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 September 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 every Interactive Data File required to be submitted 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 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, or an emerging growth 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	☒	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 common stock as of November 1, 2018 was 4,899,140 Class Ashares.

CNL HEALTHCARE PROPERTIES II, INC.AND SUBSIDIARIES

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Information (unaudited):
	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	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 4.	Controls and Procedures	31
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	34
Signatures		35

Item 1. Financial Statements

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	September 30,			December 31,
ASSETS	2018			2017
Real estate investment properties, net	$	53,941,517		$	31,085,939
Cash		9,696,074			12,310,920
Intangibles, net		5,307,372			4,653,504
Other assets		533,837			192,423
Restricted cash		268,312			110,999
Total assets	$	69,747,112		$	48,353,785
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages and notes payable, net	$	24,476,945		$	19,532,986
Due to related parties		1,505,955			1,023,909
Accounts payable and accrued liabilities		1,506,741			836,647
Other liabilities		414,752			450,311
Total liabilities		27,904,393			21,843,853
Commitments and contingencies (Note 11)
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; 909,695 and 808,011 shares issued and 897,081    and 808,011 outstanding, respectively		8,971			8,080
Class T Common stock, $0.01 par value per share, 700,000,000 shares    authorized; 3,554,014 and 2,049,223 shares issued and 3,548,178    and 2,049,223 outstanding, respectively		35,482			20,492
Class I Common stock, $0.01 par value per share, 100,000,000 shares    authorized; 479,851 and 160,490 shares both issued and outstanding,    respectively		4,799			1,605
Capital in excess of par value		46,937,915			28,984,932
Accumulated loss		(2,858,095	)		(1,658,977	)
Accumulated distributions		(2,286,353	)		(846,200	)
Total stockholders' equity		41,842,719			26,509,932
Total liabilities and stockholders' equity	$	69,747,112		$	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						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Revenues:
Resident fees and services	$	1,483,924		$	1,095,696		$	3,748,684		$	2,178,566
Rental income and tenant reimbursements		422,967		―				1,253,209		―
Total revenues		1,906,891			1,095,696			5,001,893			2,178,566
Operating expenses:
Property operating expenses		1,139,378			626,933			2,728,764			1,236,358
General and administrative expenses		300,879			178,940			906,961			664,727
Acquisition fees and expenses	―			―				818		―
Property management fees		85,534			64,570			261,249			136,442
Depreciation and amortization		570,105			324,417			1,480,712			647,185
Total operating expenses		2,095,896			1,194,860			5,378,504			2,684,712
Operating loss		(189,005	)		(99,164	)		(376,611	)		(506,146	)
Other income (expense):
Interest and other income		9,884		―				9,946		―
Interest expense and loan cost amortization		(289,504	)		(196,489	)		(797,208	)		(402,683	)
Total other expense		(279,620	)		(196,489	)		(787,262	)		(402,683	)
Loss before income taxes		(468,625	)		(295,653	)		(1,163,873	)		(908,829	)
Income tax (benefit) expense		(9,938	)		12,253			35,245			41,878
Net loss	$	(458,687	)	$	(307,906	)	$	(1,199,118	)	$	(950,707	)
Class A common stock:
Net loss attributable to Class A stockholders	$	(87,907	)	$	(108,891	)	$	(257,552	)	$	(342,975	)
Net loss per share of Class A common stock    outstanding (basic and diluted)	$	(0.10	)	$	(0.16	)	$	(0.30	)	$	(0.65	)
Weighted average number of Class A common    shares outstanding (basic and diluted)		879,674			693,354			857,729			529,801
Distributions declared per Class A common share	$	0.1440		$	0.1440		$	0.4320		$	0.3930
Class T common stock:
Net loss attributable to Class T stockholders	$	(327,896	)	$	(189,504	)	$	(845,906	)	$	(584,620	)
Net loss per share of Class T common stock    outstanding (basic and diluted)	$	(0.10	)	$	(0.16	)	$	(0.30	)	$	(0.65	)
Weighted average number of Class T common    shares outstanding (basic and diluted)		3,281,231			1,206,653			2,817,132			903,076
Distributions declared per Class T common share	$	0.1177		$	0.1169		$	0.3530		$	0.3087
Class I common stock:
Net loss attributable to Class I stockholders	$	(42,884	)	$	(9,511	)	$	(95,660	)	$	(23,112	)
Net loss per share of Class I common stock    outstanding (basic and diluted)	$	(0.10	)	$	(0.16	)	$	(0.30	)	$	(0.65	)
Weighted average number of Class I common    shares outstanding (basic and diluted)		429,142			60,561			318,577			35,702
Distributions declared per Class I common share	$	0.1310		$	0.1328		$	0.3936		$	0.3715

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 NINE MONTHS ENDED SEPTEMBER 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		93,663			937			1,480,250			14,803			316,665		3,167		19,733,531			―		―				19,752,438
Stock dividends issued		8,021			80			24,541			245			2,696		27		(352	)	―			―				―
Redemptions of common stock		(12,614	)		(126	)		(5,836	)		(58	)	―		―			(185,276	)	―			―				(185,460	)
Stock issuance and offering costs	―			―			―			―			―		―			(1,594,920	)	―			―				(1,594,920	)
Net loss	―			―			―			―			―		―		―				(1,199,118	)	―				(1,199,118	)
Cash distributions declared	―			―			―			―			―		―		―			―				(1,440,153	)		(1,440,153	)
Balance at September 30, 2018		897,081		$	8,971			3,548,178		$	35,482			479,851	$	4,799	$	46,937,915		$	(2,858,095	)	$	(2,286,353	)	$	41,842,719
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		378,053			3,781			1,117,844			11,178			80,135		801		16,650,186			―		―				16,665,946
Stock dividends issued		5,454			55			8,549			85			291		3		(143	)	―			―			―
Stock issuance and offering costs	―			―			―			―			―		―			(1,366,381	)	―			―				(1,366,381	)
Net loss	―			―			―			―			―		―		―				(950,707	)	―				(950,707	)
Cash distributions declared	―			―			―			―			―		―		―			―				(477,359	)		(477,359	)
Balance at September 30, 2017		708,626		$	7,087			1,434,980		$	14,349			88,880	$	889	$	21,509,803		$	(1,293,154	)	$	(534,720	)	$	19,704,254

See accompanying notes to condensed consolidated financial statements.

4

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months Ended
	September 30,
	2018			2017
Operating activities:
Net cash flows provided by operating activities	$	204,725		$	82,390
Investing activities:
Acquisition of property		(24,740,622	)		(21,854,119	)
Payment of direct acquisition costs	―				(6,187	)
Capital expenditures		(72,330	)		(58,781	)
Net cash used in investing activities		(24,812,952	)		(21,919,087	)
Financing activities:
Subscriptions received for common stock through primary offering		19,009,962			16,448,354
Payment of underwriting compensation		(984,483	)		(967,600	)
Payment of cash distributions, net of distribution reinvestments		(597,676	)		(259,767	)
Redemptions of common stock		(185,460	)	―
Proceeds from mortgages and notes payable		5,000,000			16,050,000
Payment of loan costs		(91,649	)		(208,035	)
Net cash flows provided by financing activities		22,150,694			31,062,952
Net (decrease) increase in cash and restricted cash		(2,457,533	)		9,226,255
Cash and restricted cash at beginning of period		12,421,919			6,360,241
Cash and restricted cash at end of period	$	9,964,386		$	15,586,496
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	$	91,097		$	24,900
Loan costs	$	27,807		$	—
Selling commissions and dealer manager fees	$	41,651		$	16,438
Annual distribution and stockholder servicing fee	$	1,395,460		$	549,449
Assumption of liabilities on acquisition of property	$	115,779		$	—

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 SEPTEMBER 30, 2018 (UNAUDITED)

1. Organization

CNL Healthcare Properties II, Inc. (“Company”) is a Maryland corporation organized on July 10, 2015 that elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with the year ended December 31, 2017.  The Company is sponsored by CNL Financial Group, LLC (“Sponsor” or “CNL”) and 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.  

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 meant that CNL Securities Corp. (“Dealer Manager”), an affiliate of the Sponsor, used its best efforts but was not required to sell any specific amount of shares.  The Company also offered up to $250 million, in any combination, of Class A, Class T and Class I shares pursuant to its distribution reinvestment plan (“Reinvestment Plan” and, together with the Primary Offering, the “Offering”).  

On August 31, 2018, the Company’s board of directors approved the termination of its Offering and the suspension of its Reinvestment Plan, effective October 1, 2018. The Company also suspended its share redemption plan (“Redemption Plan”) and discontinued its stock dividends concurrently.  In October 2018, the Company deregistered the unsold shares of its common stock under its previous registration statement on Form S-11.  In addition, the Company announced it had formed a special committee consisting solely of its independent directors (“Special Committee”) to consider possible strategic alternatives available to the Company, including, without limitation, (i) an orderly disposition of the Company’s assets or one or more of the Company’s asset classes and the distribution of the net sale proceeds thereof to the stockholders of the Company and (ii) a potential business combination or other transaction.  Although the Company has formed the Special Committee for the exploration of possible strategic alternatives, the Company is not obligated to enter into any particular transaction or any transaction at all.

As of September 30, 2018, the Company had received aggregate Offering proceeds of approximately $51.2 million (4.9 million shares), including approximately $1.2 million (0.1 million shares) of proceeds pursuant to the Reinvestment Plan.  The Company has contributed the net proceeds from its Offering to CHP II Partners, LP (“Operating Partnership”) in exchange for partnership interests.  The Company owns 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 owns 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 leased its two seniors housing properties to single member limited liability companies wholly-owned by TRS Holdings and engaged 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; whereas, its medical office building has been leased on a net or modified gross basis to third-party tenants.

6

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED SEPTEMBER 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 nine months ended September 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.

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.

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.

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CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED)

2. Summary of Significant Accounting Policies (continued)

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. 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.  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 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 does not expect of adoption of this ASU will have a material impact 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.

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

	Nine Months Ended September 30,
Type of Investment	Number of Units				Revenues				Percentage of Revenues
Resident fees and services:	2018		2017		2018		2017		2018			2017
Assisted living		129		67	$	2,706,757	$	1,609,755		72.2	%		73.9	%
Memory care		52		22		998,661		556,818		26.6	%		25.6	%
Other revenues	―		―			43,266		11,993		1.2	%		0.5	%
		181		89	$	3,748,684	$	2,178,566		100.0	%		100.0	%

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CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED)

4. Real Estate Acquisitions

During the nine months ended September 30, 2018, the Company acquired a seniors housing community in Riverview, Florida (“Riverview”) for a purchase price of approximately $24.3 million.  In connection therewith, the Company incurred approximately $0.7 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 92 resident units (62 assisted living and 30 memory care units) and is operated under a RIDEA structure pursuant to a five-year property management agreement with Fosters Development, Inc. (“Fosters”).

During the nine months ended September 30, 2017, the Company acquired a seniors housing community in Pensacola, Florida (“Summer Vista”) 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 resident units (67 assisted living and 22 memory care 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 the above mentioned acquisitions, and the related assets acquired and liabilities assumed in connection with the acquisitions:

	September 30,
	2018			2017
Land and land improvements	$	1,763,286		$	2,269,406
Buildings and building improvements		21,087,594			17,611,786
Furniture, fixtures and equipment		813,747			857,338
In-place resident agreement    intangibles (1)		1,282,871			1,286,507
Liabilities assumed		(115,779	)		(170,918	)
Total purchase price consideration	$	24,831,719		$	21,854,119

FOOTNOTE:

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

5. Real Estate Assets, net

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

	September 30,			December 31,
	2018			2017
Land and land improvements	$	4,446,358		$	2,683,051
Building and building improvements		49,197,217			28,109,037
Furniture, fixtures and equipment		1,764,570			879,288
Less: accumulated depreciation		(1,466,628	)		(585,437	)
Real estate assets, net	$	53,941,517		$	31,085,939

Depreciation expense on the Company’s real estate assets, net was approximately $0.3 million and $0.9 million for the quarter and nine months ended September 30, 2018, respectively, and approximately $0.2 million and $0.4 million for the quarter and nine months ended September 30, 2017, respectively.

9

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED)

6. Intangibles, net

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

	September 30,			December 31,
	2018			2017
In-place lease intangibles	$	2,209,247		$	2,209,125
In-place resident agreement intangibles		2,569,378			1,286,507
Below-market ground lease intangibles		1,543,910			1,543,824
Less: accumulated amortization		(1,015,163	)		(385,952	)
Intangible assets, net	$	5,307,372		$	4,653,504
Below-market lease intangibles	$	(340,409	)	$	(340,390	)
Less: accumulated amortization		22,915		―
Intangible liabilities, net (1)	$	(317,494	)	$	(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 $0.6 million for the quarter and nine months ended September 30, 2018, respectively, of which approximately $10,000 and $30,000 was treated as an increase of property operating expenses and approximately $0.2 million and $0.6 million was included in depreciation and amortization.  Amortization on the Company’s intangible assets was approximately $0.1 million and $0.3 million for the quarter and nine months ended September 30, 2017, respectively, all of which was included in depreciation and amortization.

Amortization on the Company’s intangible liabilities was approximately $8,000 and $23,000 for the quarter and nine months ended September 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 nine months ended September 30, 2017.

The estimated future amortization on the Company’s intangibles for the remainder of 2018, each of the next four years and thereafter, in the aggregate, as of September 30, 2018 is as follows:

	In-Place Lease Intangibles		In-Place Resident Agreement Intangibles		Below- market Ground Leases		Total Assets		Below- market leases		Total Liabilities
2018	$	56,939	$	256,938	$	9,897	$	323,774	$	7,638	$	7,638
2019		227,754		899,100		39,587		1,166,441		30,553		30,553
2020		198,365		513,148		39,587		751,100		27,103		27,103
2021		188,568		85,525		39,587		313,680		25,953		25,953
2022		188,568	―			39,587		228,155		25,953		25,953
Thereafter		1,178,248	―			1,345,974		2,524,222		200,294		200,294
	$	2,038,442	$	1,754,711	$	1,514,219	$	5,307,372	$	317,494	$	317,494

10

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED)

7. Indebtedness

In August 2018, in connection with the Riverview acquisition, the Company entered into a secured mortgage loan agreement with Florida Community Bank in the amount of approximately $5.0 million (“Riverview Loan”).  The Riverview loan matures on August 31, 2023.  The Riverview loan accrues interest at a rate of the sum of LIBOR plus 2.25%, with monthly payments of interest for the first 24 months, and monthly payments of interest and principal during the remaining months using a 30-year amortization period with the remaining balance payable at maturity.  The Company may prepay, without penalty, all or any part of the Riverview Loan at any time.

The following table provides details of the Company’s indebtedness as of September 30, 2018 and December 31, 2017:

	September 30,			December 31,
	2018			2017
Mortgages and notes payable:
Mortgage loans (1)	$	24,500,000		$	19,500,000
Notes payable		312,500			312,500
Mortgages and notes payable		24,812,500			19,812,500
Loan costs, net		(335,555	)		(279,514	)
Total mortgages and notes payable, net	$	24,476,945		$	19,532,986

FOOTNOTE:

(1) As of September 30, 2018, the Company’s mortgage loans are collateralized by its Summer Vista, Mid America Surgery, and Riverview properties.

The fair market value of the mortgage and notes payable was approximately $24.9 million as of September 30, 2018, which is based on current rates and spreads the Company would expect to obtain for similar borrowings.  Since this methodology includes inputs that are less observable by the public and are not necessarily reflected in active markets, the measurement of the estimated fair values is categorized as Level 3 on the three-level valuation hierarchy.

The following is a schedule of future principal payments and maturity for the Company’s indebtedness for the remainder of 2018, each of the next four years and thereafter, in the aggregate, as of September 30, 2018:

2018	$	32,036
2019		199,072
2020		5,829,156
2021		295,611
2022		13,304,382
Thereafter		5,152,243
	$	24,812,500

11

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED)

8. 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 received 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 could be reallowed to participating broker dealers.  In addition, for Class T shares sold in the Primary Offering, the Dealer Manager could choose the respective amounts of the commission and dealer manager fee, provided that the selling commission did 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.  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.  Refer to Note 12. “Subsequent Events” for additional information.

The Company recorded 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.  The Company’s distribution and stockholder servicing fees liability was approximately $1.4 million as of September 30, 2018.  The Company’s obligation to pay the annual distribution and stockholder servicing fee ceased effective October 31, 2018 upon the conversion of the Class T and Class I shares into Class A Shares.  Refer to Note 12. “Subsequent Events” for additional information.  

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.

12

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED)

8. 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 Advisor received an investment services fee of 2.25% of the purchase price of properties for services in connection with the selection, evaluation, structure and purchase of assets.

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.  For the Expense Year ended September 30, 2018, the Company’s total operating expenses were in excess of this limitation by approximately $0.4 million.  As of September 30, 2018, the Company had received cumulative approvals from its independent directors for total operating expenses in excess of this limitation of approximately $0.9 million.  The Company’s independent directors determined that the higher relationship of operating expenses to average invested assets was justified based on unattained capital raise expectations which limited the number of investments, 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 nine months ended September 30, 2018, the Company paid cash distributions of approximately $38,000 and $114,000, respectively, and issued stock dividends of approximately 1,000 shares and 2,000 shares, respectively, to the Advisor.  For the quarter and nine months ended September 30, 2017, the Company paid cash distributions of approximately $40,000 and $108,000, respectively, and issued stock dividends of approximately 800 shares and 3,000 shares, respectively.

13

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED)

8. 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 nine months ended September 30, 2018 and cumulatively as of September 30, 2018:

	Quarter Ended				Nine Months Ended				As of
	September 30,				September 30,				September 30,
	2018		2017		2018		2017		2018
Fees for services rendered:
Asset management fees	$	87,488	$	42,800	$	229,088	$	86,060	$	359,454
Advisor personnel expenses (1)		112,784		95,805		362,555		320,204		798,958
Total fees for services rendered	$	200,272	$	138,605	$	591,643	$	406,264	$	1,158,412
Then-current offering price or NAV	$	10.06	$	10.93	$	10.06	$	10.93	$	10.06
Restricted stock shares (2)		19,908		12,681		58,811		37,170		115,150
Cash distributions on restricted stock (3)	$	8,113	$	―	$	16,226	$	―	$	16,226
Stock dividends on restricted stock (4)		170		―		340		―		340

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 September 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.

14

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED)

8. Related Party Arrangements (continued)

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

	Quarter Ended				Nine Months Ended				Unpaid amounts as of (1)
	September 30,				September 30,				September 30,		December 31,
	2018		2017		2018		2017		2018		2017
Selling commissions (2)	$	121,413	$	138,544	$	343,087	$	481,913	$	16,522	$	10,000
Dealer manager fees (2)		153,073		161,461		429,356		422,112		25,129		18,150
Distribution and stockholder    servicing fees (2)		307,630		239,677		822,477		462,356		1,395,460		798,524
	$	582,116	$	539,682	$	1,594,920	$	1,366,381	$	1,437,111	$	826,674

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

	Quarter Ended				Nine Months Ended				Unpaid amounts as of (1)
	September 30,				September 30,				September 30,		December 31,
	2018		2017		2018		2017		2018		2017
Reimbursable expenses:
Operating expenses (3)	$	227,393	$	221,415	$	754,188	$	652,824	$	68,844	$	197,235
Acquisition fees and expenses		8,680		5,816		10,183		27,705	―		―
		236,073		227,231		764,371		680,529		68,844		197,235
Investment Service Fees (4)		545,625	―			545,625		481,500	―		―
Asset Management Fees (5)		87,488		42,800		229,088		86,060	―		―
	$	869,186	$	270,031	$	1,539,084	$	1,248,089	$	68,844	$	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 nine months ended September 30, 2018, approximately $0.1 million and $0.4 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 $0.4 million, respectively. For the quarter and nine months ended September 30, 2017, approximately $0.1 million and $0.3 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 nine months ended September 30, 2018 the Company incurred approximately $0.5 million in investment services fees, all of which were capitalized and included in real estate investment properties, net in the accompanying condensed consolidated balance sheets. For the nine months ended September 30, 2017, the Company incurred approximately $0.5 million in investment service fees, all of which were 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 September 30, 2017.

⁽⁵⁾ For the quarter and nine months ended September 30, 2018, the Company incurred approximately $0.1 million and $0.2 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 nine months ended September 30, 2017, the Company incurred approximately $43,000 and $86,000 in asset management fees, respectively, all of which were settled in accordance with the terms of the Expense Support Agreement.

15

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED)

9. Equity

Subscription Proceeds — As of September 30, 2018 and 2017, the Company had received aggregate subscription proceeds of approximately $51.2 million (4.9 million shares) and $23.3 million (2.2 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 $1.2 million (0.1 million shares) and $221,000 (22,100 shares), respectively, of subscription proceeds pursuant to the Reinvestment Plan.  The Company terminated and closed its Primary Offering effective October 1, 2018 and concurrently suspended the Reinvestment Plan.

Distributions — For the nine months ended September 30, 2018 and 2017, the Company declared and paid cash distributions of approximately $1.4 million and $0.5 million, respectively, which were net of class-specific expenses.  In addition, the Company declared and issued stock dividends of approximately 35,000 and 14,000 shares of common stock during the nine months ended September 30, 2018 and 2017, respectively.

For the nine months ended September 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 nine months ended September 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 September 2018, the Company’s board of directors declared a monthly cash distribution of $0.0480, less class-specific expenses, on each outstanding share of common stock on October 1, 2018, November 1, 2018 and December 1, 2018.  These distributions are to be paid and distributed by December 31, 2018.  In connection with the termination of the Offering effective October 1, 2018, the Company’s board of directors determined that it does not intend to authorize additional stock dividends at this time.  Refer to Note 12. “Subsequent Events” for additional information.

Redemptions — During the nine months ended September 30, 2018, the Company received requests for the redemption of common stock under its Redemption Plan of approximately $59,000 in Class T shares and $127,000 in Class A shares, which were approved for redemption at a weighted average price per share of $10.05 and paid in March 2018, June 2018, and September 2018, respectively.  There were no redemptions requested during the nine months ended September 30, 2017.  In connection with the termination of the Offering and the board of directors’ decision to consider possible strategic alternatives available to the Company, the Redemption Plan was suspended effective October 1, 2018 and the Company no longer accepts or processes any redemption requests received after such date.

10. Income Taxes

The accompanying condensed consolidated financial statements include an interim tax provision for the quarter and nine months ended September 30, 2018 and 2017.  The Company recorded a total provision for income tax (benefit) expense of approximately ($10,000) and $35,000 for the quarter and nine months ended September 30, 2018, respectively, and approximately $12,000 and $42,000 for the quarter and nine months ended September 30, 2017, respectively.  Of the approximate $35,000 in income tax expense for the nine months ended September 30, 2018, approximately $32,000 represent current income tax expense, and approximately $3,000 represents 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 $42,000 in income tax expense for the nine months ended September 30, 2017, $73,000 represents current income tax expense offset by $31,000 of deferred tax benefit.

11. 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.

16

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED)

12. Subsequent Events

In October 2018, the Company repaid approximately $0.3 million of promissory notes and redeemed approximately $0.3 million (26,000 shares) of shares, which were both previously issued in connection with a private placement offering in August 2016.

In connection with the close of the Offering effective October 1, 2018, certain underwriting compensation limits were met and, effective October 31, 2018, each Class T and Class I share automatically converted into a Class A share pursuant to the terms of the Company’s charter.  The Class T and Class I shares converted into Class A shares on a one-for-one basis because the most recent estimated NAV per share of $10.06, which was approved by the Company’s board of directors as of December 31, 2017, is the same for all share classes.  Stockholders who received Class A shares upon the conversion will no longer be subject to the class-specific expenses associated with Class T and Class I shares.  The Company’s obligation to pay the approximate $1.4 million distribution and stockholder servicing fees liability as of September 30, 2018 to the Dealer Manager ceased effective October 31, 2018 upon the conversion of the Class T and Class I shares into Class A Shares.

17

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 nine months ended September 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.

18

Introduction

The following discussion is based on the condensed consolidated financial statements as of September 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.

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.  We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with the year ended December 31, 2017 and our intention is to be organized and operate in a manner that allows us to remain qualified as a REIT for federal income tax purposes.

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.  

We have leased our two seniors housing properties to single member limited liability companies wholly-owned by TRS Holdings and engaged independent third-party managers under management agreements to operate the properties as permitted under RIDEA structures; whereas, our medical office building has been leased on a net or modified gross basis to third-party tenants.  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.

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.

On August 31, 2018, our board of directors approved the termination of our Offering and the suspension of the Reinvestment Plan, effective October 1, 2018.  We also suspended our Redemption Plan and discontinued our stock dividends concurrently.  In addition, we announced the formation of a Special Committee to consider possible strategic alternatives available to the Company, including, without limitation, (i) an orderly disposition of our assets or one or more of our asset classes and the distribution of the net sale proceeds thereof to our stockholders and (ii) a potential business combination or other transaction.  Although we formed a Special Committee for the exploration of possible strategic alternatives, we are not obligated to enter into any particular transaction or any transaction at all.

Portfolio Overview

As of November 1, 2018, our healthcare investment portfolio consisted of interests in two seniors housing properties and one medical office building (“MOB”).  Our seniors housing properties consist of Summer Vista and Riverview, which are both operated under a RIDEA structure pursuant to property management agreements with third party property managers.  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.

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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 September 30, 2018, 99% and 78% of resident units were occupied at Summer Vista and Riverview, respectively.  The average monthly RevPOU as of September 30, 2018 and 2017 was $3,680 and $3,881 for assisted living units, respectively, and $4,072 and $4,278 for memory care units, respectively.  

