance with the terms of the Expense Support Agreement.

[5] Amounts are recorded as stock issuance and offering costs in the accompanying condensed consolidated statements of stockholders’ equity.

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Related Party Arrangements - Fees and Expenses Incurred and Reimbursable to Affiliates and Related Parties (Parenthetical) (Details) - USD ($)		3 Months Ended		6 Months Ended
		Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Related Party Transaction [Line Items]
Investment services fees	[1]				$ 481,500
Investment service fees capitalized		$ 30,580,570		$ 30,580,570		$ 31,085,939
Investment Services Fees
Related Party Transaction [Line Items]
Investment services fees		0	$ 0	0	500,000
Investment service fees capitalized			500,000		500,000
Expense Support Agreement
Related Party Transaction [Line Items]
Advisor personnel expenses		100,000	100,000	200,000	200,000
Reduction in general and administrative expenses		100,000		200,000
Asset management fees		$ 100,000	$ 43,000	$ 100,000	$ 43,000

[1] For the quarter and six months ended June 30, 2018, the Company did not incur any investment services fees. For the six months ended June 30, 2017, the Company incurred approximately $0.5 million in investment services fees of which approximately $0.5 million was capitalized and included in real estate investment properties, net in the accompanying condensed consolidated balance sheets. No such fees were incurred for the quarter ended June 30, 2017.

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Equity - Additional Information (Details) - USD ($)				1 Months Ended		3 Months Ended	6 Months Ended			12 Months Ended
	Sep. 01, 2018	Aug. 01, 2018	Jul. 01, 2018	Aug. 01, 2018	Jun. 30, 2018	Jun. 30, 2018	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2015	Dec. 31, 2016	Mar. 31, 2018
Class Of Stock [Line Items]
Aggregate proceeds from public offering							$ 44,000,000	$ 16,800,000
Common stock, shares sold				300,000			4,200,000	1,600,000
Subscription proceeds pursuant to the Reinvestment Plan							$ 901,000	$ 108,000
Subscription proceeds pursuant to the Reinvestment Plan, shares							90,000	10,800
Cash distributions declared net of class-specific expenses							$ 900,000	$ 300,000
Cash distributions paid net of class-specific expenses							$ 900,000	$ 300,000
Stock dividends declared							22,000	22,000
Stock dividends issued (in shares)							9,000	9,000
Percentage of cash distributions considered as return on capital for income tax purposes							100.00%	100.00%
Amount of distributions to stockholders considered as return of capital by the company							$ 0	$ 0
Monthly cash distributions less class-specific expenses per share					$ 0.0480	$ 0.0480	$ 0.0480
Monthly stock dividend, shares					$ 0.00100625
Distributions to be paid and distributed date					Sep. 30, 2018
Dividends payable, date declared					2018-06	2018-06	2018-06
Redemption of common stock, per share					$ 10.06	$ 10.06	$ 10.06				$ 10.00
Redemptions of common stock							$ 152,281
Class A Common Stock
Class Of Stock [Line Items]
Common stock, shares sold							65,726	328,484
Stock dividends issued (in shares)							5,202	3,408
Redemptions of common stock							$ 127,000	$ 0
Class T Common Stock
Class Of Stock [Line Items]
Redemptions of common stock							$ 25,000	0
Subsequent Event
Class Of Stock [Line Items]
Cash distribution and stock dividend declared date		Aug. 01, 2018	Jul. 01, 2018
Scenario Forecast
Class Of Stock [Line Items]
Cash distribution and stock dividend declared date	Sep. 01, 2018
Private Placement
Class Of Stock [Line Items]
Aggregate proceeds from public offering										$ 251,250
Common stock, shares sold										25,125
Advisor
Class Of Stock [Line Items]
Common stock, shares sold									20,000
Stock dividends issued (in shares)						8,000	16,000
Advisor | Prior to Commencement of Offering
Class Of Stock [Line Items]
Aggregate proceeds from public offering							$ 200,000	$ 200,000
Common stock, shares sold							20,000	20,000

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Income Taxes - Additional Information (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Income Tax Disclosure [Abstract]
Interim tax provision	$ 14,000	$ 30,000	$ 45,000	$ 30,000
Current income tax expense			43,000	36,000
Decrease to net deferred tax assets			$ (2,000)
Total deferred tax benefit				$ 6,000

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Subsequent Events - Additional Information (Details) - USD ($) shares in Millions	1 Months Ended	6 Months Ended
	Aug. 01, 2018	Jun. 30, 2018	Jun. 30, 2017
Subsequent Events [Abstract]
Aggregate proceeds from offering	$ 3,100,000	$ 12,039,730	$ 10,091,137
Common stock, shares sold	0.3	4.2	1.6