Similarly, for our MOB, management reviews operating statistics of the underlying property, including occupancy levels and monthly rent per square foot.  As of September 30, 2018, Mid America Surgery was 100% leased to five tenants with a remaining weighted average lease term of approximately 8.4 years.  The average monthly rent per square foot as of September 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

Through September 2018, we were in our offering and acquisition phase and, therefore, our primary sources of capital to date were proceeds from our Offering and debt financing.

To date, our principal demands for funds have been for:

• the acquisition of real estate;

• the payment of offering and operating expenses;

• the payment of debt service on our outstanding indebtedness; and

• the payment of distributions.

Through the completion of our acquisition phase, we sought 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.  We may be negatively impacted by rising interest rates on any unhedged variable rate debt or the timing of when we seek to refinance existing debt. As of September 30, 2018 and December 31, 2017, our debt leverage ratio was approximately 35.1% and 43.4% of the aggregate carrying value of our assets, respectively.

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Sources of Liquidity and Capital Resources

Common Stock Subscriptions

For the nine months ended September 30, 2018 and 2017, we received aggregate subscription proceeds of approximately $19.0 million (1.9 million shares) and $16.4 million (1.6 million shares), respectively, and approximately $0.8 million (0.08 million shares) and $0.2 million (0.02 million shares), respectively, of subscription proceeds received pursuant to our Reinvestment Plan.  We terminated and closed our Offering effective October 1, 2018 and concurrently suspended the Reinvestment Plan.  As a consequence of suspending the Reinvestment Plan, stockholders who were participants in the Reinvestment Plan will receive cash distributions instead of additional shares of our common stock.

As of September 30, 2018, we had received aggregate subscription proceeds of approximately $51.2 million.  

Net Cash Provided by Operating Activities

We experienced cash provided by operating activities for the nine months ended September 30, 2018 of approximately $0.2 million as compared to cash provided by operating activities of approximately $0.1 million for the nine months ended September 30, 2017. We generally expect to meet future cash needs for general and administrative expenses as well as debt service from the net operating income (“NOI”) from our three properties.

Indebtedness

During the nine months ended September 30, 2018, we borrowed approximately $5.0 million in connection with our acquisition of Riverview.  The Riverview Loan matures on August 31, 2023.  The Riverview Loan accrues interest at a rate of the sum of LIBOR plus 2.25%, with monthly payments of interest for the first 24 months, and monthly payments of interest and principal during the remaining months using a 30-year amortization period with the remaining balance payable at maturity.  We may prepay, without penalty, all or any part of the Riverview Loan at any time.

During the nine months ended September 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 nine months ended September 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 nine months ended September 30, 2018, approximately $0.2 million and $0.6 million are expected to be settled in the form of restricted stock pursuant to the Expense Support Agreement.  For the quarter and nine months ended September 30, 2017, $0.1 million and $0.4 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 Note 8. “Related Party Arrangements” in Item 1. “Financial Statements” for additional information.

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Uses of Liquidity and Capital Resources

Real Estate Acquisition

We have completed our acquisition phase.  During the nine months ended September 30, 2018, we acquired Riverview for a total purchase price consideration of approximately $24.7 million.  Riverview consists of 92 resident units (62 assisted living and 30 memory care units).  During the nine months ended September 30, 2017, we acquired Summer Vista for a total purchase price consideration of approximately $21.9 million.

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 nine months ended September 30, 2018 and 2017, we paid approximately $1.0 million and $1.0 million, respectively, in underwriting compensation.  Under the terms of the Primary Offering, our Dealer Manager was entitled to receive selling commissions, dealer manager fees and/or annual distribution and stockholder servicing fees, which were based on the respective share class of our common stock sold, all or a portion of which could be reallowed to participating broker dealers.

In October 2018, we reached certain underwriting compensation limits and, effective October 31,2018, each Class T and Class I share automatically converted into a Class A share pursuant to the terms of our charter.  The Class T and Class I shares converted into Class A shares on a one-for-one basis because the most recent estimated NAV per share approved by our board of directors of $10.06 is the same for all share classes.  Stockholders who received Class A shares upon the conversion will no longer be subject to the class-specific expenses associated with Class T and Class I shares.  Our obligation to pay the approximate $1.4 million distribution and stockholder servicing fees liability as of September 30, 2018 to the Dealer Manager ceased effective October 31, 2018 upon the conversion of the Class T and Class I shares into Class A Shares.  

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. Therefore, we have and may continue 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 remaining 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 nine months ended September 30, 2018 and 2017 (in thousands except per share data):

	Cash Distributions per Share (1)						Cash Distributions Paid (2)						Cash Flows Provided by (Used in) Operating Activities (3)
Periods	Class A Share		Class T Share		Class I Share		Cash Distributions Declared		Distribution Reinvestments		Cash Distributions net of Distribution Reinvestments
2018 Quarters
First	$	0.1440	$	0.1178	$	0.1312	$	402	$	225	$	177	$	157
Second		0.1440		0.1175		0.1314		483		283		200		(242	)
Third		0.1440		0.1177		0.1310		555		334		221		290
Year	$	0.4320	$	0.3530	$	0.3936	$	1,440	$	842	$	598	$	205
2017 Quarters
First	$	0.1050	$	0.0750	$	0.1050	$	73	$	28	$	45	$	(154	)
Second		0.1440		0.1168		0.1337		173		76		97		33
Third		0.1440		0.1169		0.1328		232		114		118		203
Year	$	0.3930	$	0.3087	$	0.3715	$	478	$	218	$	260	$	82

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 September 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 nine months ended September 30, 2018 and 2017, our net loss was approximately $1.2 million and $1.0 million, respectively, while cash distributions declared were approximately $1.4 million and $0.5 million, respectively.  For the nine months ended September 30, 2018 and 2017, approximately 36% and 49%, 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 64% and 51%, respectively, were considered to be funded with proceeds from our Offering. For the nine months ended September 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 September 2018, our board of directors declared a monthly cash distribution of $0.0480, less class-specific expenses, on each outstanding share of common stock on October 1, 2018, November 1, 2018 and December 1, 2018.  These distributions are to be paid and distributed by December 31, 2018.  We terminated and closed our Offering effective October 1, 2018. Concurrently, we suspended the Reinvestment Plan and determined not to authorize additional stock dividends. As a consequence of suspending the Reinvestment Plan, stockholders who were participants in the Reinvestment Plan will receive cash distributions instead of additional shares of our common stock.

As noted above, effective October 31, 2018, each Class T and Class I share automatically converted into a Class A share pursuant to the terms of the Company’s charter.  

Common Stock Redemptions

During the quarter and nine months ended September 30, 2018, we received requests for the redemption of common stock of approximately $33,000 and $185,000, respectively.  The redemptions were approved by our board of directors and paid in March 2018, June 2018 and September 2018, respectively.  No other redemption requests were made during quarter and nine months ended September 30, 2018 and 2017.

In October 2018, we redeemed approximately $0.3 million (26,000 shares) of shares, which were previously issued in connection with a private placement offering in August 2016.

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Our Redemption Plan was designed to provide eligible stockholders with limited interim liquidity by enabling them to sell shares back to us prior to any liquidity event.  Such redemptions were funded by proceeds from our Reinvestment Plan.In connection with the termination of our Offering and our board of directors’ decision to consider possible strategic alternatives available to us, our Redemption Plan was suspended effective October 1, 2018 and we no longer accept or process any redemption requests received after such date.

Debt Repayments

In October 2018, we repaid approximately $0.3 million of promissory notes, which were previously issued in connection with a private placement offering in August 2016.

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 nine months ended September 30, 2018 as compared to quarter and nine months ended September 30, 2017

• Resident fees and services for the quarter and nine months ended September 30, 2018 was approximately $1.5 million and $3.7 million, respectively, as compared to approximately $1.1 million and $2.2 million for the quarter and nine months ended September 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 two quarters of resident fees and services while the current period included an entire three quarters of resident fees and services for Summer Vista and one month of resident fees and services for Riverview.

• Rental income and tenant reimbursements for the quarter and nine months ended September 30, 2018 was approximately $0.4 million and $1.3 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 nine months ended September 30, 2017.

• Property operating expenses were approximately $1.1 million and $2.7 million for the quarter and nine months ended September 30, 2018, respectively, as compared to approximately $0.6 million and $1.2 million for the quarter and nine months ended September 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 two quarters of operating expenses for our Summer Vista property while the current period included an entire three quarters of operating expenses for Summer Vista and one month of operating expenses for Riverview.

• General and administrative expenses for the quarter and nine months ended September 30, 2018 were approximately $0.4 million and $1.3 million, respectively, as compared to $0.3 million and $1.0 million for quarter and nine months ended September 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 $0.4 million for the quarter and nine months ended September 30, 2018, respectively, and $0.1 million and $0.3 million for the quarter and nine months ended September 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 $0.3 million for both the quarter and nine months ended September 30, 2018 as compared to $0.1 million for both the quarter and nine months ended September 30, 2017 and relate entirely to the operations of our investment properties.  Property management fees increased as a result of our acquisitions on and subsequent to March 31, 2017.

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• Acquisition fees and expenses were $0.7 million for both the quarter and nine months ended September 30, 2018, as compared to approximately $0.6 million for the quarter and nine months ended September 30, 2017, all of which occurred during the first quarter of 2017.  Substantially all of the 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 nine months ended September 30, 2018 were approximately $0.1 million and $0.2 million as compared to $43,000 and $86,000 for the quarter and nine months ended September 30, 2017, respectively.  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 $0.6 million and $1.5 million for the quarter and nine months ended September 30, 2018 as compared to $0.3 million and $0.6 million for the quarter and nine months ended September 30, 2017, respectively, and relate entirely to the operations of our investment properties.  

• Interest expense and loan cost amortization for the quarter and nine months ended September 30, 2018 was approximately $0.3 million $0.8 million as compared to approximately $0.2 million and $0.4 million for the quarter and nine months ended September 30, 2017, respectively.  The increase relates to the Summer Vista and Mid America Surgery loans being outstanding for the entire period in 2018 and one month outstanding for the Riverview Loan; whereas in 2017 interest expenses related to two quarters and one day of interest on our Summer Vista Loan as well as the notes issued in connection with our private placement (“Notes”).  The Notes related to our private placement were repaid in October 2018 and we will not incur interest expense on these notes going forward.  

• Income tax (benefit) expense for the quarter and nine months ended September 30, 2018 was approximately ($10,000) and $35,000, respectively.  For the quarter and nine months ended September 30, 2017, we had income tax expense of approximately $12,000 and $42,000, respectively.  The income tax (benefit) expense is related entirely to TRS Holdings and as such the increase across periods is primarily reflective of the acquisition of our first RIDEA property, Summer Vista, on March 31, 2017 as well as our second RIDEA property, Riverview, on August 31, 2018.

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.

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 July 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.

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

	Quarter Ended											Nine Months Ended
	September 30,						Change					September 30,						Change
	2018			2017			$		%			2018			2017			$		%
Net loss	$	(459	)	$	(308	)						$	(1,199	)	$	(951	)
Adjusted to exclude:
General and administrative    expenses		301			179								907			665
Acquisition fees and expenses		―			―								1			―
Depreciation and amortization		570			324								1,481			647
Other expenses, net of other    income		280			197								787			403
Income tax expense		(10	)		12								35			42
NOI	$	682		$	404		$	278		68.8	%	$	2,012		$	806		$	1,206		149.6	%
Less: Non-same-store NOI		(264	)	―									(2,012	)		(806	)
Same-store NOI	$	418		$	404		$	14		3.5	%	$	―		$	―
Invested in operating properties,    end of period (in millions)	$	59.7		$	21.4							$	59.7		$	21.4

Overall, our NOI for the quarter and nine months ended September 30, 2018 increased by approximately $0.3 million and $1.2 million, respectively, as compared to the same period in the prior year.  Our non-same-store NOI of approximately $0.3 million for the quarter ended September 30, 2018 related to our acquisition of Mid America Surgery Institute in December 2017 and Riverview in August 2018.  Our same-store NOI for the quarter ended September 30, 2018 increased by approximately $14,000, or 3.5%, 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 estate related assets, and after adjustments for unconsolidated partnerships and joint ventures.  Our FFO calculation complies with NAREIT’s policy described above.

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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.

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

	Quarter Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Net loss	$	(459	)	$	(308	)	$	(1,199	)	$	(951	)
Adjustments to reconcile net loss to FFO:
Depreciation and amortization		570			324			1,481			647
Total FFO		111			16			283			(304	)
Straight-line rent adjustments		(19	)	―				(62	)	―
Amortization of above and below market intangibles		2		―				7		―
Acquisition fees and expenses		―		―				1		―
Total MFFO	$	94		$	16		$	228		$	(304	)
Class A common stock:
Weighted average number of Class A common    shares outstanding (1)		880			693			858			530
Net loss per share of Class A common stock    outstanding (basic and diluted)	$	(0.10	)	$	(0.16	)	$	(0.30	)	$	(0.65	)
FFO per share of Class A common stock    outstanding (basic and diluted)	$	0.06		$	0.01		$	0.02		$	(0.21	)
MFFO per share of Class A common stock    outstanding (basic and diluted)	$	0.05		$	0.01		$	0.02		$	(0.21	)
Class T common stock:
Weighted average number of Class T common    shares outstanding (1)		3,281			1,207			2,817			903
Net loss per share of Class T common stock    outstanding (basic and diluted)	$	(0.10	)	$	(0.16	)	$	(0.30	)	$	(0.65	)
FFO per share of Class T common stock outstanding    (basic and diluted)	$	0.06		$	0.01		$	0.02		$	(0.21	)
MFFO per share of Class T common stock    outstanding (basic and diluted)	$	0.05		$	0.01		$	0.02		$	(0.21	)
Class I common stock:
Weighted average number of Class I common shares    outstanding (1)		429			61			319			36
Net loss per share of Class I common stock    outstanding (basic and diluted)	$	(0.10	)	$	(0.16	)	$	(0.30	)	$	(0.65	)
FFO per share of Class I common stock outstanding    (basic and diluted)	$	0.06		$	0.01		$	0.02		$	(0.21	)
MFFO per share of Class I common stock    outstanding (basic and diluted)	$	0.05		$	0.01		$	0.02		$	(0.21	)

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).

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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.

For the Expense Year ended September 30, 2018, our total operating expenses were in excess of this limitation by approximately $0.4 million.  As of September 30, 2018, we had received cumulative approvals by our independent directors for total operating expenses in excess of this limitation of approximately $0.9 million.  Our independent directors determined that the higher relationship of operating expenses to average invested assets was justified based on unattained capital raise expectations which limited the number of investments, and the cost of operating a public company.

As of September 30, 2018, our Advisor has incurred aggregate other organizational and offering expenses of approximately $6.9 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 8. “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 September 30, 2018.

Contractual Obligations

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

	Payments Due by Period
	2018		2019-2020		2021-2022		Thereafter		Total
Mortgages and notes payable (principal and    interest)	$	360	$	8,498	$	15,069	$	6,991	$	30,918
	$	360	$	8,498	$	15,069	$	6,991	$	30,918

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.

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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 September 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 September 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	$	5,829	$	296	$	13,304	$	4,840	$	24,500	$	24,569
Average interest rate on    variable rate debt		LIBOR + 2.70%		LIBOR + 2.70%		LIBOR + 2.22%		LIBOR + 2.59%		LIBOR + 2.70%		LIBOR + 2.25%		LIBOR + 2.49%

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 September 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.

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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 closed effective October 1, 2018 and was conducted on a “best efforts” basis wherein we offered, in any combination, three classes of our common stock: Class A shares, Class T shares and Class I shares.  There were differing selling fees and commissions for each class of common stock.  We also paid 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.  

The use of proceeds from our Primary Offering was as follows as of September 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)		4,715
Aggregate amount sold (3)	$	49,479
Payment of underwriting compensation (4)		(2,216)	$	(2,216)	$	―
Net offering proceeds to the issuer		47,263
Purchases of real estate and development costs		(32,691)		―		(32,691)
Payment of investment services fees and acquisition expenses		(1,727)		(1,382)		(345)
Payment of capital expenditures		(95)		―		(95)
Redemptions of common stock		(185)		―		(185)
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	$	9,790

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.

⁽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.

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⁽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 July 1, 2018 and September 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
July 1, 2018 through July 31, 2018		―		―		―		72,130
August 1, 2018 through August 31, 2018		―		―		―		72,130
September 1, 2018 through September 30, 2018		3,298	$	10.06		3,298		(1)
Total		3,298	$	10.06		3,298

FOOTNOTE:

⁽¹⁾ In connection with the formation of the Special Committee and the termination of the Offering, the Redemption Plan was suspended and we will no longer accept or process any redemption requests.  At no time did the number of shares redeemed exceed the maximum five percent limitation in a rolling 12-month period as described above.

Item 3. Defaults Upon Senior Securities - None

Item 4. Mine Safety Disclosure –Not Applicable

Item 5. Other Information - None

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Item 6. Exhibits

The following exhibits are included, or incorporated by reference in this Quarterly Report on Form 10-Q for the quarter and nine months ended September 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.)
10.2	Loan Agreement among CHP II Riverview FL Owner, LLC, CHP II Riverview FL Tenant, LLC, and Florida Community Bank, N.A., dated August 31, 2018 (Filed herewith.)
10.3	Promissory Note among CHP II Riverview FL Owner, LLC, CHP II Riverview FL Tenant, LLC, and Florida Community Bank, N.A., dated August 31, 2018 (Filed herewith.)
10.4	Payment Guaranty between CNL Healthcare Properties II, Inc. and Florida Community Bank, N.A., dated August 31, 2018 (Filed herewith.)
10.5	Mortgage among CHP II Riverview FL Owner, LLC, CHP II Riverview FL Tenant, LLC, and Florida Community Bank, N.A., dated August 31, 2018 (Filed herewith.)
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 nine months ended September 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.

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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 8th day of November 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)

35

EX-10.2

EXHIBIT 10.2

LOAN AGREEMENT

for a loan in the amount of

$5,000,000.00

MADE BY AND BETWEEN

CHP II RIVERVIEW FL OWNER, LLC, a Delaware limited liability company

and

CHP II RIVERVIEW FL TENANT, LLC, a Delaware limited liability company

450 South Orange Avenue

Orlando, Florida  32801

AND

FLORIDA COMMUNITY BANK, N.A.,
a national banking association,
369 N. New York Avenue

Winter Park, Florida  32789

Dated: August 31, 2018

LOAN AGREEMENT

THIS LOAN AGREEMENT (“Agreement”) is executed as of August 31, 2018 by and between CHP II RIVERVIEW FL OWNER, LLC, a Delaware limited liability company and CHP II RIVERVIEW FL TENANT, LLC, a Delaware limited liability company (jointly and severally, individually, each and/or together, “Borrower”), and FLORIDA COMMUNITY BANK, N.A., a national banking association, its successors and assigns (“Lender”).

RECITALS:

A.Borrower is the owner of fee simple title to certain property known as The Crossings at Riverview, located at  8471 US-301, Riverview, Florida 33578, and legally described in Exhibit A attached hereto (the “Land”).

B.Borrower has applied to Lender for a loan in the amount of $5,000,000.00 (the “Loan”) to finance acquisition of the Land and the Improvements (hereinafter defined) located on the Land, and fund various tenant improvements, and Lender is willing to make the Loan on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows:

ARTICLE 1INCORPORATION OF RECITALS AND EXHIBITS

1.1Incorporation of Recitals.

The foregoing preambles and all other recitals set forth herein are made a part hereof by this reference.

1.2Incorporation of Exhibits.

Exhibits A through D, to this Agreement, attached hereto are incorporated in this Agreement and expressly made a part hereof by this reference.

ARTICLE 2
DEFINITIONS

2.1Defined Terms.

The following terms as used herein shall have the following meanings:

Affiliate:  With respect to a specified person or entity, any individual, partnership, corporation, limited liability company, trust, unincorporated organization, association or other entity which, directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with such person or entity, including, without limitation, any general or limited partnership in which such person or entity is a partner.

Agreement:  This Loan Agreement, together with all amendments, modifications, renewals or extensions thereto.

Appraisal:  An MAI certified appraisal of the Project performed in accordance with FIRREA and Lender’s appraisal requirements by an appraiser selected and retained by Lender.

Assignment of Management Agreement:  An Assignment of Management Agreement and Subordination of Management Fees, executed of even date herewith by CHP II Riverview FL Tenant, LLC, a Delaware limited liability company and Foster Development Inc., a Missouri corporation, in favor of Lender assigning and subordinating the Project management agreement.

Assignment of Rents: A Collateral Assignment of Leases and Rents executed of even date herewith by Borrower in favor of Lender assigning all leases, subleases and other agreements relating to the use and occupancy of all or any portion of the Project, and all present and future leases, rents, issues and profits therefrom.

Authorized Representative:  Borrower’s Chief Financial Officer.

Bankruptcy Code:  Title 11 of the United States Code entitled “Bankruptcy” as now or hereafter in effect, or any successor thereto or any other present or future bankruptcy or insolvency statute.

Business Day:  A day of the year on which banks are not required or authorized to close in Miami, Florida.

Control:  As such term is used with respect to any person or entity, including the correlative meanings of the terms “controlled by” and “under common control with”, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of such person or entity, whether through the ownership of voting securities, by contract or otherwise.  

Debt Service Coverage Ratio:  With respect to a particular period, the annualized Net Operating Income of the Project divided by the Total Annual Debt Service for such period.

Default or default:  Any event, circumstance or condition, which, if it were to continue uncured beyond any applicable notice and/or cure period, would constitute an Event of Default hereunder.

Default Rate:  A rate per annum equal to ten percentage points (10.0%) in excess of the interest rate otherwise applicable on the Loan, but shall not at any time exceed the highest rate permitted by law.

Environmental Indemnity:  An Environmental and Hazardous Substances Indemnity Agreement from the Borrower, indemnifying Lender with regard to all matters related to Hazardous Material and other environmental matters.

Environmental Proceedings:  Any environmental proceedings, whether civil (including actions by private parties), criminal, or administrative proceedings, relating to the Project.

Environmental Report:  An environmental report prepared at Borrower’s expense by a qualified environmental consultant approved by Lender, dated not more than 6 months prior to the Loan Opening Date and addressed to Lender (or subject to separate letter agreement permitting Lender to relay on such environmental report).

ERISA:  The Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder from time to time.

2

Event of Default:  As defined in Article 12.

FIRREA:  The Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended from time to time.

Governmental Authority.  Any federal, state, county or municipal government, or political subdivision thereof, any governmental or quasi‑governmental agency, authority, board, bureau, commission, department, instrumentality, or public body, or any court, administrative tribunal, or public utility.

Guarantor.  CNL HEALTHCARE PROPERTIES II, INC., a Maryland corporation.

Hazardous Material:  Means and includes gasoline, petroleum, asbestos containing materials, explosives, radioactive materials or any hazardous or toxic material, substance or waste which is defined by those or similar terms or is regulated as such under any Law of any Governmental Authority having jurisdiction over the Project or any portion thereof or its use, including: (i) any “hazardous substance” defined as such in (or for purposes of) the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.A. § 9601(14) as may be amended from time to time, or any so‑called “superfund” or “superlien” Law, including the judicial interpretation thereof; (ii) any “pollutant or contaminant” as defined in 42 U.S.C.A. § 9601(33); (iii) any material now defined as “hazardous waste” pursuant to 40 C.F.R. Part 260; (iv) any petroleum, including crude oil or any fraction thereof; (v) natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel; (vi) any “hazardous chemical” as defined pursuant to 29 C.F.R. Part 1910; and  (vii) any other toxic substance or contaminant that is subject to any other Law or other past or present requirement of any Governmental Authority.  Any reference above to a Law, includes the same as it may be amended from time to time, including the judicial interpretation thereof.

Improvements:  Any and all improvements which are now or hereafter located on the Land.

Including or including:  Including but not limited to.

Internal Revenue Code:  The Internal Revenue Code of 1986, as amended from time to time.

Land:  Certain land located in Hillsborough County, State of Florida, and legally described in Exhibit A attached hereto.

Laws:  Collectively, all federal, state and local laws, statutes, codes, ordinances, orders, rules and regulations, including judicial opinions or precedential authority in the applicable jurisdiction.

Late Charge:  As described in Section 4 of the Note.

Leases:  The collective reference to all leases, subleases and occupancy agreements affecting the Project or any part thereof now existing or hereafter executed and all amendments, modifications or supplements thereto approved in writing by Lender.

Lender:  As defined in the opening paragraph of this Agreement, and including any successor holder of the Loan from time to time.

Loan:  The non-revolving loan made by Lender to Borrower in the stated principal amount of $5,000,000.00as evidenced by the Note.

3

Loan Amount:  The maximum amount of the Loan as set forth in Section 4.1(a) as reduced by principal payments made from time to time.

Loan Documents:  The collective reference to this Agreement, the documents and instruments listed in Section 4.2, and all the other documents and instruments entered into from time to time, evidencing or securing the Loan or any obligation of payment thereof or performance of Borrower’s or Guarantor's obligations in connection with the transaction contemplated hereunder, each as amended,modified or supplemented from time to time.

Loan Opening Date:  The date the Mortgage and all other Loan Documents have been executed and delivered to Lender and Lender's lien on the Mortgage is insured by the Title Insurers pursuant to a marked-up title commitment, and all conditions to the disbursement of the Loan have been satisfied.

Material Adverse Change or material adverse change:  If, in Lender’s reasonable discretion, exercised in good faith, the business prospects, operations or financial condition of a person, entity or property has changed in a manner which could materially impair the value of Lender’s security for the Loan, prevent timely repayment of the Loan or otherwise prevent the applicable person or entity from timely performing any of its material obligations under the Loan Documents.

Mortgage:  A Mortgage, Assignment of Rents, Security Agreement and Fixture Filing executed by Borrower in favor of Lender securing this Agreement, the Note, and all obligations of Borrower in connection with the Loan, granting a first priority lien on Borrower’s fee interest in the Project, subject only to the Permitted Exceptions.

Net Operating Income:  For any period, the gross income from operations of the Project derived from arm’s length, rents from leases with unaffiliated third parties, service fees or charges, (excluding capital gains income derived from the sale of assets and other items of income which the Lender reasonably determines are unlikely to occur in any subsequent period), less operating expenses (such as repairs and maintenance, cleaning, utilities, administrative, landscaping, security), management expenses (equal to 5.0% of gross revenues for the Project or actual, if greater), and reserves for replacements equal to $30,600/year, and less fixed expenses (such as insurance, real estate and other taxes).  All operating expenses shall be related to the Project, shall be for services from arm’s length third party transactions or equivalent to the same, and shall exclude all expenses for capital improvements and replacements, debt service and depreciation or amortization of capital expenditures and other similar non-cash or non-recurring items.

Note:  A Promissory Note, in the Loan Amount, executed of even date herewith by Borrower and payable to the order of Lender, evidencing the Loan.

Opening of the Loan, Loan Opening or Loan Opening Date:  The closing date of the Loan.  

Payment Guaranty: A Payment Guaranty executed of even date herewith by Guarantor in favor of Lender, and pursuant to which the Guarantor guarantees, under certain circumstances, payment of principal, interest and other amounts due under the Loan Documents.

Permitted Exceptions:  Those matters listed on Schedule B to the Title Policy to which title to the Project may be subject at the Loan Opening and thereafter such other title exceptions as Lender may reasonably approve in writing.  

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Project:  The collective reference to (i) the Land, together with all buildings, structures and improvements located or to be located thereon, including the Improvements, (ii) all rights, privileges, easements and hereditaments relating or appertaining thereto, and (iii) all personal property, fixtures and equipment required or beneficial for the operation thereof.

State:  The state in which the Land is located.

Title Insurer:  Fidelity National Title Insurance Company, or such other title insurance company licensed in the State as may be approved in writing by Lender.

Title Policy:  A Loan Title Insurance Policy to be issued by the Title Insurer, reflecting an insured amount equal to the Loan Amount, and subject to no other exceptions other than the Permitted Exceptions and otherwise satisfying the requirements of Exhibit B attached hereto and made a part hereof.  

Total Annual Debt Service:Actual debt service during the period measured; provided, however,  with respect to any debt service prior to the I/O Expiration Date (as defined in the Note), Total Annual Debt Service shall be the aggregate of debt service payments for a 12 month period pursuant to the terms of the Note (or annualized for any shorter period), calculated based on the principal balance amortized over 30 years at an assumed interest rate equal to the greater of 4.50% or the actual Loan interest rate.

Transfer:  Any sale, transfer, lease (other than a Lease approved or deemed approved by Lender), conveyance, alienation, pledge, assignment, mortgage, encumbrance hypothecation or other disposition of (a) all or any portion of the Project or any portion of any other security for the Loan, (b) all or any portion of the Borrower’s right, title and interest (legal or equitable) in and to the Project or any portion of any other security for the Loan, or (c) any interest in Borrower, if such conveyance would result in Guarantor owning (indirectly or directly) less than 51% of the membership interest of Borrower, any interest in any entity which directly or indirectly holds an interest in, or directly or indirectly controls, Borrower.

2.2Other Definitional Provisions.

All terms defined in this Agreement shall have the same meanings when used in the Note, Mortgage, any other Loan Documents, or any certificate or other document made or delivered pursuant hereto.  The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement.

ARTICLE 3BORROWER’S REPRESENTATIONS AND WARRANTIES

3.1Representations and Warranties.

To induce Lender to execute this Agreement and perform its obligations hereunder, Borrower hereby represents and warrants to Lender as follows:

(a)Borrower has good and marketable fee simple title to the Project, subject only to the Permitted Exceptions.

(b)No litigation or proceedings are pending, or to the best of Borrower’s knowledge threatened, against Borrower or any Guarantor, which could, if adversely determined, cause a Material

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Adverse Change with respect to Borrower, any Guarantor or the Project.  Borrower has no knowledge of any pending or threatened Environmental Proceedings or any facts or circumstances which may give rise to any future Environmental Proceedings.

(c)Borrower is a duly organized and validly existing limited liability company and has full power and authority to execute, deliver and perform all Loan Documents to which Borrower is a party, and such execution, delivery and performance have been duly authorized by all requisite action on the part of Borrower.

(d)No consent, approval or authorization of or declaration, registration or filing with any Governmental Authority or nongovernmental person or entity, including any creditor, partner, or member of Borrower or any Guarantor, is required in connection with the execution, delivery and performance of this Agreement or any of the Loan Documents other than the recordation of the Mortgage, Assignment of Rents and the filing of UCC‑1 Financing Statements, except for such consents, approvals or authorizations of or declarations or filings with any Governmental Authority or non‑governmental person or entity where the failure to so obtain would not have an adverse effect on Borrower or such Guarantor or which have been obtained as of any date on which this representation is made or remade.

(e)The execution, delivery and performance of this Agreement, the execution and payment of the Note and the granting of the Mortgage and other security interests under the other Loan Documents have not constituted and will not constitute, upon the giving of notice or lapse of time or both, a breach or default under any other agreement to which Borrower or any Guarantor is a party or may be bound or affected, or a violation of any law or court order which may affect the Project, any part thereof, any interest therein, or the use thereof.

(f)There is no default under this Agreement or the other Loan Documents, nor any condition which, after notice or the passage of time or both, would constitute a default or an Event of Default under said documents.

(g)To Borrower’s knowledge (i) no condemnation of any portion of the Project, (ii) no condemnation or relocation of any roadways abutting the Project, and (iii) no proceeding to deny access to the Project from any point or planned point of access to the Project, has commenced or is contemplated by any Governmental Authority.

(h)No brokerage fees or commissions are payable by or to any person in connection with this Agreement or the Loan to be disbursed hereunder.  

(i)All financial statements and other information prepared by and previously furnished by Borrower or any Guarantor to Lender in connection with the Loan are true, complete and correct and fairly present the financial conditions of the subjects thereof as of the respective dates thereof and do not fail to state any material fact necessary to make such statements or information not misleading, and no Material Adverse Change with respect to Borrower or any Guarantor has occurred since the respective dates of such statements and information.  Neither Borrower nor any Guarantor has any material liability, contingent or otherwise, not disclosed in such financial statements.  

(j)To Borrower’s knowledge, except as disclosed in any materials provided to Lender, (i) the Project is in a clean, safe and healthful condition, and, except for materials used in the ordinary course of construction, maintenance and operation of the Project, is free of all Hazardous Material and is in compliance with all applicable Laws; (ii) neither Borrower nor any other person or entity, has ever caused or permitted any Hazardous Material to be placed, held, located or disposed of on, under, at or in a manner

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to affect the Project, or any part thereof, and the Project has never been used for any activities involving, directly or indirectly, the use, generation, treatment, storage, transportation, or disposal of any Hazardous Material; (iii) neither the Project nor Borrower is subject to any existing, pending, or threatened investigation or inquiry by any Governmental Authority, and the Project is not subject to any remedial obligations under any applicable Laws pertaining to health or the environment; and (iv) there are no underground tanks, vessels, or similar facilities for the storage, containment or accumulation of Hazardous Materials of any sort on, under or affecting the Project.  

(k)The Project is taxed in separate folios, separately without regard to any other property and for all purposes the Project may be mortgaged, conveyed and otherwise dealt with as independent parcels.

(l)The Loan is not being made for the purpose of purchasing or carrying “margin stock” within the meaning of Regulation G, T, U or X issued by the Board of Governors of the Federal Reserve System, and Borrower agrees to execute all instruments necessary to comply with all the requirements of Regulation U of the Federal Reserve System.

(m)Borrower is not a party in interest to any plan defined or regulated under ERISA, and the assets of Borrower are not “plan assets” of any employee benefit plan covered by ERISA or Section 4975 of the Internal Revenue Code.

(n)Borrower is not a “foreign person” within the meaning of Section 1445 or 7701 of the Internal Revenue Code.

(o)Other than the name Crossings at Riverview, Borrower uses no trade name other than its actual name set forth herein.  The principal place of business of Borrower is Florida.  

(p)Borrower entities’ place of formation or organization is the State of Delaware.  

(q)All statements set forth in the Recitals are true and correct in all material respects.

(r)Neither Borrower or any Guarantor is (or will be) a person with whom Lender is restricted from doing business under regulations of the Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury of the United States of America (including, those Persons named on OFAC’s Specially Designated and Blocked Persons list) or under any statute, executive order (including, the September 24, 2001 Executive Order Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action and is not and shall not engage in any dealings or transactions or otherwise be associated with such persons.  In addition, Borrower hereby agrees to provide to the Lender with any additional information that the Lender deems necessary from time to time in order to ensure compliance with all applicable Laws concerning money laundering and similar activities.

3.2Survival of Representations and Warranties.

Borrower agrees that all of the representations and warranties set forth in Section 3.1 and elsewhere in this Agreement are true as of the date hereof, and, except for matters which have been disclosed by Borrower and approved by Lender in writing.

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ARTICLE 4LOAN AND LOAN DOCUMENTS

4.1Agreement to Borrow and Lend; Lender’s Obligation to Disburse.

Subject to the terms, provisions and conditions of this Agreement and the other Loan Documents, Borrower agrees to borrow from Lender and Lender agrees to lend to Borrower the Loan, for the purposes and subject to all of the terms, provisions and conditions contained in this Agreement.  

(a)The maximum aggregate amount of the Loan shall not exceed $5,000,000.00, subject to the Additional Advances set forth under Section 4.1(c) below.

(b)Lender agrees, upon Borrower’s compliance with and satisfaction of all conditions precedent, no Material Adverse Change has occurred with respect to Borrower, Guarantor, or the Project and no default or Event of Default has occurred and is continuing hereunder, to Open the Loan to provide $5,000,000.00 in funds toward acquisition of the Project (inclusive of closing costs).

(c)Borrower may make a one-time request for an additional Loan advance of up to $10,762,500.00 (the “Additional Advance”), for a maximum aggregate Loan amount of $15,762,500.00.   The Additional Advance shall be subject to the following terms and conditions:

(i)Borrower shall provide written notice to Bank requesting the Additional Advance no later than August 31, 2021.

(ii)Shall pay a loan fee of 50 basis points on the amount of the Additional Advance.  

(iv)The Additional Advance shall be documented on Bank’s standard form of future advance, loan modification and note consolidation loan documents, upon terms acceptable to Bank, but matching the interest rate and Maturity Date as described in the Note.  

(v)In the event the Additional Advance is requested after the I/O Expiration Date (as defined in the Note), the re-calculated monthly principal and interest payment amount shall be calculated as set forth in the Note.  

(vi)No prior or current Event of Default.

(vii)The Title Policy shall be endorsed, increasing the insured amount to reflect the Additional Advance.  

(viii)Borrower shall pay all costs, expenses and fees in connection with the Additional Advance, including recording fees, additional title premiums, documentary stamp and intangible taxes, and Lender’s counsel fees.

(ix)  Borrower shall have received the Operator’s License as set forth under Article XVII of this Agreement.

(d)[Intentionally Omitted].

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(e)To the extent that Lender may have acquiesced in noncompliance with any requirements precedent to the Opening of the Loan or precedent to any subsequent disbursement of Loan proceeds, such acquiescence shall not constitute a waiver by Lender, and Lender may at any time after such acquiescence require Borrower to comply with all such requirements.

(f)Borrower CHP II Riverview FL Tenant, LLC shall, prior to the Opening of the Loan, open an operating account with Lender.    

4.2Loan Documents.

Borrower agrees that it will, on or before the Loan Opening Date, execute and deliver or cause to be executed and delivered to Lender the following documents in form and substance acceptable to Lender:

(a)The Note.

(b)The Mortgage.

(c)The Assignment of Rents.

(d)The Payment Guaranty.

(e)The Environmental Indemnity.

(f)Assignment of Management Agreement.  

(g)Such UCC financing statements as Lender determines are advisable or necessary to perfect or notify third parties of the security interests intended to be created by the Loan Documents.

(h)Such other documents, instruments or certificates as Lender and its counsel may reasonably require, including such documents as Lender in its sole but reasonable discretion deems necessary or appropriate to effectuate the terms and conditions of this Agreement and the Loan Documents, and to comply with the laws of the State.  

ARTICLE 5LOAN EXPENSE AND ADVANCES

5.1 Loan and Administration Expenses.

Borrower unconditionally agrees to pay all reasonable expenses of the Loan, including all amounts payable pursuant to Section 5.2 and any and all other fees owing to Lender pursuant to the Loan Documents, and also including, without limiting the generality of the foregoing, all recording, filing and registration fees and charges, mortgage or documentary taxes, all insurance premiums, title insurance premiums and other charges of the Title Insurer, printing and photocopying expenses, survey fees and charges, cost of certified copies of instruments, cost of premiums on surety company bonds and the Title Policy, charges of the Title Insurer or other escrowee for administering disbursements, all appraisal fees, insurance consultant’s fees, environmental consultant’s fees, travel related expenses and all costs and expenses incurred by Lender in connection with the determination of whether or not Borrower has performed the obligations undertaken by Borrower hereunder or has satisfied any conditions precedent to the obligations of Lender hereunder and, if any default or Event of Default occurs hereunder or under any of the Loan

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Documents or if the Loan or Note or any portion thereof is not paid in full when and as due, all costs and expenses of Lender (including, without limitation, court costs and counsel’s fees and disbursements and fees and costs of paralegals) incurred in attempting to enforce payment of the Loan and expenses of Lender incurred (including court costs and counsel’s fees and disbursements and fees and costs of paralegals) in attempting to realize, while a default or Event of Default exists, on any security or incurred in connection with the sale or disposition (or preparation for sale or disposition) of any security for the Loan.  Borrower agrees to pay all brokerage, finder or similar fees or commissions payable in connection with the transactions contemplated hereby and shall indemnify and hold Lender harmless against all claims, liabilities, costs and expenses (including reasonable attorneys’ fees and expenses) incurred in relation to any claim by broker, finder or similar personengaged by Borrower.

5.2Origination Fee.

Borrower shall pay to Lender a Loan origination fee in the amount of $25,000.00, which will be paid to Lender by Borrower on the Loan Opening Date.

5.3Lender’s Attorneys’ Fees and Disbursements.

Subject to the provisions of Section 57.105(7), Florida Statutes, Borrower agrees to pay Lender’s reasonable attorney fees and disbursements incurred in connection with this Loan, including (i) the preparation of this Agreement and the other Loan Documents and the preparation of the closing binders, (ii) the disbursement, syndication and administration of the Loan and (iii) the enforcement of the terms of this Agreement and the other Loan Documents.

5.4Time of Payment of Fees and Expenses.

Borrower shall pay all expenses and fees incurred as of the Loan Opening on the Loan Opening Date (unless sooner required herein).  At the time of the Opening of the Loan, Lender may pay from the proceeds of the Loan all Loan expenses and all fees payable to Lender.  Lender may require the payment of outstanding fees and expenses as a condition to disbursement of the Loan.  

5.5Expenses and Advances Secured by Loan Documents.

Any and all advances or payments made by Lender under this Article 5 from time to time, and any amounts expended by Lender pursuant to Section 13.1(a), shall, as and when advanced or incurred, constitute additional indebtedness evidenced by the Note and secured by the Mortgage and the other Loan Documents.

5.6Right of Lender to Make Advances to Cure Borrower’s Defaults.

In the event that Borrower fails to perform any of Borrower’s covenants, agreements or obligations contained in this Agreement or any of the other Loan Documents (after the expiration of applicable grace periods, except in the event of an emergency or other exigent circumstances), Lender may (but shall not be required to) perform any of such covenants, agreements and obligations, and any amounts expended by Lender in so doing and shall constitute additional indebtedness evidenced by the Note and secured by the Mortgage and the other Loan Documents and shall bear interest at a rate per annum equal to the applicable interest rate set forth in the Note.

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ARTICLE 6REQUIREMENTS PRECEDENT
TO THE OPENING OF THE LOAN

6.1Conditions Precedent.

Borrower agrees that Lender’s obligation to open the Loan is conditioned upon Borrower’s delivery, performance and satisfaction of the following conditions precedent in form and substance satisfactory to Lender in its reasonable discretion:

(a)Loan Documents:  Borrower and Guarantor shall have executed and delivered to Lender all of the Loan Documents;

(b)Title and Other Documents:  Borrower shall have furnished to Lender a marked-up title commitment obligating the Title Company to issue the Title Policy together with legible copies of all title exception documents cited in the Title Policy and all other legal documents affecting the Project or the use thereof;

(c)Survey:  Borrower shall have furnished to Lender an ALTA/ACSM “Class A” Land Title Survey of the Project, or other survey approved by Lender in writing.  Said survey shall be dated no earlier than ninety (90) days prior to the Loan Opening, shall be made (and certified to have been made) as set forth in Exhibit C attached hereto and made a part hereof.  Such survey shall be sufficient to permit issuance of the Title Policy in the form required by this Agreement.  Such survey shall include the legal description of the Land;

(d)Insurance Policies:  Borrower shall furnish to Lender not less than two (2) business days prior to the date of this Agreement binders or certificates evidencing that insurance coverages are in effect with respect to the Project and Borrower, in accordance with the Insurance Requirements attached hereto as Exhibit D, for which the premiums have been fully prepaid with endorsements satisfactory to Lender;

(e)No Litigation:  Borrower shall have furnished evidence that no litigation or proceedings shall be pending or threatened which could or might cause a Material Adverse Change with respect to Borrower or the Project;

(f)Utilities:  Borrower shall have furnished to Lender (by way of utility bills or otherwise) evidence establishing to the reasonable satisfaction of Lender that the Project has adequate water supply, storm and sanitary sewerage facilities, telephone, gas, electricity, fire and police protection, means of ingress and egress to and from the Project and public highways and any other required public utilities and that the Project is benefited by insured easements as may be required for any of the foregoing;

(g)Attorney Opinions:  Borrower shall have furnished to Lender an opinion from counsel for Borrower and Guarantor covering due authorization, execution and delivery and enforceability of the Loan Documents and also containing such other legal opinions as Lender shall reasonably require;

(h)Appraisal:  Lender shall have obtained an Appraisal showing a fair market valuation for the Project acceptable to Lender, which Appraisal is satisfactory to Lender in all respects;

(i)Searches:  Borrower shall have furnished to Lender current bankruptcy, federal tax lien and judgment searches and searches of all Uniform Commercial Code financing statements filed in each place UCC Financing Statements are to be filed hereunder, demonstrating the absence of adverse claims;

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(j)Financial Statements:  Borrower shall have furnished to Lender current annual financial statements of Borrower and the Guarantor and such other persons or entities connected with the Loan as Lender may request, each in form and substance and certified by such individual as acceptable to Lender.  Borrower and the Guarantor shall provide such other additional financial information Lender reasonably requires;

(k)Flood Hazard:  Lender has received evidence that the Project is not located in an area designated by the Secretary of Housing and Urban Development as a special flood hazard area, or flood hazard insurance acceptable to Lender in its sole discretion;

(l)Zoning:  Borrower shall have furnished to Lender a zoning letter or other reasonably acceptable evidence as to compliance of the Project with zoning and similar laws;

(m)Environmental Assessment.  The Environmental Report shall, at a minimum, (A) demonstrate the absence of any existing or potential Hazardous Material contamination in violation of Laws or other violations of environmental Laws at the Project, except as acceptable to Lender in its sole and absolute discretion, (B) include the results of all sampling or monitoring to confirm the extent of existing or potential Hazardous Material contamination at the Project, including the results of leak detection tests for each underground storage tank located at the Project, if any, (C) describe response actions appropriate to remedy any existing or potential Hazardous Material contamination in violation of Laws, and report the estimated cost of any such appropriate response, and (D) confirm that any prior removal of Hazardous Material in violation of Laws or underground storage tanks from the Project was completed in accordance with applicable Laws;

(n)Organizational Documents:  Borrower shall have furnished to Lender proof satisfactory to Lender of authority, formation, organization and good standing in the State of its organization or formation and, if applicable, qualification as a foreign entity in good standing in the state of its incorporation or formation, of all corporate, partnership, trust and limited liability company entities (including Borrower and the Guarantor) executing any Loan Documents, whether in their own name or on behalf of another entity.  Borrower shall also provide certified resolutions in form and content satisfactory to Lender, authorizing execution, delivery and performance of the Loan Documents, and such other documentation as Lender may reasonably require to evidence the authority of the persons executing the Loan Documents;

(o)Searches.  Federal and state tax lien, judgment, UCC and pending litigation searches for the Borrower for Florida, Delaware, and Hillsborough County, in each case, not more than dated not more than sixty (60) days prior to the Loan closing;

(p)No Default:  There shall be no uncured Event of Default by Borrower hereunder nor any event, circumstance or condition which with notice or passage of time or both would be an Event of Default;

(q)Easements:  Borrower shall have furnished Lender all easements reasonably required for the maintenance or operation of the Project and such easements shall be insured by the Title Policy; and

(r)Additional Documents:  Borrower shall have furnished to Lender such other materials, documents, papers or requirements regarding the Project, Borrower, any Guarantor or tenant as Lender shall reasonably request; and

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ARTICLE 7
FINANCIAL COVENANTS

Borrower covenants and agrees that during the Loan, the following financial covenants will be complied with:

7.1No Material Adverse Change.

Neither Borrower nor the Project shall suffer a material adverse change in financial condition prior to the Loan Opening Date or during the term of the Loan.

7.2Debt Service Coverage Ratio.

Borrower shall, (i) for the calendar quarter ending December 31, 2020, and based on the Project’s operating statements for the same 3-month period, annualized, maintain a minimum Debt Service Coverage Ratio (as defined under Section 2.1 above) of not less than 1.25:1.00, to be tested within forty-five (45) days after the end of such calendar year, and (ii) for each calendar year thereafter, maintain a minimum Debt Service Coverage Ratio (as defined under Section 2.1 above) for such calendar year of not less than 1.25:1.00, to be tested within forty-five (45) days after the end of each calendar year; provided that if Guarantor’s obligations under the Payment Guaranty should terminate due to full satisfaction of all Payment Guaranty Release Conditions (as set forth under Section 1 of the Payment Guaranty), Borrower shall, for each calendar year thereafter maintain a minimum Debt Service Coverage Ratio (as defined under Section 2.1 above) of not less than 1.25:1.00, to be tested with 90 days after the end of each such calendar year.

Borrower may prepay the Loan in part or provide cash collateral to Lender to accomplish compliance with the Debt Service Coverage Ratio requirement without prepayment penalty of any kind.  Lender shall calculate the amount of prepayment or cash collateral necessary to comply with the Debt Service Coverage Ratio requirement.  To the extent that such prepayment occurs after the I/O Expiration Date (as defined in the Note), the Monthly Principal Payment, as defined in the Note, shall be adjusted to reflect such prepayment based on Lender’s re-calculation of the Monthly Principal Payment as the average of the principal payments for all months between the date of Lender’s receipt of such prepayment and the Maturity Date (as defined in the Note), derived from a mortgage style amortization of the outstanding principal balance of this Note as decreased by such prepayment, amortized over a 360 month period less the number of full months between the I/O Expiration Date and the date of Lender’s receipt of such prepayment, at an assumed interest rate of 5.50%, with the recalculated Monthly Principal Payment plus accrued interest due the 15th of the next month following Lender’s receipt of such prepayment.

ARTICLE 8

OTHER COVENANTS

8.1 Covenants.  Borrower further covenants and agrees as follows:

(a)Opening of Loan on or Prior to Loan Opening Date.  All conditions precedent to the Opening of the Loan hall be complied with on or prior to the Loan Opening Date.  

(b)Payment of Taxes.  Borrower shall pay all real estate taxes and assessments and charges of every kind upon the Project before the same become delinquent, provided, however, that Borrower shall have the right to pay such tax under protest or to otherwise contest any such tax or assessment, but only if (i) such contest has the effect of preventing the collection of such taxes so contested and also of preventing the sale or forfeiture of the Project or any part thereof or any interest therein, (ii) Borrower has notified

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Lender of Borrower’s intent to contest such taxes, and (iii) Borrower has deposited security in form and amount satisfactory to Lender, in its sole discretion, and has increased the amount of such security so deposited promptly after Lender’s request therefor.  If Borrower fails to commence such contest or, having commenced to contest the same, and having deposited such security required by Lender for its full amount, shall thereafter fail to prosecute such contest in good faith or with due diligence, or, upon adverse conclusion of any such contest, shall fail to pay such tax, assessment or charge, Lender may, at its election (but shall not be required to), pay and discharge any such tax, assessment or charge, and any interest or penalty thereon, and any amounts so expended by Lender shall be deemed to constitute disbursements of the Loan proceeds hereunder (even if the total amount of disbursements would exceed the face amount of the Note).  Borrower shall furnish to Lender evidence that taxes are paid at least five (5) days prior to the last date for payment of such taxes and before imposition of any penalty or accrual of interest.

(c)Tax and Insurance Escrow Accounts.  Following an Event of Default (unless Lender has accepted cure of such Event of Default), Borrower shall, upon written request of Lender following a monetary or material non-monetary Event of Default, make insurance and tax escrow deposits, in amounts reasonably determined by Lender from time to time as being needed to pay taxes and insurance premiums when due, in an interest bearing escrow account held by Lender in Lender’s name and under its sole dominion and control.  All payments deposited in the escrow account, and all interest accruing thereon, are pledged as additional collateral for the Loan. Notwithstanding Lender’s holding of the escrow account, nothing herein shall obligate Lender to pay any insurance premiums or real property taxes with respect to any portion of the Project unless the Event of Default has been cured.

(d)Personal Property.  All of Borrower’s personal property, fixtures, attachments and equipment delivered upon, attached to or used in connection with the operation of the Project shall always be located at the Project and shall be kept free and clear of all liens, encumbrances and security interests.

(e)Lender’s Attorneys’ Fees for Enforcement of Agreement.  In case of any default or Event of Default hereunder, Borrower (in addition to Lender’s reasonable attorneys’ fees, if any, to be paid pursuant to Section 5.3) will pay Lender’s reasonable attorneys’ and paralegal fees (including, without limitation, any reasonable attorney and paralegal fees and costs incurred in connection with any litigation or bankruptcy or administrative hearing and any appeals therefrom and any post-judgment enforcement action including, without limitation, supplementary proceedings) in connection with the enforcement of this Agreement; without limiting the generality of the foregoing, if at any time or times hereafter Lender employs counsel (whether or not any suit has been or shall be filed and whether or not other legal proceedings have been or shall be instituted) for advice or other representation with respect to the Project, this Agreement, or any of the other Loan Documents, or to protect, collect, lease, sell, take possession of, or liquidate any of the Project, or to attempt to enforce any security interest or lien in any portion of the Project, or to enforce any rights of Lender or Borrower’s obligations hereunder, then in any of such events all reasonable attorneys’ fees arising from such services, and any expenses, costs and charges relating thereto (including fees and costs of paralegals), once assessed shall constitute an additional liability owing by Borrower to Lender, payable on demand.  Nothing herein shall abridge or otherwise limit the provisions of Section 57.105(7), Florida Statutes.

(f)Furnishing Information.  Borrower shall deliver or cause to be delivered to Lender (i) not later than 60 days after the end of each calendar year, annual company prepared financial statements for each Borrower and (ii) within thirty (30) days of the filing of same, and if required to be filed, annual federal income tax returns for each Borrower, including all schedules and exhibits.  Borrower shall deliver or cause to be delivered to Lender (i) not later than 90 days after the end of each calendar year, annual company prepared financial statements for Guarantor and (ii) within thirty (30) days of the filing of same (if applicable), annual federal income tax returns for Guarantor, including all schedules and exhibits; provided

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that, (i) Borrower may provide Lender with Guarantor’s publicly filed financial statements to satisfy its obligation to provide Lender with Guarantor’s financial statements and (ii) in the even that Guarantor’s obligations under the Payment Guaranty should terminate due to full satisfaction of all Payment Guaranty Release Conditions (as set forth under Section 1 of the Payment Guaranty), Borrower shall thereafter, not be required to submit Guarantor’s tax returns to Lender.  Borrower shall also submit to Lender not later than 90 days after the end of each calendar year, a rent roll for the Project and a financial operating statement for the Project.  Each financial statement prepared by in accordance with GAAP and shall be certified as true, complete and correct by its preparer and by Borrower or, in the case of Guarantor’s financial statements, by the Guarantor to whom it relates.  Borrower and Guarantor shall provide such additional financial information as Lender reasonably requires.  Borrower shall during regular business hours permit Lender or any of its agents or representatives to have access to and examine all of its books and records regarding the operation of the Project.  ADDITIONAL REMEDIES FOR NONCOMPLIANCE WITH FINANCIAL AND OTHER REPORTING REQUIREMENTS.  Notwithstanding anything in this Agreement or the other Loan Documents to the contrary, if for any reason  Borrower or Guarantor fail to furnish Lender with any and all balance sheets, income statements, tax returns, financial reports and other information in strict compliance with the requirements, conditions and timing deadlines of this Agreement, and the other Loan Documents, time being of the essence, then the Loan evidenced by the Note described in this Agreement, at the option of the Lender (in addition to all other rights and remedies of Lender) and unless and until an Event of Default is declared for such non-compliance, shall be assessed an ongoing monthly fee in the amount no less than $500.00 until Borrower complies with the requirements, conditions and timing deadlines of this Agreement.

(g)Lost Note.  Upon Lender’s furnishing to Borrower an affidavit to such effect, Borrower shall, if the Note is mutilated, destroyed, lost or stolen, deliver to Lender, in substitution therefor, a new note containing the same terms and conditions as the Note.

(h)Indemnification.  Borrower shall indemnify Lender, including each party owning an interest in the Loan and their respective officers, directors, employees and consultants (each, an “Indemnified Party”) and defend and hold each Indemnified Party harmless from and against all claims, injury, damage, loss and liability, cost and expense (including attorneys’ fees, costs and expenses) of any and every kind to any persons or property by reason of (i) the operation or maintenance of the Project; (ii) any breach of representation or warranty, default or Event of Default under this Agreement or any other Loan Document; or (iii) any other matter arising in connection with the Loan, Borrower, any Guarantor, or the Project.  No Indemnified Party shall be entitled to be indemnified against its own gross negligence or willful misconduct.  The foregoing indemnification shall survive repayment of the Loan and shall continue to benefit Lender following any assignment of the Loan with respect to matters arising or accruing prior to such assignment.

(i)No Additional Debt.  Without the prior written consent of Lender, Borrower shall not incur any indebtedness (whether personal or nonrecourse, secured or unsecured) in excess of $50,000 other than the Loan and customary trade payables paid within sixty (60) days after they are incurred.  

(j)Compliance with Laws.  Borrower shall comply with all applicable requirements (including applicable Laws) of any Governmental Authority having jurisdiction over Borrower or the Project.

(k)Organizational Documents.  Borrower shall not, without the prior written consent of Lender, permit or suffer (i) a material amendment or modification of its organizational documents, (ii) the admission of any new member, partner or shareholder except as otherwise permitted under Section 10.2 hereof, or (iii) any dissolution or termination of its existence.

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(l)Furnishing Reports.  Upon Lender’s request, Borrower shall provide Lender with copies of all inspections, reports, test results and other information received by any Borrower, which in any way relate to the Project or any part thereof.

(m)Management Contracts.  Borrower shall not enter into, terminate, cancel, materially modify or materially amend any management contracts for the Project or agreements with agents or brokers, without the prior written approval of Lender.  

(n)Furnishing Notices.  Borrower shall provide Lender with copies of all material notices pertaining to the Project received by Borrower from any tenant, Governmental Authority or insurance company within ten (10) business days after such notice is received.

(o)Patriot Act.  During the term of this Loan, Borrower agrees that neither Borrower, nor Borrower’s principals, constituents, investors or affiliates, (a) shall be in violation of any legal requirements relating to terrorism or money laundering, including Executive Order No. 13224 on Terrorist Financing (effective September 24, 2001, (the “Executive Order”) and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56, the “Patriot Act”) , or (b) is a “Prohibited Person” which is defined as follows:

(i)a person or entity that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order;

(ii)a person or entity owned or controlled by, or acting for or on behalf of, any person or entity that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order;

(iii)a person or entity with whom Borrower is prohibited from dealing or otherwise engaging in any transaction by any terrorism or money laundering legal requirements, including the Executive Order and the Patriot Act;

(iv)a person or entity who commits, threatens or conspires to commit or supports “terrorism” as defined in the Executive Order;

(v)a person or entity that is named as a “specially designated national and blocked person” on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control; and

(vi)a person or entity who is affiliated with a person or entity listed above.

Borrower agrees that neither Borrower, nor Borrower’s principals, constituents, investors or affiliates (but not including shareholders in CNL Healthcare Properties II, Inc.) will (x) conduct any business or engage in any transaction or dealing with any Prohibited Person, including the making or receiving of any contribution of funds, goods or services to or for the benefit of any Prohibited Person, (y) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order; or (z) engage in or conspire to engage in any transaction that evades or avoids, or has the purposes of evading or avoiding, or attempts to violate, any of the prohibitions set forth in the Executive Order or the Patriot Act.

(p)Mechanics’ Liens and Contest Thereof.  Borrower will not suffer or permit any mechanics’ lien claims to be filed or otherwise asserted against the Project, and will promptly discharge the same in

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case of the filing of any claims for lien or proceedings for the enforcement thereof, provided, however, that Borrower shall have the right to contest in good faith and with reasonable diligence the validity of any such lien or claim provided that Borrower posts a statutory lien bond which removes such lien from title to the Project within twenty (20) days of written notice to Borrower of the existence of the lien. 

(q)[Intentionally Omitted].  

(r)[Intentionally Omitted].

(s)Appraisals.  Lender shall have the right to obtain a new or updated Appraisal of the Project from time to time.  Borrower shall cooperate with Lender in this regard.  If the Appraisal is obtained to comply with this Agreement or any applicable law or regulatory requirement, or bank policy promulgated to comply therewith, or if an Event of Default exists, Borrower shall pay for any such Appraisal upon Lender’s request, not to exceed once per calendar year.

(t)Cash Distributions.  If a monetary or material non-monetary Event of Default exists, Borrower shall not make any distributions to partners, members or shareholders, without the prior written consent of Lender.

(u)Operating and Deposit Accounts.  Borrower CHP Riverview FL Tenant, LLC shall establish and maintain, throughout the term of the Loan, its operating and depository account with Lender.

8.2  Authorized Representative.  

Borrower hereby appoints Authorized Representative as its representative for purposes of dealing with Lender on behalf of Borrower in respect of any and all matters in connection with this Agreement, the other Loan Documents, and the Loan.  The Authorized Representative shall have the power, in his discretion, to give and receive all notices, monies, approvals, and other documents and instruments, and to take any other action on behalf of Borrower.  All actions by the Authorized Representative shall be final and binding on Borrower.  Lender may rely on the authority given to the Authorized Representative until actual receipt by Lender of a duly authorized resolution substituting a different person as the Authorized Representative.  No more than one person shall serve as Authorized Representative at any given time.

ARTICLE 9

CASUALTIES AND CONDEMNATION

9.1  Lender's Election to Apply Proceeds on Indebtedness.  

(a)Subject to the provisions of Section 9.1(b) below, Lender may elect to collect, retain and apply upon the indebtedness of Borrower under this Agreement or any of the other Loan Documents all proceeds of insurance or condemnation (individually and collectively referred to as “Proceeds”) after deduction of all expenses of collection and settlement, including attorneys’ and adjusters’ fees and charges.  Any proceeds remaining after repayment of the indebtedness under the Loan Documents shall be paid by Lender to Borrower.

(b)Notwithstanding anything in Section 9.1(a) to the contrary, in the event of any casualty to the Improvements or any condemnation of part of the Project, Lender agrees to make available the Proceeds to restoration of the Improvements if all of the following conditions are met and satisfied:  (i) no Event of Default then exists; (ii) all Proceeds are deposited with Lender; provided, however, that if the total amount

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of Proceeds is less than $500,000 and if no Event of Default then exists, then the Borrower shall receive such Proceeds to be used by Borrower solely for the restoration of the Improvements; (iii) in Lender’s reasonable judgment, the amount of Proceeds available for restoration of the Improvements (together with undisbursed proceeds of the Loan, if any) is sufficient to pay the full and complete costs of such restoration; (iv) the cost of restoration (in Lender’s reasonable determination) shall not exceed fifty percent (50%) of the Loan Amount; (v) if the cost of restoration exceeds twenty percent (20%) of the Loan Amount (in Lender’s sole determination), then after completion of the restoration, the Loan Amount will not exceed 70% of the fair market value of the Project; (vi) in Lender’s reasonable determination, the Project can be restored to an architecturally and economically viable project in compliance with applicable Laws; and (vii) in Lender’s reasonable determination, such restoration is likely to be completed not later than three  months prior to the Maturity Date (as defined in the Note).  

9.2  Borrower's Obligation to Rebuild and Use of Proceeds Therefor.

In case Lender does not elect to apply or does not have the right to apply the Proceeds to the indebtedness, as provided in Section 9.1 above, Borrower shall:

(a)Proceed with diligence to make settlement with insurers or the appropriate governmental authorities and cause the Proceeds to be deposited with Lender; and

(b)Promptly proceed with the assumption of construction of the Improvements, including the repair of all damage resulting from such fire, condemnation or other cause and restoration to its former condition.

Any request by Borrower for a disbursement by Lender of Proceeds and funds deposited with Lender shall be treated by Lender as it would treat a construction loan advance in its ordinary course of business, and the disbursement thereof shall be conditioned upon Borrower’s compliance with and satisfaction of Lender's normal conditions precedent for an advance of a construction loan.

ARTICLE 10

ASSIGNMENTS BY LENDER AND BORROWER

10.1  Assignments and Participations.

Lender may from time to time sell the Loan and the Loan Documents (or any interest therein) and may grant participations in the Loan.  Borrower agrees to cooperate with Lender’s efforts to do any of the foregoing and to execute all documents reasonably required by Lender in connection therewith which do not materially adversely affect Borrower’s rights under the Loan Documents.  

10.2  Prohibition of Assignments and Transfers by Borrower.

Borrower shall not assign or attempt to assign its rights under this Agreement and any purported assignment shall be void.  Without the prior written consent of Lender, in Lender’s sole discretion, Borrower shall not suffer or permit any Transfer.  

10.3  Prohibition of Transfers in Violation of ERISA.

In addition to the prohibitions set forth in Section 10.2 above, Borrower shall not assign, sell, pledge, encumber, transfer, hypothecate or otherwise dispose of its interest or rights in this Agreement or in the Project, or attempt to do any of the foregoing or suffer any of the foregoing, nor shall any party

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owning a direct or indirect interest in Borrower assign, sell, pledge, mortgage, encumber, transfer, hypothecate or otherwise dispose of any of its rights or interest (direct or indirect) in Borrower (except for transfers to a family member for estate planning purposes so long as the Guarantor at all times maintain control of the Borrower and the Guarantor’s trusts maintain directly or indirectly at least 51% of the ownership interests in Borrower), attempt to do any of the foregoing or suffer any of the foregoing, if such action would cause the Loan, or the exercise of any of Lender’s rights in connection therewith, to constitute a prohibited transaction under ERISA or the Internal Revenue Code or otherwise result in Lender being deemed in violation of any applicable provision of ERISA.  Borrower agrees to indemnify and hold Lender free and harmless from and against all losses, costs (including attorneys’ fees and expenses), taxes, damages (including consequential damages) and expenses Lender may suffer by reason of the investigation, defense and settlement of claims and in obtaining any prohibited transaction exemption under ERISA necessary or desirable in Lender’s sole judgment or by reason of a breach of the foregoing prohibitions.  The foregoing indemnification shall be a recourse obligation of Borrower and shall survive repayment of the Note, notwithstanding any limitations on recourse contained herein or in any of the Loan Documents.

10.4  Successors and Assigns.

Subject to the foregoing restrictions on transfer and assignment contained in this Article 10, this Agreement shall inure to the benefit of and shall be binding on the parties hereto and their respective successors and permitted assigns.

ARTICLE 11TIME OF THE ESSENCE

11.1  Time is of the Essence.

Borrower agrees that time is of the essence under this Agreement.

ARTICLE 12EVENTS OF DEFAULT

The occurrence of any one or more of the following shall constitute an “Event of Default” as said term is used herein:

(a)Failure of Borrower (i) (A) to make any principal or interest payment within ten (10) days after the date when due, or (B) to observe or perform any of the other covenants or conditions by Borrower to be performed under the terms of this Agreement or any other Loan Document concerning the payment of money, for a period of ten (10) days after the same is due and payable; or (ii) for a period of thirty (30) days after written notice from Lender, to observe or perform any non‑monetary covenant or condition contained in this Agreement or any other Loan Documents; provided that if any such failure concerning a non‑monetary covenant or condition is susceptible to cure and cannot reasonably be cured within said thirty (30) day period, then Borrower shall have an additional sixty (60) day period to cure such failure and no Event of Default shall be deemed to exist hereunder so long as (Y) Borrower commences such cure within the initial thirty (30) day period and diligently and in good faith pursues such cure to completion within such resulting ninety (90) day period from the date of Lender’s notice, and (Z) the existence of such default will not result in any material tenant having the right to terminate its Lease(s) due to such default; and provided further that if a different notice or grace period is specified under any other subsection of this Article 12 with respect to a particular breach, or if another subsection of this Article 12 applies to a particular breach and does not expressly provide for a notice or grace period the specific provision shall control.

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(b)Any Transfer or other disposition in violation of Sections 10.2 or 10.3.

(c)Any material default on the part of Borrower, beyond any applicable cure period, of the terms of that certain Transition Period Sublease dated September 1, 2018, by and between Borrower and The Crossings at Riverview, LLC, a Florida limited liability company.

(d)If any warranty, representation, statement, report or certificate made now or hereafter by Borrower or any Guarantor is untrue or incorrect at the time made or delivered, provided that if such breach is reasonably susceptible of cure, then no Event of Default shall exist so long as Borrower cures said breach (i) within the notice and cure period provided in (a)(i) above for a breach that can be cured by the payment of money or (ii) within the notice and cure period provided in (a)(ii) above for any other breach.

(e)Any Borrower entity or a Guarantor shall commence a voluntary case concerning Borrower or a Guarantor under the Bankruptcy Code; or an involuntary proceeding is commenced against Borrower or a Guarantor under the Bankruptcy Code and relief is ordered against Borrower or a Guarantor, or the petition is controverted but not dismissed or stayed within ninety (90) days after the commencement of the case, or a custodian (as defined in the Bankruptcy Code) is appointed for or takes charge of all or substantially all of the property of Borrower or a Guarantor; or the Borrower or a Guarantor commences any other proceedings under any reorganization, arrangement, readjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar Law of any jurisdiction whether now or hereafter in effect relating to the Borrower or a Guarantor; or there is commenced against Borrower or a Guarantor any such proceeding which remains undismissed or unstayed for a period of ninety (90) days; or the Borrower or a Guarantor fails to controvert in a timely manner any such case under the Bankruptcy Code or any such proceeding, or any order of relief or other order approving any such case or proceeding is entered; or the Borrower or a Guarantor by any act or failure to act indicates its consent to, approval of, or acquiescence in any such case or proceeding or the appointment of any custodian or the like of or for it for any substantial part of its property or suffers any such appointment to continue undischarged or unstayed for a period of ninety (90) days.

(f)Borrower or a Guarantor shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due, or shall consent to the appointment of a receiver or trustee or liquidator of all of its property or the major part thereof or if all or a substantial part of the assets of Borrower or a Guarantor are attached, seized, subjected to a writ or distress warrant, or are levied upon, or come into the possession of any receiver, trustee, custodian or assignee for the benefit of creditors.

(g)If Borrower is enjoined, restrained or in any way prevented by any court order from operating the Project.

(h)One or more final, unappealable judgments are entered (i) against Borrower in amounts aggregating in excess of $50,000 or (ii) against any Guarantor in amounts aggregating in excess of $250,000, and said judgments are not paid, stayed or bonded over within thirty (30) days after entry.

(i)If Borrower or a Guarantor shall fail to pay any debt owed by it or is in default under any agreement with Lender and such failure or default continues after any applicable grace period specified in the instrument or agreement relating thereto.

(j)The dissolution, liquidation, merger, consolidation or reorganization of Borrower, or the institution of any proceeding to effect any of the foregoing.  

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(k)If any individual Guarantor dies or is declared incompetent unless, within ninety (90) days, a replacement guarantor satisfactory to Lender, as determined by Lender in its sole discretion, and with equal or better creditworthiness, executes and delivers to Lender a guaranty with the same terms originally undertaken by Guarantor.

(l)If a Material Adverse Change occurs with respect to Borrower, any Guarantor, or the Project, which is not remedied within thirty (30) days after written notice from Lender; provided that if any such Material Adverse Change is susceptible to remedy and cannot reasonably be remedied within said thirty (30) day period, then Borrower shall have an additional sixty (60) day period to remedy such Material Adverse Change and no Event of Default shall be deemed to exist hereunder so long as (Y) Borrower commences such remedy within the initial thirty (30) day period and diligently and in good faith pursues such remedy to completion within such resulting ninety (90) day period from the date of Lender’s notice.  

(m)The occurrence of any other event or circumstance denominated as an Event of Default herein or under any of the other Loan Documents and the expiration of any applicable grace or cure periods, if any, specified for such Event of Default herein or therein, as the case may be.

ARTICLE 13LENDER’S REMEDIES IN EVENT OF DEFAULT

13.1  Remedies Conferred Upon Lender.

Upon the occurrence of any Event of Default, Lender may pursue any one or more of the following remedies concurrently or successively, it being the intent hereof that none of such remedies shall be to the exclusion of any other:

(a)Take possession of the Project and do anything which is necessary or appropriate in its sole judgment to fulfill the obligations of Borrower under this Agreement and the other Loan Documents.  Without restricting the generality of the foregoing and for the purposes aforesaid, Borrower hereby appoints and constitutes Lender its lawful attorney‑in‑fact with full power of substitution in the Project to use unadvanced funds which may be reserved, escrowed or set aside for any purposes hereunder at any time; to pay, settle or compromise all existing bills and claims which may be liens or security interests, or to avoid such bills and claims becoming liens against the Project; to execute all applications and certificates in the name of Borrower to prosecute and defend all actions or proceedings in connection with the Improvements or Project; and to do any and every act which the Borrower might do in its own behalf; it being understood and agreed that this power of attorney shall be a power coupled with an interest and cannot be revoked;

(b)Declare the Note to be immediately due and payable;

(c)Use and apply any monies or letters of credit deposited by Borrower with Lender, regardless of the purposes for which the same was deposited, to cure any such default or to apply on account of any indebtedness under this Agreement which is due and owing to Lender; and

(d)Exercise or pursue any other remedy or cause of action permitted under this Agreement or any other Loan Documents, or conferred upon Lender by operation of Law.

Notwithstanding the foregoing, upon the occurrence of any Event of Default under Article 12(e) or (f) with respect to Borrower, all amounts evidenced by the Note shall automatically become due and payable, without

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any presentment, demand, protest or notice of any kind to Borrower.

ARTICLE 14GENERAL PROVISIONS

14.1  Captions.

The captions and headings of various Articles, Sections and subsections of this Agreement and Exhibits pertaining hereto are for convenience only and are not to be considered as defining or limiting in any way the scope or intent of the provisions hereof.

14.2  Modification; Waiver.

No modification, waiver, amendment or discharge of this Agreement or any other Loan Document shall be valid unless the same is in writing and signed by the party against which the enforcement of such modification, waiver, amendment or discharge is sought.

14.3  Governing Law.

Irrespective of the place of execution and/or delivery, this Agreement shall be governed by, and shall be construed in accordance with, the laws of the State of Florida.

14.4  Acquiescence Not to Constitute Waiver of Lender’s Requirements.

Each and every covenant and condition for the benefit of Lender contained in this Agreement may be waived by Lender, provided, however, that to the extent that Lender may have acquiesced in any noncompliance with any conditions precedent to the Opening of the Loan, such acquiescence shall not be deemed to constitute a waiver by Lender of such requirements with respect to any future disbursements of Loan proceeds.

14.5  Disclaimer by Lender.

This Agreement is made for the sole benefit of Borrower and Lender, and no other person or persons shall have any benefits, rights or remedies under or by reason of this Agreement, or by reason of any actions taken by Lender pursuant to this Agreement.  Lender shall not be liable for any debts or claims accruing in favor of any such parties against Borrower or others or against the Project.  Lender, by making the Loan or taking any action pursuant to any of the Loan Documents, shall not be deemed a partner or a joint venturer with Borrower or fiduciary of Borrower.  Without limiting the generality of the foregoing, Lender neither undertakes nor assumes any responsibility or duty to Borrower to select, review, inspect, supervise, pass judgment upon or inform Borrower of any matter in connection with the Project.  Borrower shall rely entirely upon its own judgment with respect to such matters, and any review, inspection, supervision, exercise of judgment or supply of information to Borrower by Lender in connection with the Project is for the protection of Lender only, and neither Borrower nor any third party is entitled to rely thereon.

14.6  Partial Invalidity; Severability.

If any of the provisions of this Agreement, or the application thereof to any person, party or circumstances, shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such provision or provisions to persons, parties or circumstances other than those as to whom

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or which it is held invalid or unenforceable, shall not be affected thereby, and every provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

14.7  Definitions Include Amendments.

Definitions contained in this Agreement which identify documents, including, but not limited to, the Loan Documents, shall be deemed to include all amendments and supplements to such documents from the date hereof, and all future amendments, modifications, and supplements thereto entered into from time to time to satisfy the requirements of this Agreement or otherwise with the consent of Lender.  Reference to this Agreement contained in any of the foregoing documents shall be deemed to include all amendments and supplements to this Agreement.

14.8  Execution in Counterparts.

This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

14.9  Entire Agreement.

This Agreement, taken together with all of the other Loan Documents and all certificates and other documents delivered by Borrower to Lender, embody the entire agreement and supersede all prior agreements, written or oral, relating to the subject matter hereof.

14.10  Waiver of Damages.

In no event shall Lender be liable to Borrower for punitive, exemplary or consequential damages, including, without limitation, lost profits, whatever the nature of a breach by Lender of its obligations under this Agreement or any of the Loan Documents, and Borrower waives all claims for punitive, exemplary or consequential damages.  

14.11  Claims Against Lender.

Lender shall not be in default under this Agreement, or under any other Loan Documents, unless a written notice specifically setting forth the claim of Borrower shall have been given to Lender within three (3) months after Borrower first had knowledge of the occurrence of the event which Borrower alleges gave rise to such claim and Lender does not remedy or cure the default, if any there be, promptly thereafter.  Borrower waives any claim, set‑off or defense against Lender arising by reason of any alleged default by Lender as to which Borrower does not give such notice timely as aforesaid.  Borrower acknowledges that such waiver is or may be essential to Lender’s ability to enforce its remedies without delay and that such waiver therefore constitutes a substantial part of the bargain between Lender and Borrower with regard to the Loan.  No Guarantor or tenant is intended to have any rights as a third-party beneficiary of the provisions of this Section 14.11.

14.12  Jurisdiction.

TO THE GREATEST EXTENT PERMITTED BY LAW, BORROWER HEREBY WAIVES ANY AND ALL RIGHTS TO REQUIRE MARSHALLING OF ASSETS BY LENDER.  WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDINGS RELATING TO THIS AGREEMENT (EACH, A “PROCEEDING”), BORROWER IRREVOCABLY (A) SUBMITS TO THE NON-EXCLUSIVE

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JURISDICTION OF THE STATE AND FEDERAL COURTS HAVING JURISDICTION COUNTY OF HILLSBOROUGH AND STATE OF FLORIDA, AND (B) WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY PROCEEDING BROUGHT IN ANY SUCH COURT, WAIVES ANY CLAIM THAT ANY PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO SUCH PROCEEDING, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY.  NOTHING IN THIS AGREEMENT SHALL PRECLUDE LENDER FROM BRINGING A PROCEEDING IN ANY OTHER JURISDICTION NOR WILL THE BRINGING OF A PROCEEDING IN ANY ONE OR MORE JURISDICTIONS PRECLUDE THE BRINGING OF A PROCEEDING IN ANY OTHER JURISDICTION.

14.13  Set‑Offs.

After the occurrence and during the continuance of an Event of Default, Borrower hereby irrevocably authorizes and directs Lender from time to time to charge Borrower’s accounts and deposits with Lender (or its Affiliates), and to pay over to Lender an amount equal to any amounts from time to time due and payable to Lender hereunder, under the Note or under any other Loan Document.  Borrower hereby grants to Lender a security interest in and to all such accounts and deposits maintained by the Borrower with Lender (or its Affiliates).

ARTICLE 15NOTICES

Any notice, demand, request or other communication which any party hereto may be required or may desire to give hereunder shall be in writing and shall be deemed to have been properly given when received or refused by hand delivery, United States Certified Mail (postage prepaid, return receipt requested), Federal Express or other reliable overnight courier service, and sent to the address as set forth below:

If to Borrower:

CHP II Riverview FL Owner, LLC

CHP II Riverview FL Tenant, LLC

c/o CNL Healthcare Properties II, Inc.

450 South Orange Avenue

Orlando, Florida  32801

Attention: Chief Financial Officer & General Counsel

With a copy to:

Lowndes, Drosdick, Doster, Kantor & Reed, P.A.

215 N. Eola Drive

Orlando, Florida 32801

Attention:  John D. Ruffier, Esq.

If to Lender:

Florida Community Bank, N.A.

369 N. New York Avenue

Winter Park, Florida  32789

Attention: Commercial Real Estate Dept.

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With a copy to:

GrayRobinson, P.A.

301 East Pine Street, Suite 1400

Orlando, Florida 32801

Attention:  Truong M. Nguyen, Esq.

or at such other address as the party to be served with notice may have furnished in writing to the party seeking or desiring to serve notice as a place for the service of notice.

ARTICLE 16WAIVER OF JURY TRIAL

BORROWER AND LENDER EACH WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS OR RELATING THERETO OR ARISING FROM THE LENDING RELATIONSHIP WHICH IS THE SUBJECT OF THIS AGREEMENT AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

ARTICLE 17OPERATOR’S LICENSE

Borrower hereby represents, warrants and covenants that, (i) CHP II RIVERVIEW FL TENANT LLC (“Licensee”) has applied for new license or filed for change of ownership with the Florida Agency for Health Care Administration (“AHCA”) on July 3, 2018, in connection the operation of the Project as an assisted living facility; (ii) Borrower will enter into, and keep in good standing with respect to the Transition Period Sublease described under Article XII, item (c) above; (iii) so long as it owns and operates the Project as an assisted living facility, it and the Project will remain in compliance with all applicable Laws regarding the all licenses, permits and approvals required to operate the Project as an assisted living facility (collectively, the “Operator’s License”) and (iv) it will obtain the final, unconditional Operator’s License not later than 90 days after the date of this Agreement.  

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ThisLoan Agreement is executed as of the date first set forth above.

BORROWER:

CHP II RIVERVIEW FL OWNER, LLC,

a Delaware limited liability company

By: /s/ Brett S. Bryant

Name:  Brett S. Bryant

Its: Vice President

CHP II RIVERVIEW FL TENANT, LLC,

a Delaware limited liability company

By: /s / Brett S. Bryant

Name:  Brett S. Bryant

Its: Vice President

LENDER:

FLORIDA COMMUNITY BANK, N.A.

By: /s/ Andy Johnson

Name: Andy Johnson

Its: Senior Vice President

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EXHIBIT A

Legal Description of Land

A parcel of land lying in Government Lot 4 of Section 17, Township 30 South, Range 20 East, Hillsborough County, Florida, being more particularly described as follows:

Commence at the Southeast corner of said Government Lot 4, also being the Southeast corner of the Southwest 1/4 of said Section 17, run thence, along the East boundary of said Government Lot 4, also being the East boundary of said Southwest 1/4 of Section 17, North 00°09'55" East 105.07 feet; thence North 89°50'05" West 34.79 feet to a point on the Westerly right-of-way line of U.S. Highway No. 301 (State Road No. 43), per Florida Department of Transportation Right-of-Way Map Section No. 10010-2528; thence South 88°49'38" West 643.18 feet; thence North 00°11'48" East 312.29 feet to the Point of Beginning; continue North 00°11'48" East 170.10 feet; thence North 00°14'54" East 209.63 feet; thence South 89°45'06" East 55.24 feet; thence North 18°06'54" East 23.01 feet; thence North 44°43'00" East 43.75 feet to a point of curvature; thence Easterly 252.80 feet, along the arc of a curve to the right, having a radius of 161.00 feet and a central angle of 89°57'51" (chord bearing North 89°41'55" East 227.62 feet), to a point of tangency; thence South 45°19'09" East 6.35 feet; thence South 77°06'33" East 93.42 feet; thence South 22°12'08" East 38.34 feet; thence South 345.27 feet; thence West 61.33 feet; thence South 24.18 feet; thence West 287.87 feet to a point of curvature; thence Southwesterly 36.89 feet, along the arc of a curve to the left, having a radius of 32.22 feet and a central angle of 65°36'16" (chord bearing South 57°11'52" West 34.91 feet); thence North 60°50'22" West 31.66 feet; thence North 89°48'12" West 26.17 feet to the Point of Beginning.

\7\149 - # 12642650 v2

 

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EXHIBIT B

Permitted Exceptions

1. Taxes and assessments for the year 2018 and subsequent years, which are not yet due and payable.

2. Rights of tenants occupying all or part of the insured land under unrecorded leases or rental agreements.

3. Agreement by and between Mary E. Pickard, Dan C. Pickard and Agnes Pickard recorded March 16, 1959 in Official Records Book 248, Page 288.

4. Restrictions, covenants, conditions and easements, which include provisions for A. an easement on the land; B. a lien for liquidated damages; C. a private charge or assessments; and D. an option to purchase, a right of first refusal, or the prior approval of a future purchaser or occupant, as set forth in Declaration of Covenants, Restrictions and Easements by GBS Real Estate Investments III, LLC, a Florida limited liability company, and GBS Riverview LLC, a Florida limited liability company, recorded December 30, 2013 in Official Records Book 22338, Page 1403 , together with First Amendment to Declaration of Covenants, Restrictions and Easements recorded April 21, 2014 in Official Records Book 22530, Page 347 .  

5. Unrecorded Development and Lease Agreement by and between SSL Riverview, LLC, a Florida limited liability company, Lessor, and The Crossings at Riverview, LLC, a Florida limited liability company, Lessee, dated as of August 5, 2013, Unrecorded Amendment dated September 24, 2013, Unrecorded Amendment dated October 14, 2013 and Unrecorded Amendment dated December 20, 2013, as evidenced by and together with Subordination, Non-Disturbance and Attornment Agreement recorded January 2, 2014 in Official Records Book 22342, Page 1578 , Memorandum of Lease Agreement and Options recorded March 25, 2014 in Official Records Book 22482, Page 252  and Security, Assignment and Subordination Agreement for Operating Lease and Assignment of Leases and Rents and Fixture Filing - Senior Housing recorded August 7, 2017 in Official Records Book 25146, Page 751 .  (as to Parcel 1)

6. Easement in favor of Tampa Electric Company, a Florida corporation, recorded August 14, 2014 in Official Records Book 22738, Page 1831 .  

7. Easement in favor of Tampa Electric Company, a Florida corporation, recorded August 14, 2014 in Official Records Book 22738, Page 1877 .  

8. Easement in favor of Tampa Electric Company, a Florida corporation , recorded August 14, 2014 in Official Records Book 22738, Page 1979 .  

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EXHIBIT C

Title Requirements

1. Title Insurance Company Requirements. The maximum single risk (i.e., the amount insured under any one policy) by a title insurer may not exceed 25% of that insurer's surplus and statutory reserves.  Reinsurance must be obtained by closing for any policy exceeding such amount.  

2. Loan Policy Forms. Standard 2006 American Land Title Association ("ALTA") form of loan title insurance policy must be used.

3. Insurance Amount. The amount insured must equal at least the original principal amount of the Loan.

4. Named Insured. The named insured under the Title Policy must be substantially the same as the following: "Florida Community Bank, N.A., and its respective successors and assigns."

5. Creditors' Rights. Any "creditors' rights" exception or other exclusion from coverage for voidable transactions under bankruptcy, fraudulent conveyance, or other debtor protection laws or equitable principles must be removed by either an endorsement or a written waiver.

6. Arbitration. In the event that the form policy which is utilized includes a compulsory arbitration provision, the insurer must agree that such compulsory arbitration provisions do not apply to any claims by or on behalf of the insured.

7. Date of Policy. The effective date of the Title Policy must be as of the date and time of the closing.

8. Legal Description. The legal description of the property contained in the Title Policy must conform to (a) the legal description shown on the survey of the property, and (b) the legal description contained in the Mortgage. In any event, the Title Policy must be endorsed to provide that the insured legal description is the same as that shown on the survey.

9. Easements. Each Title Policy shall insure, as separate parcels: (a) all appurtenant easements and other estates benefiting the property, and (b) all other rights, title, and interests of the borrower in real property under reciprocal easement agreements, access agreements, operating agreements, and agreements containing covenants, conditions, and restrictions relating to the Project.

10. Exceptions to Coverage. With respect to the exceptions, the following applies:

a) Each Title Policy shall afford the broadest coverage available in the state in which the subject property is located.

b) The "standard" exceptions (such as for parties in possession or other matters not shown on public records) must be deleted.

c) The "standard" exception regarding tenants in possession under residential leases, should also be deleted. For commercial properties, a rent roll should be attached in lieu of the general exception.

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d) The standard survey exception to the Title Policy must be deleted. Instead, a survey reading reflecting the current survey should be incorporated.

e) Any exception for taxes, assessments, or other lienable items must expressly insure that such taxes, assessments, or other items are not yet due and payable.

f) Any lien, encumbrance, condition, restriction, or easement of record must be listed in the Title Policy, and the Title Policy must affirmatively insure that the improvements do not encroach upon the insured easements or insure against all loss or damage due to such encroachment.

g) The Title Policy may not contain any exception for any filed or unfiled mechanics' or materialmen's liens.

h) In the event that a comprehensive endorsement has been issued and any Schedule B exceptions continue to be excluded from the coverage provided through that endorsement, then a determination must be made whether such exceptions would be acceptable to Bank. In the event that it is determined that such exception is acceptable, a written explanation regarding the acceptability must be submitted as part of the delivery of the loan documents.

If Schedule B indicates the presence of any easements that are not located on the survey, the Title Policy must provide affirmative insurance against any loss resulting from the exercise by the holder of such easement of its right to use or maintain that easement. ALTA Form 103.1 or an equivalent endorsement is required for this purpose.

11. Endorsements. With respect to endorsements, the following applies:

a) Each Title Policy must include an acceptable environmental protection lien endorsement on ALTA Form 8.1. Please note that Form 8.1 may take exception for an entire statute which contains one or more specific sections under which environmental protection liens could take priority over the Mortgage; provided, however, that such specific sections under which the lien could arise must also be referenced.

b) Each Title Policy must contain an endorsement which provides that the insured legal description is the same as shown on the survey.

c) Each Title Policy must contain a comprehensive endorsement (ALTA Form 9) if a lien, encumbrance, condition, restriction, or easement is listed in Schedule B to the title insurance policy.

d) Lender may require a contiguity endorsement where applicable and available.

12. Other Coverages. Each Title Policy shall insure the following by endorsement or affirmative insurance to the extent such coverage is not afforded by the ALTA Form 9 or its equivalent in a particular jurisdiction:

a) that no conditions, covenants, or restrictions of record affecting the property:

(i) have been violated,

(ii) create lien rights which prime the insured mortgage,

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(iii) contain a right of reverter or forfeiture, a right of reentry, or power of termination, or

(iv) if violated in the future would result in the lien created by the insured mortgage or title to the property being lost, forfeited, or subordinated; and

b) that except for temporary interference resulting solely from maintenance, repair, replacement, or alteration of lines, facilities, or equipment located in easements and rights of way taken as certain exceptions to each Title Policy, such exceptions do not and shall not prevent the use and operation of the Project or the improvements as used and operated on the effective date of the Title Policy.

13. Informational Matters.  The Policy must include, as an informational note, the following:

a) The recorded plat number together with recording information; and

b) The property parcel number or the tax identification number, as applicable.

14. Delivery of Copies.  Legible copies of all easements, encumbrances, or other restrictions shown as exceptions on the Title Policy must be delivered with the first draft of the title commitment.

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EXHIBIT D

Form of Survey Certification

CERTIFICATION FOR SURVEYS

I hereby certify to Florida Community Bank, N.A., its successors and assigns, and CHP II Riverview FL Owner, LLC, CHP II Riverview FL Tenant, LLC and Fidelity Title Insurance Company that the survey prepared by me entitled "                    " was actually made upon the ground and that it and the information, courses and distances shown thereon are correct; that the title lines and lines of actual possession are the same; that the size, location and type of buildings and improvements are as shown and all are within the boundary lines of the property; that there are no violations of zoning ordinances, restrictions or other rules and regulations with reference to the location of said building and improvements; that there are no easements, encroachments or use affecting this property appearing from a careful physical inspection of the same, other than those shown and depicted thereon; that all utility services required for the operations of the premises either enter the premises through adjoining public streets, or the survey shows the point of entry and location of any utilities which pass through or are located on adjoining private land; that the survey shows the location and direction of all storm drainage systems for the collection and disposal of all roof and surface drainage; that any discharge into streams, rivers or other conveyance system is shown on the survey; and that the parcels described heron do not lie within flood hazard areas in accordance with the document entitled "Department of Housing and Urban Development, Federal Insurance Administration ‑ Special Flood Hazard Area Maps". This survey is made in accordance with the "Minimum Standard Detail Requirements for Land Title Surveys" jointly established and adopted by ALTA and ACSM in 1999 for Class A Urban Survey and includes items 1-4 and 6-17 of Table A.  Pursuant to the Accuracy Standards as adopted by ALTA, NSPS, and ACSM and in effect on the date of this certification, the undersigned further certifies that:  [Surveyor to complete with appropriate choice from Minimum Standard Detail Requirement]

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EXHIBIT E

Insurance Requirements

Borrower shall obtain and keep in full force and effect (or cause to be in full force and effect) either builder’s risk insurance (the “Builder’s Risk Insurance policy”) coverage or permanent All Perils insurance coverage as appropriate, satisfactory to Lender, on the Project.  All insurance policies shall be issued by carriers with a Best’s Insurance Reports policy holder’s rating of A- and a financial size category of Class VIII or better and shall include a standard mortgagee clause (without contribution) in favor of and acceptable to the Lender.  The policies shall provide for the following, and any other coverages that Lender may from time to time deem reasonably necessary:

a)Property Insurance, including boiler and machinery and/or equipment breakdown coverage to the building(s) and contents by risks commonly covered by an ISO Special Cause of Loss form or its equivalent. The amount of such insurance shall be not less than 100% of the full replacement cost of all Improvements located or to be located on the Land (excluding all resident’s personal property) without deduction for depreciation (less cost of land, excavations, foundations and footings below the lowest basement floor, blueprints or drawings or such other expenses that would not be re-incurred in the event of a loss).  If the policy is written on a CO-INSURANCE basis, the policy shall contain an AGREED AMOUNT ENDORSEMENT as evidence that the coverage is in an amount sufficient to insure the full amount of the mortgage indebtedness.  “Florida Community Bank, N.A. and its successors and assigns” shall be named as the “Mortgagee” and “Loss Payee”. During any period of construction on the Property, or any structural renovation or alteration to the improvements, Builder’s Risk or equivalent course of construction coverage shall be provided with a limit equivalent to the completed value of the project.

b)Commercial General Liability insurance on an occurrence form (ISO CG0001 or its equivalent) in a minimum amount not less than $1,000,000 per occurrence and $2,000,000 in the aggregate with a $5,000,000 excess liability or umbrella policy.  “Florida Community Bank, N.A. and its successors and assigns” shall be named as an “Additional Insured”.

c)Business Interruption (including loss of rents) in an amount sufficient to provide proceeds which will cover the “Actual Loss Sustained” during restoration of any portion of the Improvements for a period of not less than twelve (12) months plus an extended period of indemnity approved by Lender.

d)Flood insurance in a minimum amount available, if the premises are located in a Special Flood Hazard Area (“Flood Hazard Area”) as designated by the Federal Emergency Management Agency. Such coverage may be purchased through excess carriers if the required coverage exceeds the maximum insurance available under the National Flood Insurance Program.

e)Workers Compensation insurance as required by applicable state law.

f)Such other types and amounts of insurance with respect to the premises and the operation thereof which are commonly maintained in the case of other property and buildings similar to the premises in nature, use, location, height, and type of construction, as may from time to time be required by the mortgagee.

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Each policy shall provide that it may not be canceled or terminated without at least thirty (30) days prior written notice to Lender, except that only ten (10) days prior written notice to Lender shall be required if cancellation is due to non-payment of premiums.

 

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EX-10.3

EXHIBIT 10.3

THE PROPER FLORIDA DOCUMENTARY STAMP AND INTANGIBLE TAXES HAVE BEEN PAID ON THIS NOTE AND EVIDENCE OF SUCH PAYMENT APPEARS ON THE MORTGAGE, ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE FILING EXECUTED OF EVEN DATE HEREWITH AND CURRENTLY BEING RECORDED IN THE PUBLIC RECORDS OF HILLSBOROUGH COUNTY, FLORIDA.

PROMISSORY NOTE

U.S. $5,000,000.00 August 31, 2018

FOR VALUE RECEIVED, CHP II RIVERVIEW FL OWNER, LLC, a Delaware limited liability company and CHP II RIVERVIEW FL TENANT, LLC, a Delaware limited liability company (jointly and severally, individually, each and/or together, “Borrower”), both having an address at 450 South Orange Avenue, Orlando, Florida 32801, hereby promises to pay to the order of FLORIDA COMMUNITY BANK, N.A., a national banking association (“Lender”), having an address at 369 N. New York Avenue, Winter Park, Florida 32789, the principal sum of $5,000,000.00 or so much thereof as may be advanced from time to time, and interest from the date hereof on the balance of principal from time to time outstanding, in United States currency, at the rates and at the times hereinafter described.

This Note is issued by Borrower pursuant to a Loan Agreement executed of even date herewith between Lender and Borrower (the “Loan Agreement”).  This Note evidences the Loan (as defined in the Loan Agreement).  Capitalized terms used and not otherwise defined herein shall have the meanings given to them in the Loan Agreement.

1.Interest.  Interest shall be charged on the outstanding principal balance of this Note at a rate equal to 1-month LIBOR plus the Libor Margin (as hereinafter defined) (the “LIBOR-Based Rate”), as determined by Lender prior to the commencement of each Interest Period (as hereinafter defined) and adjusted monthly on each Payment Date (as hereinafter defined).  Interest shall be calculated daily on the basis of the actual number of days elapsed over a 360 day year.

“Interest Period” means, initially, the period commencing on (and including) the date hereof and ending on (but excluding) the first Payment Date, and thereafter, each period commencing on (and including) the last day of the immediately preceding Interest Period and ending on (but excluding) the next Payment Date, provided, (i) any Interest Period that would otherwise end on (but exclude) a day which is not a New York business day shall be extended to the next succeeding New York business day, unless such extension would carry such Interest Period into the next month, in which event such Interest Period shall end on (but exclude) the preceding New York business day; (ii) any Interest Period that ends in a month for which there is no day which numerically corresponds to the Payment Date shall end on (but exclude) the last New York business day of such month; and (iii) any Interest Period that would otherwise extend past the Maturity Date (as hereinafter defined) shall end on (but exclude) the Maturity Date.

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“LIBOR” means, with respect to each day during each Interest Period, the rate for U.S. dollar deposits of that many months maturity as reported on Reuters Screen LIBOR01 Page (or the successor thereto), as of 11:00 a.m., London time, on the second London business day before the relevant Interest Period begins (or if not so reported, then as reasonably determined by the Lender from another recognized source or interbank quotation).

“Libor Margin” shall mean 2.25%.

Throughout the term of this Note, Borrower will have the option to hedge the floating LIBOR-Based Rate interest expense by entering into an interest rate swap agreement (“Interest Rate Hedge”) with Lender or another counterparty acceptable to Lender.  The Lender is willing to provide this Interest Rate Hedge to Borrower upon mutually agreeable terms.  The actual fixed rate applicable to such Interest Rate Hedge is subject to market conditions at the time of the Interest Rate Hedge is consummated.  Any Interest Rate Hedge with the Lender will be governed by an ISDA Master Agreement and will be secured by the Mortgage and guaranteed by the Guarantor.

In the event LIBOR ceases to exist or becomes unavailable during the term of this Loan, Lender may designate a substitute index and modify the LIBOR Margin above or below the newly designated index to equate to the interest rate in effect pursuant to this Note, immediately prior to such newly designated interest rate taking effect, and such LIBOR Margin shall remain in effect over and above the newly designated index throughout the life of the loan.  Lender shall notify Borrower of any change in the index and the applicable LIBOR Margin prior to the modification.

From and after the Maturity Date or from and during the continuance of an Event of Default hereunder, irrespective of any declaration of maturity, all amounts remaining unpaid or thereafter accruing hereunder, shall, at Lender’s option, bear interest at a default rate of ten percent (10%) per annum above the interest rate then in effect as set forth herein (the “Default Rate”), or the highest permissible rate under applicable usury law, whichever is less.  Such default rate of interest shall be payable upon demand, but in no event later than when scheduled interest payments are due, and shall also be charged on the amounts owed by Borrower to Lender pursuant to any judgments entered in favor of Lender with respect to this Note.

2.Monthly Payments.  Interest only on the outstanding principal balance shall be due and payable monthly in arrears commencing on September 15, 2018 and continuing on the fifteenth (15^th) day of each month thereafter (each, a “Payment Date”) through the Payment Date occurring on September 15, 2020 (the “I/O Expiration Date”).  Commencing on the Payment Date occurring October 15, 2020, and continuing on each Payment Date thereafter, equal monthly installments of principal plus accrued interest shall be due and payable, whereby the monthly principal payment shall be calculated by Lender as the average of the first 36 months of principal payments derived from a mortgage style amortization of the outstanding principal balance of this Note as of the I/O Expiration Date, amortized over a 360 month period at an assumed interest rate of 5.50% (the “Monthly Principal Payment”).  Additionally, should Borrower request and receive the Additional Advance (as set forth under Section 4.1(c) of the Loan Agreement) after the I/O Expiration Date, then Lender will recalculate the Monthly Principal Payment as the average of the principal payments for all months between the date of the disbursement of the Additional Advance and the Maturity Date (as defined below), derived from a mortgage style amortization of the outstanding principal balance of this Note as increased by the Additional Advance, amortized over a 360 month period less the number of full months between the I/O Expiration Date and the date

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of the disbursement of the Additional Advance, at an assumed interest rate of 5.50%, with the increased Monthly Principal Payment plus accrued interest due the 15^th of the next month following disbursement of the Additional Advance.  Notwithstanding anything contained herein to the contrary, the entire principal balance of this Note then unpaid, together with all accrued and unpaid interest and all other amounts payable hereunder and under the other Loan Documents (as hereinafter defined), shall be due and payable in full on August 31, 2023 (the “Maturity Date”).

Borrower shall enroll in the Lender’s auto pay program, and all periodic payments of principal and interest (during the any extension periods as well as the initial term) shall be made by direct charge to Borrower.

3.Tender and Application of Payments; Dishonored Payment Fee.  All payments on this Note are payable on or before 2:00 p.m. on the due date thereof, at the office of Lender specified above and shall be credited on the date the funds become available lawful money of the United States.  All sums payable to Lender which are due on a day on which Lender is not open for business shall be paid on the next succeeding business day and such extended time shall be included in the computation of interest.  Except as otherwise specified herein, each payment or prepayment, if any, made under this Note shall be applied to pay late charges, accrued and unpaid interest, principal, escrows (if any), and any other outstanding fees, costs and expenses which Borrower is obligated to pay under this Note, in such order as Lender may elect from time to time in its sole discretion.

In the event any payment due hereunder is dishonored for any reason, in addition to the amount of the payment dishonored, Borrower shall pay a fee to Lender in the amount of $31.00, which fee shall be due and payable within five (5) days from receipt by the Borrower of notice from the Lender that the payment has been dishonored.

4.Late Charge.  In the event that any installment of principal or interest (other than the final payment due on the Maturity Date) required to be made by Borrower under this Note shall not be received by Lender within ten (10) days afterits due date, Borrower shall pay to Lender, on demand, a late charge of five percent (5%) of such delinquent payment.  The foregoing right is in addition to, and not in limitation of, any other rights which Lender may have upon Borrower’s failure to make timely payment of any amount due hereunder.

5.Prepayment.  The principal amount of this Note may be prepaid in whole or in part at any time, and from time to time, without premium or penalty.  Any prepayment shall include accrued and unpaid interest to the date of prepayment on the principal amount prepaid and all other sums due and payable hereunder.

6.Security for this Note.  This Note is executed and delivered in accordance with a commercial transaction described herein.  As security for the payment of the monies owing under this Note, Borrower has delivered or has caused to be delivered to Lender the following (each a “Loan Document” and collectively with this Note, the Loan Agreement, and any other guaranty, document, certificate or instrument executed by Borrower or any other obligated party in connection with the Loan, together with all amendments, modifications, renewals or extensions thereof, the “Loan Documents”): (a) a Mortgage, Assignment of Rents, Security Agreement and Fixture Filing executed of even date herewith by Borrower in favor of Lender (the “Mortgage”) on certain real property and the improvements situated thereon in Hillsborough County, Florida,

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as more fully described in the Mortgage (the“Property”); (b) a Collateral Assignment of Leases and Rents (the “Assignment of Leases”) assigning all of the assignors’ rights as lessors under all leases affecting the Property; and (c) a Payment Guaranty executed of even date herewith by CNL HEALTHCARE PROPERTIES II, INC., a Maryland corporation (the “Guarantor”), in favor of Lender (the “Guaranty”).

7.Events of Default.  Each of the following shall constitute an event of default hereunder (an “Event of Default”):  (a) the failure of Borrower to pay the final payment of principal and interest due on the Maturity Date; or (b) the failure of Borrower to pay any amount of principal or interest hereunder (other than the final payment due on the Maturity Date) within ten (10) days after the date when due and payable; or (c) the occurrence of any other default in any term, covenant or condition hereunder which is not cured within any applicable notice and cure period, or any Event of Default under the Mortgage or any other Loan Document.  If an Event of Default exists and remains uncured, Lender may exercise any right, power or remedy permitted by law or as set forth herein or in the Mortgage or any other Loan Document including, without limitation, the right to declare the entire unpaid principal amount hereof and all interest accrued hereon, and all other sums secured by the Mortgage or any other Loan Document, to be, and such principal, interest and other sums shall thereupon become, immediately due and payable.

8.General Provisions.

(a)Borrower agrees that the obligation evidenced by this Note is an exempt transaction under the Truth‑in‑Lending Act, 15 U.S.C. § 1601, et seq.

(b)The parties hereto intend and believe that each provision in this Note comports with all applicable local, state and federal laws and judicial decisions.  However, if any provision or provisions, or if any portion of any provision or provisions, in this Note is found by a court of law to be in violation of any applicable local, state or federal ordinance, statute, law, administrative or judicial decision, or public policy, and if such court should declare such portion, provision or provisions of this Note to be illegal, invalid, unlawful, void or unenforceable as written, then it is the intent of all parties hereto that such portion, provision or provisions shall be given force to the fullest possible extent that they are legal, valid and enforceable, that the remainder of this Note shall be construed as if such illegal, invalid, unlawful, void or unenforceable portion, provision or provisions were not contained therein, and that the rights, obligations and interest of Borrower and the holder or holders hereof under the remainder of this Note shall continue in full force and effect.  All agreements herein are expressly limited so that in no contingency or event whatsoever, whether by reason of advancement of the proceeds hereof, acceleration of maturity of the unpaid principal balance hereof, or otherwise, shall the amount paid or agreed to be paid to the holders hereof for the use, forbearance or detention of the money to be advanced hereunder exceed the highest lawful rate permissible under applicable usury laws.  If, from any circumstances whatsoever, the fulfillment of any provision hereof, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law which a court of competent jurisdiction may deem applicable hereto, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity and if from any circumstance the holder hereof shall ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the unpaid principal balance due hereunder and not to the payment of interest.

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(c)This Note and all provisions hereof shall be binding upon Borrower and all persons claiming under or through Borrower, and shall inure to the benefit of Lender, together with its successors and assigns, including each owner and holder from time to time of this Note.

(d)Time is of the essence as to all dates set forth herein.

(e)Borrower agrees that its liability shall not be in any manner affected by any indulgence, extension of time, renewal, waiver, or modification granted or consented to by Lender; and Borrower consents to any indulgences and all extensions of time, renewals, waivers, or modifications that may be granted by Lender with respect to the payment or other provisions of this Note, and to any substitution, exchange or release of the collateral, or any part thereof, with or without substitution, and agrees to the addition or release of any makers, endorsers, guarantors, or sureties, all whether primarily or secondarily liable, without notice to Borrower and without affecting its liability hereunder.

(f)Borrower hereby waives and renounces for itself, its successors and assigns, all rights to the benefits of any statute of limitations and any moratorium, reinstatement, marshalling, forbearance, valuation, stay, extension, redemption, appraisement, or exemption and homestead laws now provided, or which may hereafter be provided, by the laws of the United States and of any state thereof against the enforcement and collection of the obligations evidenced by this Note.

(g)If this Note is placed in the hands of attorneys for collection or is collected through any legal proceedings, Borrower promises and agrees to pay, in addition to the principal, interest and other sums due and payable hereon, all reasonable costs of collecting or attempting to collect this Note, including attorneys’ fees and disbursements.

(h)All parties now or hereafter liable with respect to this Note, whether Borrower, principal, surety, guarantor, endorsee or otherwise hereby severally waive presentment for payment, demand, notice of nonpayment or dishonor, protest and notice of protest.  No failure to accelerate the indebtedness evidenced hereby, acceptance of a past due installment following the expiration of any cure period provided by this Note, any Loan Document or applicable law, or indulgences granted from time to time shall be construed (i) as a novation of this Note or as a reinstatement of the indebtedness evidenced hereby or as a waiver of such right of acceleration or of the right of Lender thereafter to insist upon strict compliance with the terms of this Note, or (ii) to prevent the exercise of such right of acceleration or any other right granted hereunder or by the laws of the State.  Borrower hereby expressly waives the benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the foregoing.

(i)This Note shall be governed by, and construed in accordance with, the laws of the State of Florida and any applicable laws of the United States of America.

(j)BORROWER AND LENDER AGREE THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY SUIT, ACTION OR PROCEEDING, WHETHER CLAIM OR COUNTERCLAIM, BROUGHT BY LENDER OR BORROWER, ON OR WITH RESPECT TO THIS NOTE OR THE DEALINGS OF THE PARTIES WITH RESPECT HERETO, SHALL BE TRIED ONLY BY A COURT AND NOT BY A JURY.  LENDER AND

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BORROWER EACH HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND INTELLIGENTLY AND WITH THE ADVICE OF THEIR RESPECTIVE COUNSEL, WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING.  FURTHER, BORROWER WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER, IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY SPECIAL, EXEMPLARY, PUNITIVE, CONSEQUENTIAL OR OTHER DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES.  BORROWER ACKNOWLEDGES AND AGREES THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS NOTE AND THAT LENDER WOULD NOT EXTEND CREDIT TO BORROWER IF THE WAIVERS SET FORTH IN THIS SECTION WERE NOT A PART OF THIS NOTE.

(k)If more than one person or entity executes this Promissory Note, such persons or entities shall be jointly and severally liable hereunder.

[Signature page to follow]

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IN WITNESS WHEREOF, Borrower has executed and delivered this Promissory Note as of the day and year first set forth above.

BORROWER:

CHP II RIVERVIEW FL OWNER, LLC,

a Delaware limited liability company

By: /s/ Brett S. Bryant

Name:  Brett S. Bryant

Its: Vice President

CHP II RIVERVIEW FL TENANT, LLC,

a Delaware limited liability company

By: /s/ Brett S. Bryant

Name:  Brett S. Bryant

Its: Vice President

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STATE OF FLORIDA

COUNTY OF ORANGE

The foregoing instrument was acknowledged before me this 27th day of August, 2018, by Brett S. Bryant, as Vice President of CHP II RIVERVIEW FL OWNER, LLC, a Delaware limited liability company, on behalf of the company.

/s/ Cathleen A. Coffey

Signature of Notary Public

Cathleen A. Coffey

(Print Notary Name)

AFFIX NOTARY STAMP

My Commission Expires: 9/24/2021

Commission No.: GG 138618

☒ Personally known, or

☐ Produced Identification

Type of Identification Produced:

STATE OF FLORIDA

COUNTY OF ORANGE

The foregoing instrument was acknowledged before me this 27th day of August, 2018, by Brett S. Bryant, as Vice President of CHP II RIVERVIEW FL TENANT, LLC, a Delaware limited liability company, on behalf of the company.

/s/ Cathleen A. Coffey

Signature of Notary Public

Cathleen A. Coffey

(Print Notary Name)

AFFIX NOTARY STAMP

My Commission Expires: 9/24/2021

Commission No.: GG 138618

☒ Personally known, or

☐ Produced Identification

Type of Identification Produced:

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EX-10.4

EXHIBIT 10.4

PAYMENT GUARANTY

This PAYMENT GUARANTY (“Guaranty”) is executed as of August 31, 2018 by CNL HEALTHCARE PROPERTIES II, INC., a Maryland corporation (the “Guarantor”), to and for the benefit of FLORIDA COMMUNITY BANK, N.A., a national banking association (“Lender”), its successors and assigns.

R E C I T A L S

A.On or about the date hereof, CHP II Riverview FL Owner, LLC, a Delaware limited liability company and CHP II Riverview FL Tenant, LLC, a Delaware limited liability company (individually and together, the“Borrower”) and Lender entered into that certain Loan Agreement (together with all amendments, modifications, renewals or extensions thereof, “Loan Agreement”) whereby Lender agreed to make a secured loan (the “Loan”) available to Borrower in the principal amount of $5,000,000.00, to finance the purchase of The Crossings at Riverview 8471 US-301, Riverview, Florida 33578, 92-unit Senior Housing Project in Riverview, Hillsborough, County, Florida (the “Property” or the “Project”).  Initially capitalized terms used and not otherwise defined herein shall have the meanings respectively ascribed to them in the Loan Agreement.

B.In connection with the Loan, Borrower has of even date herewith executed and delivered a Promissory Note in favor of Lender in the amount of the Loan (together with all amendments, modifications, renewals or extensions thereof, the “Note”), payment of which is secured by (i) a Mortgage, Assignment of Rents, Security Agreement and Fixture Filing executed of even date herewith by Borrower in favor of Lender (together with all amendments, modifications, renewals or extensions thereof, the “Mortgage”), encumbering the Property, and (ii) other documents executed by Borrower in connection with the Loan (together with all amendments, modifications, renewals or extensions thereof, the “Loan Documents”).

C.Guarantor will derive material financial benefit from the Loan evidenced and secured by the Note, the Mortgage and the other Loan Documents.

D.Lender has relied on the statements and agreements contained herein in agreeing to make the Loan.  The execution and delivery of this Guaranty by Guarantor is a condition precedent to the making of the Loan by Lender.

AGREEMENTS

NOW, THEREFORE, intending to be legally bound, Guarantor, in consideration of the matters described in the foregoing Recitals, which Recitals are incorporated herein and made a part hereof, and for other good and valuable consideration the receipt and sufficiency of which are acknowledged, hereby covenants and agrees for the benefit of Lender and its respective successors, endorsees, transferees, participants and assigns as follows:

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1.Guarantor absolutely, unconditionally and irrevocably guarantees:

(a) the full and prompt payment of the principal of and interest on the Note when due, whether at stated maturity, upon acceleration or otherwise, and at all times thereafter, and the full and prompt payment of all sums which may now be or may hereafter become due and owing under the Note, the Loan Agreement and the other Loan Documents;

(b) the prompt, full and complete performance of all of Borrower’s obligations under each and every covenant contained in the Loan Documents;

(c) payment and performance of all obligations of Borrower arising from any Interest Rate Agreements.  “Interest Rate Agreements” shall mean an interest rate hedging program through the purchase by Borrower from Lender of an interest rate swap, cap, or such other interest rate protection product with respect to the Note; and

(d) the full and prompt payment of any Enforcement Costs (as hereinafter defined in Section 7 hereof).

All amounts due, debts, liabilities and payment obligations described in subsections (a) and (b) above of this Section 1 shall be hereinafter collectively referred to as the “Indebtedness.”  This Guaranty covers the Indebtedness, whether presently outstanding or arising subsequent to the date hereof, including all amounts advanced by Lender in stages or installments.  The guaranty of Guarantor as set forth in this Section 1 is a continuing guaranty of payment of the obligations guaranteed hereby and not merely a guaranty of collection.

However, the foregoing obligations of Guarantor shall not exceed the Reduced Principal Guaranteed Amount (as defined below) (without giving effect to any payments made by or on behalf of Borrower, other than payments made by or on behalf of Guarantor, or to the proceeds of any collateral securing the Note).  The “Reduced Principal Guaranteed Amount” shall initially mean 25% of the outstanding Indebtedness; provided, however that upon full satisfaction of the Payment Guaranty Release Conditions (as defined below) the “Reduced Principal Guaranteed Amount” shall be reduced to zero ($0.00).  The “Payment Guaranty Release Conditions” shall mean, (i) Borrower shall have submitted financial statements for three consecutive full calendar months showing that Borrower achieved a Debt Service Coverage Ratio of 1.25:1.00 for such three month period on an annualized basis, (ii) at the time of such submission, no Event of Default, or matter that would constitute an Event of Default but for the passage of time and/or the giving of notice, exists under the Loan Documents, (iii) Lender has disbursed the Additional Advance (as defined under Section 4.1(c) of the Loan Agreement) or Borrower has affirmatively and irrevocably waived in writing, its option or right to disbursement of the Additional Advance, and (iv) Borrower shall have received the Operator’s License as set forth under Article XVII  of the Loan Agreement.

Notwithstanding the limitation contained in the preceding paragraph, Guarantor also hereby unconditionally and irrevocably guarantees payment of, and agrees to protect, defend, indemnify and hold harmless Lender for, from and against, any and all losses, actual damages or liability suffered or incurred by, imposed on or awarded against Lender as a result of (and the Reduced Principal Guaranteed Amount shall not apply to the extent of):

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(a) Rents or other income, issues, profits, and revenues derived from the Project during the continuance of an Event of Default, which are (i) not applied to ordinary and necessary operating expenses of the Project or (ii) paid to the Lender; or

(b) The failure (i) to pay, apply or return any security deposit or other refundable deposit to tenants when due as provided in the applicable Lease or other instrument, or (ii) to deliver any security deposit or other refundable deposit to the Lender or as designated by Lender, or to any receiver or any person or entity purchasing the Project upon a foreclosure of the Project or deed in lieu of foreclosure; or

(c) Fraud or material misrepresentation by Borrower or Guarantor, or any member, partner, or direct or indirect constituent of Borrower or Guarantor (Borrower or any of the foregoing, a “Liable Party”); or

(d) Any (i) proceeds paid under any insurance policies by reason of damage, loss or destruction to any portion of the Project, or (ii) proceeds or awards resulting from the condemnation or other taking in lieu of condemnation of any portion of the Project, which proceeds or awards are received and retained or applied by any Liable Party in violation of the terms of the Loan Documents; or

(e) the gross negligence or willful misconduct of Borrower or Guarantor; or

(f) The occurrence of physical waste to the Project as a result of intentional or fraudulent acts or omissions of any Liable Party and all reasonable costs incurred by Lender in order to protect the Project, or the removal of any portion of the Project in violation of the terms of the Loan Documents; or

(g) Failure to maintain insurance coverages for the Project required by the Loan Documents, including the failure to pay the premiums for the required insurance policies; notwithstanding the foregoing, the liability of Guarantor for Borrower’s failure to pay insurance premiums shall be limited and not apply to the extent that cash flow from the Project during the previous 12-month period (after applying such income to the operating expenses of the Project which are then due and payable) is insufficient to pay such insurance premiums; or

(h) Failure to pay any valid real estate taxes, assessments, construction liens or other obligations which create liens on any portion of the Project, to the full extent of the amount claimed by any such lien claimant; notwithstanding the foregoing, the liability of Guarantor for Borrower’s failure to pay such taxes, assessments, mechanic’s liens, materialmen’s liens or other obligations shall be limited and not apply to the extent that cash flow from the Project during the previous 12-month period (after applying such income to the operating expenses of the Project which are then due and payable) is insufficient to pay such real estate taxes, assessments, construction liens or other obligations; or

(i) Any modification by Borrower or Guarantor, or any of their respective members, managers or partners, of the organizational documents of Borrower in violation of the Loan Documents; or

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(j) Any loss of the Project due to forfeiture thereof or of any portion thereof or interest therein as a result of any criminal or quasi-criminal activity by any Liable Party (or any person so related to a Liable Party or the Project that the Project or any portion thereof or any interest therein might be forfeited on account of the activity of such person), to the full extent of diminution in the net realizable value of the Project encumbered by the Loan Documents; or

(k) Any enforcement of Lender’s rights or remedies under the Loan Documents, or in connection with any litigation relating to the Loan Documents wherein, in either such case, Borrower or any other Liable Party (i) willfully or in bad faith interferes with, hinders or delays the exercise of Lender’s remedies, or (ii) contests the validity or enforceability of any Loan Document, as a whole.

Notwithstanding anything contained herein, upon the occurrence of any one or more of the following events listed in subsections (h) through (n) below of this Section 1, the Reduced Guaranteed Amount shall not apply, and the Guarantor’s obligations shall be for one-hundred percent (100%) of the Indebtedness plus interest from the date the same is due by the Guarantor hereunder until paid in full at the Default Rate, together with all costs, expenses and reasonable attorneys’ fees incurred by Lender:

(a) Borrower fails to obtain Lender’s prior consent to any subordinate financing or other voluntary lien encumbering all or any portion of the Property in violation of the Loan Documents;

(b) Borrower fails to obtain Lender’s prior consent to any Transfer as required by the Mortgage or the Loan Agreement;

(c) Borrower files a voluntary petition under the Bankruptcy code or any other Federal or state bankruptcy or insolvency law;

(d) Guarantor files, or joins in the filing of, an involuntary petition against Borrower under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law, or solicits or causes to be solicited petitioning creditors for any involuntary petition against Borrower from any person;

(e) Borrower files an answer consenting to or otherwise affirmatively soliciting or joining in any involuntary petition filed against it, by any other person (other than Lender or Lenders) under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law, or solicits or causes to be solicited petitioning creditors for any involuntary petition from any person (other than Lender);

(f) Guarantor consents to or affirmatively soliciting or joins in an application for the appointment of a custodian, receiver, trustee, or examiner for Borrower or any portion of the Property, except any consent to or solicitation of or joinder in any of the foregoing in support of a motion or other action by Lender or otherwise at the request or with the consent of Lender; or

(g) Borrower makes an assignment for the benefit of creditors, or admits, in any legal proceeding, its insolvency or inability to pay its debts as they become due.

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Notwithstanding anything to the contrary in any of the Loan Documents, Lender shall not be deemed to have waived any right which Lender may have under Section 506(a), 506(b), 1111(b) or any other provisions of the Bankruptcy Code to file a claim for the full amount of the Loan or to require that all collateral shall continue to secure all of the Loan owing to Lender in accordance with the Loan Documents.

2.In the event of any default by Borrower in the payment of the Indebtedness, after the expiration of any applicable cure or grace period, Guarantor agrees, within ten (10) days following demand by Lender or the holder of the Note, to pay the Indebtedness (subject to applicable limitations set forth in this Guaranty) regardless of any defense, right of set-off or claims which Borrower or Guarantor may have against Lender or the holder of the Note.

All of the remedies set forth herein and/or provided for in any of the Loan Documents or at law or equity shall be equally available to Lender, and the choice by Lender of one such alternative over another shall not be subject to question or challenge by Guarantor or any other person, nor shall any such choice be asserted as a defense, setoff, or failure to mitigate damages in any action, proceeding, or counteraction by Lender to recover or seeking any other remedy under this Guaranty, nor shall such choice preclude Lender from subsequently electing to exercise a different remedy.  The parties have agreed to the alternative remedies provided herein in part because they recognize that the choice of remedies in the event of a default hereunder will necessarily be and should properly be a matter of good faith business judgment, which the passage of time and events may or may not prove to have been the best choice to maximize recovery by Lender at the lowest cost to Borrower and/or Guarantor.  It is the intention of the parties that such good faith choice by Lender be given conclusive effect regardless of such subsequent developments.

3.Guarantor does hereby (a) waive notice of acceptance of this Guaranty by Lender and any and all notices and demands of every kind which may be required to be given by any statute, rule or law, (b) agree to refrain from asserting, until after repayment in full of the Loan, any defense, right of set-off or other claim which Guarantor may have against Borrower (c) waive any defense, right of set-off or other claim which Guarantor or Borrower may have against Lender, or the holder of the Note, (d) waive any and all rights Guarantor may have under any anti-deficiency statute or other similar protections, (e) waive presentment for payment, demand for payment, notice of nonpayment or dishonor, protest and notice of protest, diligence in collection and any and all formalities which otherwise might be legally required to charge Guarantor with liability, and (f) waive any failure by Lender to inform Guarantor of any facts Lender may now or hereafter know about Borrower, the Project, the Loan, or the transactions contemplated by the Loan Agreement, it being understood and agreed that Lender has no duty so to inform and that Guarantor is fully responsible for being and remaining informed by Borrower of all circumstances bearing on the risk of nonperformance of Borrower’s obligations.  Credit may be granted or continued from time to time by Lender to Borrower without notice to or authorization from Guarantor, regardless of the financial or other condition of Borrower at the time of any such grant or continuation.  Lender shall have no obligation to disclose or discuss with Guarantor its assessment of the financial condition of Borrower.  Guarantor acknowledges that no representations of any kind whatsoever have been made by Lender.  No modification or waiver of any of the provisions of this Guaranty shall be binding upon Lender except as expressly set forth in a writing duly signed and delivered by Lender.

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4.Guarantor further agrees that Guarantor’s liability as guarantor shall not be impaired or affected by any renewals or extensions which may be made from time to time, with or without the knowledge or consent of Guarantor of the time for payment of interest or principal under the Note or by any forbearance or delay in collecting interest or principal under the Note, or by any waiver by Lender under the Loan Agreement, Mortgage or any other Loan Documents, or by Lender’s failure or election not to pursue any other remedies it may have against Borrower or Guarantor, or by any change or modification in the Note, Loan Agreement, Mortgage or any other Loan Document, or by the acceptance by Lender of any additional security or any increase, substitution or change therein, or by the release by Lender of any security or any withdrawal thereof or decrease therein, or by the application of payments received from any source to the payment of any obligation other than the Indebtedness even though Lender might lawfully have elected to apply such payments to any part or all of the Indebtedness, it being the intent hereof that, subject to Lender’s compliance with the terms of this Guaranty, Guarantor shall remain liable for the payment of the Indebtedness (subject to the limitations contained in Section 1, above), until the Indebtedness has been paid in full, notwithstanding any act or thing which might otherwise operate as a legal or equitable discharge of a surety.  Guarantor further understands and agrees that Lender may at any time enter into agreements with Borrower to amend and modify the Note, Loan Agreement, Mortgage or other Loan Documents, and may waive or release any provision or provisions of the Note, Loan Agreement, Mortgage and other Loan Documents or any thereof, and, with reference to such instruments, may make and enter into any such agreement or agreements as Lender and Borrower may deem proper and desirable, without in any manner impairing or affecting this Guaranty or any of Lender’s rights hereunder or Guarantor’s obligations hereunder.

5.This is an absolute, present and continuing guaranty of payment and not of collection.  Guarantor agrees that this Guaranty may be enforced by Lender without the necessity at any time of resorting to or exhausting any other security or collateral given in connection herewith or with the Note, Loan Agreement, Mortgage or any of the other Loan Documents through foreclosure or sale proceedings, as the case may be, under the Mortgage or otherwise, or resorting to any other guaranties, and Guarantor hereby waives any right to require Lender to join Borrower in any action brought hereunder or to commence any action against or obtain any judgment against Borrower or to pursue any other remedy or enforce any other right.  Guarantor further agrees that nothing contained herein or otherwise shall prevent Lender from pursuing concurrently or successively all rights and remedies available to it at law and/or in equity or under the Note, Loan Agreement, Mortgage or any other Loan Documents, and the exercise of any of its rights or the completion of any of its remedies shall not constitute a discharge of Guarantor’s obligations hereunder, it being the purpose and intent of Guarantor that the obligations of Guarantor hereunder shall be absolute, independent and unconditional under any and all circumstances whatsoever.  None of Guarantor’s obligations under this Guaranty or any remedy for the enforcement thereof shall be impaired, modified, changed or released in any manner whatsoever by any impairment, modification, change, release or limitation of the liability of Borrower under the Note, Loan Agreement, Mortgage or other Loan Documents or by reason of the bankruptcy of Borrower or by reason of any creditor or bankruptcy proceeding instituted by or against Borrower.  This Guaranty shall continue to be effective or be reinstated (as the case may be) if at any time payment of all or any part of any sum payable pursuant to the Note, Loan Agreement, Mortgage or any other Loan Document is rescinded or otherwise required to be returned by Lender upon the insolvency, bankruptcy, dissolution, liquidation, or reorganization of

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Borrower, or upon or as a result of the appointment of a receiver, intervenor, custodian or conservator of or trustee or similar officer for, Borrower or any substantial part of its property, or otherwise, all as though such payment to Lender had not been made, regardless of whether Lender contested the order requiring the return of such payment.  In the event of the foreclosure of the Mortgage and of a deficiency, Guarantor hereby promises and agrees forthwith to pay the amount of such deficiency notwithstanding the fact that recovery of said deficiency against Borrower would not be allowed by applicable law; however, the foregoing shall not be deemed to require that Lender institute foreclosure proceedings or otherwise resort to or exhaust any other collateral or security prior to or concurrently with enforcing this Guaranty.

6.In the event Lender or any holder of the Note shall assign the Note to any Lender or other entity to secure a loan from such Lender or other entity to Lender or such holder for an amount not in excess of the amount which will be due, from time to time, from Borrower to Lender under the Note with interest not in excess of the rate of interest which is payable by Borrower to Lender under the Note, Guarantor will accord full recognition thereto and agree that all rights and remedies of Lender or such holder hereunder shall be enforceable against Guarantor by such Lender or other entity with the same force and effect and to the same extent as would have been enforceable by Lender or such holder but for such assignment; provided, however, that unless Lender shall otherwise consent in writing, Lender shall have an unimpaired right, prior and superior to that of its assignee or transferee, to enforce this Guaranty for Lender’s benefit to the extent any portion of the Indebtedness or any interest therein is not assigned or transferred.

7.If:  (a) this Guaranty is placed in the hands of an attorney for collection or is collected through any legal proceeding; (b) an attorney is retained to represent Lender in any bankruptcy, reorganization, receivership, or other proceedings affecting creditors’ rights and involving a claim under this Guaranty; (c) an attorney is retained to provide advice or other representation with respect to this Guaranty at any time when a default or Event of Default exists under any of the Loan Documents; or (d) an attorney is retained to represent Lender in any proceedings whatsoever in connection with this Guaranty and Lender prevails in any such proceedings, then Guarantor shall pay to Lender upon demand all attorney’s fees, costs and expenses incurred in connection therewith (all of which are referred to herein as “Enforcement Costs”), in addition to all other amounts due hereunder, regardless of whether all or a portion of such Enforcement Costs are incurred in a single proceeding brought to enforce this Guaranty as well as the other Loan Documents.

8.The parties hereto intend and believe that each provision in this Guaranty comports with all applicable local, state and federal laws and judicial decisions.  However, if any provision or provisions, or if any portion of any provision or provisions, in this Guaranty is found by a court of law to be in violation of any applicable local, state or federal ordinance, statute, law, administrative or judicial decision, or public policy, and if such court should declare such portion, provision or provisions of this Guaranty to be illegal, invalid, unlawful, void or unenforceable as written, then it is the intent of all parties hereto that such portion, provision or provisions shall be given force to the fullest possible extent that they are legal, valid and enforceable, that the remainder of this Guaranty shall be construed as if such illegal, invalid, unlawful, void or unenforceable portion, provision or provisions were not contained therein, and that the rights, obligations and interest of Lender or the holder of the Note under the remainder of this Guaranty shall continue in full force and effect.

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9.TO THE GREATEST EXTENT PERMITTED BY LAW, GUARANTOR HEREBY WAIVES ANY AND ALL RIGHTS TO REQUIRE MARSHALLING OF ASSETS BY LENDER.  WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDINGS RELATING TO THIS GUARANTY (EACH, A “PROCEEDING”), LENDER AND GUARANTOR IRREVOCABLY (A) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS HAVING JURISDICTION IN HILLSBOROUGH COUNTY AND THE STATE OF FLORIDA, AND (B) WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY PROCEEDING BROUGHT IN ANY SUCH COURT, WAIVES ANY CLAIM THAT ANY PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO SUCH PROCEEDING, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY.  NOTHING IN THIS GUARANTY SHALL PRECLUDE LENDER FROM BRINGING A PROCEEDING IN ANY OTHER JURISDICTION NOR WILL THE BRINGING OF A PROCEEDING IN ANY ONE OR MORE JURISDICTIONS PRECLUDE THE BRINGING OF A PROCEEDING IN ANY OTHER JURISDICTION.

10.Any indebtedness of Borrower to Guarantor now or hereafter existing is hereby subordinated to the payment of the Indebtedness.  Guarantor agrees that, until the entire Indebtedness has been paid in full, Guarantor will not seek, accept, or retain for its own account, any payment from Borrower on account of such subordinated debt.  Any payments to Guarantor on account of such subordinated debt shall be collected and received by Guarantor in trust for Lender and shall be paid over to Lender on account of the Indebtedness without impairing or releasing the obligations of Guarantor hereunder.

11.Any amounts received by Lender from any source on account of the Loan may be utilized by Lender for the payment of the Indebtedness and any other obligations of Borrower to Lender in such order as Lender may from time to time elect.  Additionally, if the indebtedness guaranteed hereby is less than the full indebtedness evidenced by the Note, all rents, proceeds and avails of the Property, including proceeds of realization of Lender’s collateral, shall be deemed applied on the indebtedness of Borrower to Lender that is not guaranteed by Guarantor until such unguaranteed indebtedness of Borrower to Lender has been fully repaid before being applied upon the indebtedness guaranteed by Guarantor.

12.GUARANTOR AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHT UNDER THIS GUARANTY OR ANY OTHER LOAN DOCUMENT OR RELATING THERETO OR ARISING FROM THE LENDING RELATIONSHIP WHICH IS THE SUBJECT OF THIS GUARANTY AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

13.Any notice, demand, request or other communication which any party hereto may be required or may desire to give hereunder shall be in writing and shall be deemed to have been properly given (a) if hand delivered, when delivered; (b) if mailed by United States Certified Mail (postage prepaid, return receipt requested), three Business Days after mailing (c) if by Federal Express or other reliable overnight courier service, on the next Business Day after delivered to such courier service or (d) if by telecopier on the day of transmission so long as copy is sent on the same day by overnight courier as set forth below:

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Guarantor:	CNL Healthcare Properties, II, Inc. 450 South Orange Avenue Orlando, FL 32801 Attention:  Chief Financial Officer and General Counsel
Lender:	Florida Community Bank, N.A. 369 N. New York Avenue Winter Park, Florida  32789 Attention: Commercial Real Estate Department

or at such other address as the party to be served with notice may have furnished in writing to the party seeking or desiring to serve notice as a place for the service of notice.

14.In order to induce Lender to make the Loan, Guarantor makes the following representations and warranties to Lender set forth in this Section.  Guarantor acknowledges that but for the truth and accuracy of the matters covered by the following representations and warranties, Lender would not have agreed to make the Loan.

(a) Guarantor (if an entity) is duly formed, validly existing, and in good standing in its state of organization and has qualified to do business and is in good standing in any state in which it is necessary in the conduct of its business.

(b) Guarantor maintains an office at the address set forth for such party in Section 13.

(c) Any and all balance sheets, net worth statements, and other financial data with respect to Guarantor which have heretofore been given to Lender by or on behalf of Guarantor fairly and accurately present the financial condition of Guarantor as of the respective dates thereof.

(d) The execution, delivery, and performance by Guarantor of this Guaranty does not and will not contravene or conflict with (i) any Laws, order, rule, regulation, writ, injunction or decree now in effect of any Government Authority, or court having jurisdiction over Guarantor, (ii) any contractual restriction binding on or affecting Guarantor or Guarantor’s property or assets which may adversely affect Guarantor’s ability to fulfill its obligations under this Guaranty, (iii) the instruments creating any trust holding title to any assets included in Guarantor’s financial statements, or (iv) the organizational or other documents of Guarantor.

(e) This Guaranty creates legal, valid, and binding obligations of Guarantor enforceable in accordance with its terms.

(f) Except as disclosed in writing to Lender, there is no action, proceeding, or investigation pending or, to the knowledge of Guarantor, threatened or affecting Guarantor, which may materially and adversely affect Guarantor’s ability to fulfill his obligations under this Guaranty.  There are no judgments or orders for the payment of money rendered against Guarantor for an amount in excess of $25,000 which have been undischarged for a period of thirty (30) or more consecutive days and the enforcement of which is not stayed by reason of a pending appeal or otherwise.  Guarantor is not in default under any agreements which may adversely affect Guarantor’s ability to fulfill its obligations under this Guaranty.

(g) All statements set forth in the Recitals are true and correct.

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All of the foregoing representations and warranties shall be deemed remade on the date of the first disbursement of Loan proceeds, on the date of each advance of Loan proceeds, and upon any extension of the Loan pursuant to the Loan Agreement.  Guarantor hereby agrees to indemnify and hold Lender free and harmless from and against all loss, cost, liability, damage, and expense, including attorney’s fees and costs, which Lender may sustain by reason of the inaccuracy or breach of any of the foregoing representations and warranties as of the date the foregoing representations and warranties are made and are remade.

15.Guarantor shall deliver or cause to be delivered to Lender all of the Guarantor financial statements to be delivered in accordance with the terms of the Loan Agreement.

16.This Guaranty shall be binding upon the heirs, executors, legal and personal representatives, successors and assigns of Guarantor and shall not be discharged in whole or in part by the death of Guarantor.  If more than one party executes this Guaranty, the liability of all such parties shall be joint and several.

17.THIS GUARANTY, THE NOTE, AND ALL OTHER INSTRUMENTS EVIDENCING AND SECURING THE LOAN SECURED HEREBY WERE NEGOTIATED IN THE STATE OF FLORIDA, AND DELIVERED BY GUARANTOR OR BORROWER, AS APPLICABLE, AND ACCEPTED BY LENDER IN THE STATE OF FLORIDA, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND THE UNDERLYING TRANSACTIONS EMBODIED HEREBY.  IN ALL RESPECTS, INCLUDING, WITHOUT LIMITATION, MATTERS OF PERFORMANCE OF THIS GUARANTY AND THE OBLIGATIONS ARISING HEREUNDER, THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF FLORIDA APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN SUCH STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

18.Lender shall be entitled to honor any request for Loan proceeds made by Borrower and shall have no obligation to see to the proper disposition of such advances.  Guarantor agrees that his obligations hereunder shall not be released or affected by reason of any improper disposition by Borrower of such Loan proceeds.

19.This Guaranty may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same instrument.

[Signature page to follow]

IN WITNESS WHEREOF, Guarantor has delivered this Payment Guaranty in the State of Florida as of the date first written above.

Witnesses: “GUARANTOR”:

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  /s/ Kathy S. Hall   Print Name: Kathy S. Hall   /s/ Cathleen A. Coffey                            Print Name: Cathleen A. Coffey   CNL HEALTHCARE PROPERTIES II, INC., a Maryland corporation     By: /s/ Brett S. Bryant Name:  Brett S. Bryant Its: Vice President  

STATE OF FLORIDA

COUNTY OF ORANGE

The foregoing instrument was acknowledged before me this 27th day of August, 2018, by Brett S. Bryant, as Vice President of CNL HEALTHCARE PROPERTIES II, INC., a Maryland corporation, on behalf of the corporation.

/s/ Cathleen A. Coffey

Signature of Notary Public

Cathleen A. Coffey

(Print Notary Name)

AFFIX NOTARY STAMP

My Commission Expires: 9/24/2021

Commission No.: GG 138618

☒ Personally known, or

☐ Produced Identification

Type of Identification Produced:___

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EX-10.5

EXHIBIT 10.5

MORTGAGE, ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE FILING

(Illinois)

MADE BY

CHP II RIVERVIEW FL OWNER, LLC and

CHP II RIVERVIEW FL TENANT, LLC,

as Mortgagor

to

FLORIDA COMMUNITY BANK, N.A.

as Mortgagee

___________________________

Dated: August 31, 2018

PREPARED BY AND UPON RECORDATION RETURN TO:

GrayRobinson, P.A.

301 East Pine Street, Suite 1400

Orlando, Florida 32801

Attention:  Truong M. Nguyen, Esq.

NOTE TO CLERK:  ALL DOCUMENTARY STAMP TAXES DUE AND PAYABLE IN CONNECTION WITH THE INDEBTEDNESS SECURED BY THIS MORTGAGE, ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE FILING (“MORTGAGE”) IN THE AMOUNT OF $17,500.00 AND FLORIDA NON-RECURRING INTANGIBLES TAX DUE AND PAYABLE IN CONNECTION WITH THE RECORDATION OF THIS MORTGAGE IN THE AMOUNT OF $10,000.00 SHALL BE PAID UPON THE RECORDATION OF THIS MORTGAGE IN THE PUBLIC RECORDS OF HILLSBOROUGH COUNTY, FLORIDA.

MORTGAGE, ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE FILING

(Illinois)

THIS MORTGAGE, ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE FILING (this “Mortgage”) is executed as of August 31, 2018 by CHP II RIVERVIEW FL OWNER, LLC, a Delaware limited liability company and CHP II RIVERVIEW FL TENANT, LLC, a Delaware limited liability company (jointly and severally, individually, each and/or collectively, the “Mortgagor”) whose address is 450 South Orange Avenue, Orlando, Florida 32801, in favor of FLORIDA COMMUNITY BANK, N.A., a national banking association, its successors and assigns (“Mortgagee”), whose address is 369 N. New York Avenue, Winter Park, Florida  32789.

1.Grant and Secured Obligations.

1.1Grant.  For the purpose of securing payment and performance of the Secured Obligations defined and described in Section 1.2 below, Mortgagor hereby irrevocably and unconditionally grants, bargains, sells, conveys, mortgages and warrants to Mortgagee, with right of entry and possession, all estate, right, title and interest which Mortgagor now has or may later acquire in and to the following property (all or any part of such property, or any interest in all or any part of it, as the context may require, the “Property”):

(a)the real property described on Exhibit "A" attached hereto and made a part hereof, together with all existing and future easements and rights affording access to it (the “Premises”); together with

(b)All buildings, structures and improvements now located or later to be constructed on the Premises (the “Improvements”); together with

(c)All existing and future appurtenances, privileges, easements, franchises and tenements of the Premises, including all minerals, oil, gas, other hydrocarbons and associated substances, sulphur, nitrogen, carbon dioxide, helium and other commercially valuable substances which may be in, under or produced from any part of the Premises, all development rights and credits, air rights, water, water rights (whether riparian, appropriative or otherwise, and whether or not appurtenant) and water stock, and any Premises lying in the streets, roads or avenues, open or proposed, in front of or adjoining the Premises and Improvements; together with

(d)All existing and future leases, subleases, subtenancies, licenses, occupancy agreements and concessions (“leases”) relating to the use and enjoyment of all or any part of the Premises and Improvements, and any and all guaranties and other agreements relating to or made in connection with any of such leases; together with

(e)All real property and improvements on it, and all appurtenances and other property and interests of any kind or character, whether described in Exhibit A or not, which may be reasonably necessary or desirable to promote the present and any reasonable future beneficial use and enjoyment of the Premises and Improvements; together with

(f)All goods, materials, supplies, chattels, furniture, fixtures, equipment and machinery now or later to be attached to, placed in or on, or used in connection with the use, enjoyment, occupancy or operation of all or any part of the Premises and Improvements, whether stored on the Premises or elsewhere, including all pumping plants, engines, pipes, ditches and flumes, and also all gas, electric, cooking, heating, cooling, air conditioning, lighting, refrigeration and plumbing fixtures and equipment, all of which shall be considered to the fullest extent of the law to be real property for purposes of this Mortgage and any manufacturer’s warranties with respect thereto; together with

(g)All building materials, equipment, work in process or other personal property of any kind, whether stored on the Premises or elsewhere, which have been or later will be acquired for the purpose of being delivered to, incorporated into or installed in or about the Premises or Improvements; together with

(h)All of Mortgagor’s interest in and to all operating accounts, the Loan funds, whether disbursed or not, any reserves, and any other bank accounts of Mortgagor; together with

(i)All rights to the payment of money, accounts, accounts receivable, reserves, deferred payments, refunds, cost savings, payments and deposits, whether now or later to be received from third parties (including all earnest money sales deposits) or deposited by Mortgagor with third parties (including all utility deposits), contract rights, development and use rights, governmental permits and licenses, applications, architectural and engineering plans, specifications and drawings, as‑built drawings, chattel paper, instruments, documents, notes, drafts and letters of credit (other than letters of credit in favor of Mortgagee), which arise from or relate to construction on the Premises or to any business now or later to be conducted on it, or to the Premises and Improvements generally and any builder’s or manufacturer’s warranties with respect thereto; together with

(j)All insurance policies pertaining to the Premises and all proceeds, including all claims to and demands for them, of the voluntary or involuntary conversion of any of the Premises, Improvements or the other property described above into cash or liquidated claims, including proceeds of all present and future fire, hazard or casualty insurance policies and all condemnation awards or payments now or later to be made by any public body or decree by any court of competent jurisdiction for any taking or in connection with any condemnation or eminent domain proceeding, and all causes of action and their proceeds for any damage or injury to the Premises, Improvements or the other property described above or any part of them, or breach of warranty in connection with the construction of any improvements, including causes of action arising in tort, contract, fraud or concealment of a material fact; together with

(k)All books and records pertaining to any and all of the property described above, including computer‑readable memory and any computer hardware or software necessary to access and process such memory (“Books and Records”); together with

(l)All proceeds of, additions and accretions to, substitutions and replacements for, and changes in any of the property described above.

Capitalized terms used above and elsewhere in this Mortgage without definition have the meanings given them in the Loan Agreement referred to in Subsection 1.2(a)(iii) below.

1.2Secured Obligations.

(a)Mortgagor makes the grant, conveyance, and mortgage set forth in Section 1.1 above, and grants the security interest set forth in Section 3 below for the purpose of securing the following obligations (the “Secured Obligations”) in any order of priority that Mortgagee may choose:

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(i)Payment of all obligations at any time owing under a Promissory Note executed of even date herewith by Mortgagor in favor of Mortgagee and in the stated principal amount of $5,000,000.00 (the “Note”); and

(ii)Payment and performance of all obligations of Mortgagor under this Mortgage; and

(iii)Payment and performance of all obligations of Mortgagor under a Loan Agreement bearing even date herewith between Mortgagor as “Borrower” and Mortgagee as “Lender” (together with all amendments, modifications, renewals or extensions thereto, the “Loan Agreement”); and

(iv)Payment and performance of any obligations of Mortgagor under any Loan Documents which are executed by Mortgagor; and

(v)Payment and performance of all future advances and other obligations that Mortgagor or any successor in ownership of all or part of the Property may agree to pay and/or perform (whether as principal, surety or guarantor) for the benefit of Mortgagee, when a writing evidences the parties’ agreement that the advance or obligation be secured by this Mortgage; and

(vi)Payment and performance of all obligations of Mortgagor arising under any Interest Rate Agreements.  "Interest Rate Agreements" shall mean an interest rate hedging program through the purchase by Mortgagor from Mortgagee of an interest rate swap, cap, or such other interest rate protection product with respect to the Note; and

(vii)Payment and/or performance of every obligation of Mortgagor under any and all documents evidencing or otherwise governing any individual Letters of Credit issued by Mortgagee and outstanding thereunder or reimbursement agreements executed in connection therewith, including Mortgagor’s obligation to immediately repay any draws on any such Letter of Credit; and

(viii)Payment and performance of all modifications, amendments, extensions, and renewals, however evidenced, of any of the Secured Obligations.

(b)All persons who may have or acquire an interest in all or any part of the Property will be considered to have notice of, and will be bound by, the terms of the Secured Obligations and each other agreement or instrument made or entered into in connection with each of the Secured Obligations.  Such terms include any provisions in the Note or the Loan Agreement which permit borrowing, repayment and reborrowing, or which provide that the interest rate on one or more of the Secured Obligations may vary from time to time.

2.Assignment of Rents.

2.1Assignment.  Mortgagor hereby irrevocably, absolutely, presently and unconditionally assigns to Mortgagee all rents, royalties, issues, profits, revenue, income, accounts, proceeds and other benefits of the Property, whether now due, past due or to become due, including all prepaid rents and security deposits (some or all collectively, as the context may require, “Rents”).  

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2.2Grant of License.  Mortgagee hereby confers upon Mortgagor a license (“License”) to collect and retain the Rents as they become due and payable, so long as no Event of Default, as defined in Section 6.2 below, shall exist and be continuing.  If an Event of Default has occurred and is continuing, Mortgagee shall have the right, which it may choose to exercise in its sole discretion, to terminate this License without notice to or demand upon Mortgagor, and without regard to the adequacy of Mortgagee’s security under this Mortgage.

2.3Collection and Application of Rents.  Subject to the License granted to Mortgagor under Section 2.2 above, Mortgagee has the right, power and authority to collect any and all Rents after an Event of Default by Mortgagor.  Mortgagor hereby appoints Mortgagee its attorney‑in‑fact to perform any and all of the following acts, if and at the times when Mortgagee in its sole discretion may so choose:

(a)Demand, receive and enforce payment of any and all Rents; or

(b)Give receipts, releases and satisfactions for any and all Rents; or

(c)Sue either in the name of Mortgagor or in the name of Mortgagee for any and all Rents.

Mortgagee and Mortgagor agree that the mere recordation of the assignment granted herein entitles Mortgagee immediately to collect and receive rents upon the occurrence of an Event of Default, as defined in Section 6.2, without first taking any acts of enforcement under applicable law, such as, but not limited to, providing notice to Mortgagor, filing foreclosure proceedings, or seeking and/or obtaining the appointment of a receiver.  Further, Mortgagee’s right to the Rents does not depend on whether or not Mortgagee takes possession of the Property as permitted under Subsection 6.3(c).  In Mortgagee’s sole discretion, Mortgagee may choose to collect Rents either with or without taking possession of the Property.  Mortgagee shall apply all Rents collected by it in the manner provided under Section 6.6.  If an Event of Default occurs while Mortgagee is in possession of all or part of the Property and is collecting and applying Rents as permitted under this Mortgage, Mortgagee and any receiver shall  nevertheless be entitled to exercise and invoke every right and remedy afforded any of them under this Mortgage and at law or in equity.

2.4Mortgagee Not Responsible.  Under no circumstances shall Mortgagee have any duty to produce Rents from the Property.  Regardless of whether or not Mortgagee, in person or by agent, takes actual possession of the Premises and Improvements, unless Mortgagee agrees in writing to the contrary, Mortgagee is not and shall not be deemed to be:

(a)A “mortgagee in possession” for any purpose; or

(b)Responsible for performing any of the obligations of the lessor under any lease; or

(c)Responsible for any waste committed by lessees or any other parties, any dangerous or defective condition of the Property, or any negligence in the management, upkeep, repair or control of the Property; or

(d)Liable in any manner for the Property or the use, occupancy, enjoyment or operation of all or any part of it.

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3.Grant of Security Interest.

3.1Security Agreement.  The parties intend for this Mortgage to create a lien on the Property, and an absolute assignment of the Rents, all in favor of Mortgagee.  The parties acknowledge that some of the Property and some or all of the Rents may be determined under applicable law to be personal property or fixtures.  To the extent that any Property or Rents may be or be determined to be personal property, Mortgagor as debtor hereby grants Mortgagee as secured party a security interest in all such Property and Rents, to secure payment and performance of the Secured Obligations.  This Mortgage constitutes a security agreement under the Uniform Commercial Code of the State in which the Property is located, covering all such Property and Rents.

3.2Financing Statements.  Mortgagor hereby authorizes Mortgagee to file one or more financing statements.  In addition, Mortgagor shall execute such other documents as Mortgagee may from time to time require to perfect or continue the perfection of Mortgagee’s security interest in any Property or Rents.  As provided in Section 5.9 below, Mortgagor shall pay all fees and costs that Mortgagee may incur in filing such documents in public offices and in obtaining such record searches as Mortgagee may reasonably require.  In case Mortgagor fails to execute any financing statements or other documents for the perfection or continuation of any security interest, Mortgagor hereby appoints Mortgagee as its true and lawful attorney‑in‑fact to execute any such documents on its behalf.  If any financing statement or other document is filed in the records normally pertaining to personal property, that filing shall never be construed as in any way derogating from or impairing this Mortgage or the rights or obligations of the parties under it.

4.Fixture Filing.

This Mortgage constitutes a financing statement filed as a fixture filing under Article 9 of the Uniform Commercial Code in the State in which the Property is located, as amended or recodified from time to time, covering any Property which now is or later may become fixtures attached to the Premises or Improvements.  For this purpose, the respective addresses of Mortgagor, as debtor, and Mortgagee, as secured party, are as set forth in the preambles of this Mortgage.

5.Rights and Duties of the Parties.

5.1Representations and Warranties.  Mortgagor represents and warrants that:

(a)Mortgagor lawfully, possesses and holds fee simple title to all of the Premises and Improvements;

(b)Mortgagor has or will have good title to all Property;

(c)Mortgagor has the full and unlimited power, right and authority to encumber the Property and assign the Rents;

(d)This Mortgage creates a first and prior lien on the Property;

(e)The Property includes all property and rights which may be reasonably necessary or desirable to promote the  present and any reasonable future beneficial use and enjoyment of the Premises and Improvements;

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(f)Mortgagor owns any Property which is personal property free and clear of any security agreements, reservations of title or conditional sales contracts, and there is no financing statement affecting such personal property on file in any public office; and

(g)Mortgagor’s place of business, or its chief executive office if it has more than one place of business, is located at the address specified below.

5.2Taxes, and Assessments.  Mortgagor shall pay prior to delinquency all taxes, levies, charges and assessments, in accordance with Section 8.1(b) of the Loan Agreement.

5.3Performance of Secured Obligations.  Mortgagor shall promptly pay and perform each Secured Obligation in accordance with its terms.

5.4Liens, Charges and Encumbrances.  Mortgagor shall immediately discharge any lien on the Property which Mortgagee has not consented to in writing in accordance with the terms of Section 8.1(p) of the Loan Agreement.  

5.5Damages and Insurance and Condemnation Proceeds.  In the event of any casualty or condemnation of the Property, the provisions of Article 9 of the Loan Agreement shall govern.

5.6Maintenance and Preservation of Property.

(a)Mortgagor shall insure the Property as required by the Loan Agreement and keep the Property in good condition and repair.

(b)Mortgagor shall not remove or demolish the Property or any part of it, or alter, restore or add to the Property, or initiate or allow any change or variance in any zoning or other Premises use classification which affects the Property or any part of it, except as permitted or required by the Loan Agreement or with Mortgagee’s express prior written consent in each instance.

(c)If all or part of the Property becomes damaged or destroyed, Mortgagor shall promptly and completely repair and/or restore the Property in a good and workmanlike manner in accordance with sound building practices, provided Mortgagee disburses Proceeds or other sums to pay costs of the work of repair or reconstruction under Article 9 of the Loan Agreement.

(d)Mortgagor shall not commit or allow any act upon or use of the Property which would violate:  (i) any applicable Laws or order of any Governmental Authority, whether now existing or later to be enacted and whether foreseen or unforeseen; or (ii) any public or private covenant, condition, restriction or equitable servitude affecting the Property.  Mortgagor shall not bring or keep any article on the Property or cause or allow any condition to exist on it, if that could invalidate or would be prohibited by any insurance coverage required to be maintained by Mortgagor on the Property or any part of it under the Loan Agreement.

(e)Mortgagor shall not commit or allow waste of the Property, including those acts or omissions characterized under the Loan Agreement as waste which arises out of Hazardous Material.

(f)Mortgagor shall perform all other acts which from the character or use of the Property may be reasonably necessary to maintain and preserve its value.

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5.7Releases, Extensions, Modifications and Additional Security.  From time to time, Mortgagee may perform any of the following acts without incurring any liability or giving notice to any person:

(a)Release any person liable for payment of any Secured Obligation;

(b)Extend the time for payment, or otherwise alter the terms of payment, of any Secured Obligation;

(c)Accept additional real or personal property of any kind as security for any Secured Obligation, whether evidenced by deeds of trust, mortgages, security agreements or any other instruments of security;

(d)Alter, substitute or release any property securing the Secured Obligations;

(e)Consent to the making of any plat or map of the Property or any part of it;

(f)Join in granting any easement or creating any restriction affecting the Property; or

(g)Join in any subordination or other agreement affecting this Mortgage or the lien of it; or

(h) Release the Property or any part of it.

5.8Release.  When all of the Secured Obligations have been paid in full and all fees and other sums owed by Mortgagor under Section 5.9 of this Mortgage and the other Loan Documents have been received, Mortgagee shall release this Mortgage, the lien created thereby, and all notes and instruments evidencing the Secured Obligations.  Mortgagor shall pay any costs of recordation of such release.

5.9Compensation, Exculpation, Indemnification.

(a)Mortgagor agrees to pay reasonable third party fees as may be charged by Mortgagee when the law provides no maximum limit, for any services that Mortgagee may render to Mortgagor in connection with this Mortgage, including Mortgagee’s providing a statement of the Secured Obligations.  Mortgagor shall also pay or reimburse all of Mortgagee’s third party costs and expenses which may be incurred in rendering any such services.  Mortgagor further agrees to pay or reimburse Mortgagee for all reasonable costs, expenses and other advances which may be incurred or made by Mortgagee in any efforts to enforce any terms of this Mortgage, including any rights or remedies afforded to Mortgagee under Section 6.3, whether any lawsuit is filed or not, or in defending any action or proceeding arising under or relating to this Mortgage, including attorneys’ fees and other legal costs, costs of any Foreclosure Sale (as defined in Subsection 6.3(i) below) and any cost of evidence of title.  If Mortgagee chooses to dispose of Property through more than one Foreclosure Sale, Mortgagor shall pay all reasonable costs, expenses or other advances that may be incurred or made by Mortgagee in each of such Foreclosure Sales.  In any suit to foreclose the lien hereof or enforce any other remedy of Mortgagee under this Mortgage or the Note, there shall be allowed and included as additional indebtedness in the decree for sale or other judgment or decree all expenditures and expenses which may be paid or incurred by or on behalf of Mortgagee for reasonable attorneys’ costs and fees (including the costs and fees of paralegals), survey charges, appraiser’s fees, inspecting engineer’s and/or architect’s fees, fees for environmental studies and assessments and all additional expenses incurred by Mortgagee with respect to environmental matters, outlays for documentary and expert evidence, stenographers’ charges, publication costs, and costs (which may be estimated as to items to be expended after entry of the decree) of procuring all such abstracts of title, title searches and

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examinations, title insurance policies, and similar data and assurances with respect to title as Mortgagee may deem reasonably necessary either to prosecute such suit or to evidence to bidders at any sale which may be had pursuant to such decree the true condition  of the title to, the value of or the environmental condition of the Property.  All expenditures and expenses of the nature in this Subsection mentioned, and such expenses and fees as may be incurred in the protection of the Property and maintenance of the lien of this Mortgage, including the fees of any attorney (including the costs and fees of paralegals) employed by Mortgagee in any litigation or proceeding affecting this Mortgage, the Note or the Property, including probate and bankruptcy proceedings, or in preparation for the commencement or defense of any proceeding or threatened suit or proceeding, shall be immediately due and payable by Mortgagor, with interest thereon at the Default Rate and shall be secured by this Mortgage.  

(b)Mortgagee shall not be directly or indirectly liable to Mortgagor or any other person as a consequence of any of the following:

(i)Mortgagee’s exercise of or failure to exercise any rights, remedies or powers granted to Mortgagee in this Mortgage;

(ii)Mortgagee’s failure or refusal to perform or discharge any obligation or liability of Mortgagor under any agreement related to the Property or under this Mortgage; or

(iii)Any loss sustained by Mortgagor or any third party resulting from Mortgagee’s failure to lease the Property, or from any other act or omission of Mortgagee in managing the Property, after an Event of Default, unless the loss is caused by the willful misconduct and bad faith of Mortgagee.

Mortgagor hereby expressly waives and releases all liability of the types described above, and agrees that no such liability shall be asserted against or imposed upon Mortgagee.

(c)Mortgagor agrees to indemnify Mortgagee against and hold it harmless from all losses, damages, liabilities, claims, causes of action, judgments, court costs, attorneys’ fees and other legal expenses, cost of evidence of title, cost of evidence of value, and other costs and expenses which it may suffer or incur:

(i)In performing any act required or permitted by this Mortgage or any of the other Loan Documents or by law;

(ii)Because of any failure of Mortgagor to perform any of its obligations; or

(iii)Because of any alleged obligation of or undertaking by Mortgagee to perform or discharge any of the representations, warranties, conditions, covenants or other obligations in any document relating to the Property other than the Loan Documents.

(d)Mortgagor shall pay all obligations to pay money arising under this Section 5.9 immediately upon demand by Mortgagee.  Each such obligation shall be added to, and considered to be part of, the principal of the Note, and shall bear interest from the date the obligation arises at the Default Rate (as defined in the Note).

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5.10Defense and Notice of Claims and Actions.  At Mortgagor’s sole expense, Mortgagor shall protect, preserve and defend the Property and title to and right of possession of the Property, and the security of this Mortgage and the rights and powers of Mortgagee created under it, against all adverse claims.  Mortgagor shall give Mortgagee prompt notice in writing if any claim is asserted which does or could affect any such matters, or if any action or proceeding is commenced which alleges or relates to any such claim.

5.11Subrogation.  Mortgagee shall be subrogated to the liens of all encumbrances, whether released of record or not, which are discharged in whole or in part by Mortgagee in accordance with this Mortgage or with the proceeds of any loan secured by this Mortgage.

5.12Site Visits, Observation and Testing.  Subject to the rights of tenants and residents at the Property, Mortgagee and its agents and representatives shall have the right at any reasonable time to enter and visit the Property for the purpose of performing appraisals, observing the Property, taking and removing soil or groundwater samples, and conducting tests on any part of the Property.  Mortgagee has no duty, however, to visit or observe the Property or to conduct tests, and no site visit, observation or testing by Mortgagee, its agents or representatives shall impose any liability on any of Mortgagee, its agents or representatives other than as a result of their gross negligence or willful misconduct.  In no event shall any site visit, observation or testing by Mortgagee, its agents or representatives be a representation that Hazardous Material are or are not present in, on or under the Property, or that there has been or shall be compliance with any law, regulation or ordinance pertaining to Hazardous Material or any other applicable governmental law.  Neither Mortgagor nor any other party is entitled to rely on any site visit, observation or testing by any of Mortgagee, its agents or representatives.  Neither Mortgagee nor its agents or representatives owe any duty of care to protect Mortgagor or any other party against, or to inform Mortgagor or any other party of, any Hazardous Material or any other adverse condition affecting the Property.  Mortgagee shall give Mortgagor reasonable notice (not less than 48 hours) before entering the Property.  Mortgagee shall make reasonable efforts to avoid interfering with Mortgagor’s use of the Property in exercising any rights provided in this Section 5.12.

5.13Notice of Change.  Mortgagor shall give Mortgagee prior written notice of any change in:  (a) the location of its place of business or its chief executive office if it has more than one place of business; (b) the location of any of the Property, including the Books and Records; and (c) Mortgagor’s name or business structure.  Unless otherwise approved by Mortgagee in writing, all Property that consists of personal property (other than the Books and Records) will be located on the Premises and all Books and Records will be located at Mortgagor’s place of business or chief executive office if Mortgagor has more than one place of business.

6.Accelerating Transfers, Default and Remedies.

6.1Accelerating Transfers.

(a)“Accelerating Transfer” means any Transfer not expressly permitted by the Loan Agreement.

(b)Mortgagor acknowledges that Mortgagee is making one or more advances under the Loan Agreement in reliance on the expertise, skill and experience of Mortgagor; thus, the Secured Obligations include material elements similar in nature to a personal service contract.  In consideration of Mortgagee’s reliance, Mortgagor agrees that Mortgagor shall not make any Accelerating Transfer, unless the transfer is preceded by Mortgagee’s express written consent to the particular transaction and transferee.  Mortgagee may withhold such consent in its sole discretion.  If any Accelerating Transfer occurs, Mortgagee in its sole discretion may declare all of the Secured Obligations to be immediately due and payable, and Mortgagee may invoke any rights and remedies provided by Section 6.3 of this Mortgage.

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6.2Events of Default.  Mortgagor will be in default under this Mortgage upon the occurrence of any one or more of the following events (some or all collectively, “Events of Default;” any one singly, an “Event of Default”).

(a)Failure of Mortgagor (i) (x) to pay the final payment of the Loan due on the Maturity Date (defined in the Note), (y) to pay any principal or interest on the Loan (other than to pay the final payment due on the Maturity Date) within ten (10) days after the date when due, or (z) to observe or perform any of the other covenants or conditions by Mortgagor to be performed under the terms of this Mortgage or any of the other Loan Documents concerning the payment of money for a period of ten (10) days after written notice from Mortgagee that the same is due and payable; or (ii) for a period of thirty (30) days after written notice from Mortgagee, to observe or perform any non-monetary covenant or condition contained in this Mortgage or any of the other Loan Documents; provided that if any such failure concerning a non-monetary covenant or condition is susceptible to cure but cannot reasonably be cured within said thirty (30) day period, then Mortgagor shall have an additional sixty (60) day period to cure such failure and no Event of Default shall be deemed to exist hereunder so long as (x) Mortgagor commences such cure within the initial thirty (30) day period and diligently and in good faith pursues such cure to completion within such resulting ninety (90) day period from the date of Mortgagee’s notice, and (y) the existence of such uncured default will not result in any tenant under a Lease having the right to terminate such Lease due to such uncured default; and provided further that if a different notice or grace period is specified under Article 12 of the Loan Agreement (or elsewhere in this Mortgage or the Loan Agreement) in which such particular breach will become an Event of Default, the specific provision shall control; or

(b)An “Event of Default” occurs under the Loan Agreement or any other Loan Document.

6.3Remedies.  At any time after the occurrence and during the continuance of an Event of Default, Mortgagee shall be entitled to invoke any and all of the rights and remedies described below, in addition to all other rights and remedies available to Mortgagee at law or in equity.  All of such rights and remedies shall be cumulative, and the exercise of any one or more of them shall not constitute an election of remedies.

(a)Acceleration.  Mortgagee may declare any or all of the Secured Obligations to be due and payable immediately.

(b)Receiver.  Mortgagee shall, as a matter of right, without notice and without giving bond to Mortgagor or anyone claiming by, under or through Mortgagor, and without regard for the solvency or insolvency of Mortgagor or the then value of the Property, to the extent permitted by applicable law, be entitled to have a receiver appointed for all or any part of the Property and the Rents, and the proceeds, issues and profits thereof, with the rights and powers referenced below and such other rights and powers as the court making such appointment shall confer, and Mortgagor hereby consents to the appointment of such receiver and shall not oppose any such appointment.  Such receiver shall have all powers and duties prescribed by applicable law, all other powers which are necessary or usual in such cases for the protection, possession, control, management and operation of the Property, and such rights and powers as Mortgagee would have, upon entering and taking possession of the Property under subsection (c) below.

(c)Entry.  Mortgagee, in person, by agent or by court-appointed receiver, may enter, take possession of, manage and operate all or any part of the Property, and may also do any and all other things in connection with those actions that Mortgagee may in its sole discretion consider necessary and appropriate to protect the security of  this Mortgage.  Such other things may include:  taking and possessing all of Mortgagor’s or the then owner’s Books and Records; entering into, enforcing, modifying or canceling leases on such terms and conditions as Mortgagee may consider proper; obtaining and evicting tenants;

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fixing or modifying Rents; collecting and receiving any payment of money owing to Mortgagee; completing any unfinished construction; and/or contracting for and making repairs and alterations.  If Mortgagee so requests, Mortgagor shall assemble all of the Property that has been removed from the Premises and make all of it available to Mortgagee at the site of the Premises.  Mortgagor hereby irrevocably constitutes and appoints Mortgagee as Mortgagor’s attorney-in-fact to perform such acts and execute such documents as Mortgagee in its sole discretion may consider to be appropriate in connection with taking these measures, including endorsement of Mortgagor’s name on any instruments.

(d)Cure; Protection of Security.   Mortgagee may cure any breach or default of Mortgagor, and if it chooses to do so in connection with any such cure, Mortgagee may also enter the Property and/or do any and all other things which it may in its reasonable discretion consider necessary and appropriate to protect the security of this Mortgage, including, without limitation, completing construction of any improvements at the Property.  Such other things may include: appearing in and/or defending any action or proceeding which purports to affect the security of, or the rights or powers of Mortgagee under, this Mortgage; paying, purchasing, contesting or compromising any encumbrance, charge, lien or claim of lien which in Mortgagee’s sole judgment is or may be senior in priority to this Mortgage, such judgment of Mortgagee or to be conclusive as among the parties to this Mortgage; obtaining insurance and/or paying any premiums or charges for insurance required to be carried under the Loan Agreement; otherwise caring for and protecting any and all of the Property; and/or employing counsel, accountants, contractors and other appropriate persons to assist Mortgagee.  Mortgagee may take any of the actions permitted under this Subsection 6.3(d) either with or without giving notice to any person.  Any amounts expended by Mortgagee under this Subsection 6.3(d) shall be secured by this Mortgage.

(e)Uniform Commercial Code Remedies.  Mortgagee may exercise any or all of the remedies granted to a secured party under the Uniform Commercial Code in the State in which the Property is located.

(f)Foreclosure; Lawsuits.  Mortgagee shall have the right, in one or several concurrent or consecutive proceedings, to foreclose the lien hereof upon the Property or any part thereof, for the Secured Obligations, or any part thereof, by any proceedings appropriate under applicable law.  Mortgagee or its nominee may bid and become the purchaser of all or any part of the Property at any foreclosure or other sale hereunder, and the amount of Mortgagee’s successful bid shall be credited on the Secured Obligations.  Without limiting the foregoing, Mortgagee may proceed by a suit or suits in law or equity, whether for specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure under the judgment or decree of any court of competent jurisdiction.  In addition to the right provided in Subsection 6.3(a), upon, or at any time after the filing of a complaint to foreclose this Mortgage, Mortgagee shall be entitled to the appointment of a receiver of the Property by the court in which such complaint is filed, and Mortgagor hereby consents to such appointment.

(g)Other Remedies.  Mortgagee may exercise all rights and remedies contained in any other instrument, document, agreement or other writing heretofore, concurrently or in the future executed by Mortgagor or any other person or entity in favor of Mortgagee in connection with the Secured Obligations or any part thereof, without prejudice to the right of Mortgagee thereafter to enforce any appropriate remedy against Mortgagor.  Mortgagee shall have the right to pursue all remedies afforded to a mortgagee under applicable law, and shall have the benefit of all of the provisions of such applicable law, including all amendments thereto which may become effective from time to time after the date hereof.

(h)Sale of Personal Property.  Mortgagee shall have the discretionary right to cause some or all of the Property, which constitutes personal property, to be sold or otherwise disposed of in any combination and in any manner permitted by applicable law.

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(i)For purposes of this power of sale, Mortgagee may elect to treat as personal property any Property which is intangible or which can be severed from the Premises or Improvements without causing structural damage.  If it chooses to do so, Mortgagee may dispose of any personal property, in any manner permitted by Article 9 of the Uniform Commercial Code of the State in which the Property is located, including any public or private sale, or in any manner permitted by any other applicable law.

(ii)In connection with any sale or other disposition of such Property, Mortgagor agrees that the following procedures constitute a commercially reasonable sale:  Mortgagee shall mail written notice of the sale to Mortgagor not later than thirty (30) days prior to such sale.  Mortgagee will publish notice of the sale in a local daily newspaper of general circulation.  Upon receipt of any written request, Mortgagee will make the Property available to any bona fide prospective purchaser for inspection during reasonable business hours.  Notwithstanding, Mortgagee shall be under no obligation to consummate a sale if, in its judgment, none of the offers received by it equals the fair value of the Property offered for sale.  The foregoing procedures do not constitute the only procedures that may be commercially reasonable.

(i)Single or Multiple Foreclosure Sales.  If the Property consists of more than one lot, parcel or item of property,  Mortgagee may:

(i)Designate the order in which the lots, parcels and/or items shall be sold or disposed of or offered for sale or disposition; and

(ii)Elect to dispose of the lots, parcels and/or items through a single consolidated sale or disposition to be held or made under or in connection with judicial proceedings, or by virtue of a judgment and decree of foreclosure and sale; or through two or more such sales or dispositions; or in any other manner Mortgagee may deem to be in its best interests (any such sale or disposition, a “Foreclosure Sale;” and any two or more, “Foreclosure Sales”).

If Mortgagee chooses to have more than one Foreclosure Sale, Mortgagee at its option may cause the Foreclosure Sales to be held simultaneously or successively, on the same day, or on such different days and at such different times and in such order as Mortgagee may deem to be in its best interests.  No Foreclosure Sale shall terminate or affect the liens of this Mortgage on any part of the Property which has not been sold, until all of the Secured Obligations have been paid in full.

6.4Credit Bids.  At any Foreclosure Sale, any person, including Mortgagor or Mortgagee, may bid for and acquire the Property or any part of it to the extent permitted by then applicable law.  Instead of paying cash for such property, Mortgagee may settle for the purchase price by crediting the sales price of the property against the foreclosure judgment.

6.5Application of Foreclosure Sale Proceeds.  Mortgagee shall apply the proceeds of any Foreclosure Sale against the foreclosure judgment.

6.6Application of Rents and Other Sums.  Mortgagee shall apply any and all Rents collected by it, and any and all sums other than proceeds of a Foreclosure Sale which Mortgagee may receive or collect under Section 6.3 above, against the Secured Obligations in a manner as determined by Mortgagee in its sole and absolute discretion.  Mortgagee shall have no liability for any funds which it does not actually receive.

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7.Miscellaneous Provisions.

7.1Additional Provisions.  The Loan Documents fully state all of the terms and conditions of the parties’ agreement regarding the matters mentioned in or incidental to this Mortgage.  The Loan Documents also grant further rights to Mortgagee and contain further agreements and affirmative and negative covenants by Mortgagor which apply to this Mortgage and to the Property.

7.2No Waiver or Cure.

(a)Each waiver by Mortgagee must be in writing, and no waiver shall be construed as a continuing waiver.  No waiver shall be implied from any delay or failure by Mortgagee to take action on account of any default of Mortgagor.  Consent by Mortgagee to any act or omission by Mortgagor shall not be construed as a consent to any other or subsequent act or omission or to waive the requirement for Mortgagee’s consent to be obtained in  any future or other instance.

(b)If any of the events described below occurs, that event alone shall not:  cure or waive any breach, Event of Default or notice of default under this Mortgage or invalidate any act performed pursuant to any such default or notice; or nullify the effect of any notice of default or sale (unless all Secured Obligations then due have been paid and performed and all other defaults under the Loan Documents have been cured); or impair the security of this Mortgage; or prejudice Mortgagee or any receiver in the exercise of any right or remedy afforded any of them under this Mortgage; or be construed as an affirmation by Mortgagee of any tenancy, lease or option, or a subordination of the lien of this Mortgage.

(i)Mortgagee, its agent or a receiver takes possession of all or any part of the Property in the manner provided in Subsection 6.3(c).

(ii)Mortgagee collects and applies Rents as permitted under Sections 2.3 and 6.6 above, either with or without taking possession of all or any part of the Property.

(iii)Mortgagee receives and applies to any Secured Obligation any proceeds of any Property, including any proceeds of insurance policies, condemnation awards, or other claims, property or rights assigned to Mortgagee under Section 5.5 above.

(iv)Mortgagee makes a site visit, observes the Property and/or conducts tests as permitted under Section 5.12 above.

(v)Mortgagee receives any sums under this Mortgage or any proceeds of any collateral held for any of the Secured Obligations, and applies them to one or more Secured Obligations.

(vi)Mortgagee or any receiver invokes any right or remedy provided under this Mortgage.

7.3Powers of Mortgagee.

(a)If Mortgagee performs any act which it is empowered or authorized to perform under this Mortgage, including any act permitted by Section 5.7 or Subsection 6.3(d) of this Mortgage, that act alone shall not release or change the personal liability of any person for the payment and performance of the Secured Obligations then outstanding, or the lien of this Mortgage on all or the remainder of the Property for full payment and performance of all outstanding Secured Obligations.  The liability of the original Mortgagor shall not be released or changed if Mortgagee grants any successor in interest to Mortgagor any extension of time for payment, or modification of the terms of payment, of any Secured Obligation.  Mortgagee shall not be required to comply with any demand by the original Mortgagor that Mortgagee refuse to grant such an extension or modification to, or commence proceedings against, any such successor in interest.

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(b)Mortgagee may take any of the actions permitted under Subsections 6.3(b) and/or 6.3(c) regardless of the adequacy of the security for the Secured Obligations, or whether any or all of the Secured Obligations have been declared to be immediately due and payable, or whether notice of default and election to sell has been given under this Mortgage.

(c)From time to time, Mortgagee may apply to any court of competent jurisdiction for aid and direction in executing and enforcing the rights and remedies created under this Mortgage.  Mortgagee may from time to time obtain orders or decrees directing, confirming or approving acts in executing and enforcing these rights and remedies.

7.4Merger.  No merger shall occur as a result of Mortgagee’s acquiring any other estate in or any other lien on the Property unless Mortgagee consents to a merger in writing.

7.5Joint and Several Liability.  If Mortgagor consists of more than one person, each shall be jointly and severally liable for the faithful performance of all of Mortgagor’s obligations under this Mortgage.

7.6Applicable Law. The creation, perfection and enforcement of the lien of this Mortgage shall be governed by the law of the State in which the property is located.  Subject to the foregoing, in all other respects, this Mortgage shall be governed by the substantive laws of the State of Florida.

7.7Successors in Interest.  The terms, covenants and conditions of this Mortgage shall be binding upon and inure to the benefit of the heirs, successors and assigns of the parties.  However, this Section 7.7 does not waive the provisions of Section 6.1 above.

7.8Interpretation.

(a)Whenever the context requires, all words used in the singular will be construed to have been used in the plural, and vice versa, and each gender will include any other gender.  The captions of the sections of this Mortgage are for convenience only and do not define or limit any terms or provisions.  The word “include(s)” means “include(s), without limitation,” and the word “including” means “including, but not limited to.”

(b)The word “obligations” is used in its broadest and most comprehensive sense, and includes all primary,  secondary, direct, indirect, fixed and contingent obligations.  It further includes all principal, interest, prepayment charges, late charges, loan fees and any other fees and charges accruing or assessed at any time, as well as all obligations to perform acts or satisfy conditions.

(c)No listing of specific instances, items or matters in any way limits the scope or generality of any language of this Mortgage.  The Exhibits to this Mortgage are hereby incorporated in this Mortgage.

7.9In‑House Counsel Fees.  Whenever Mortgagor is obligated to pay or reimburse Mortgagee for any attorneys’ fees, those fees shall include the allocated reasonable costs for services of in‑house counsel.

7.10Waiver of Statutory Rights.  To the extent permitted by law, Mortgagor hereby agrees that it shall not and will not apply for or avail itself of any appraisement, valuation, stay, extension or exemption laws, or any so‑called “Moratorium Laws,” now existing or hereafter enacted, in order to prevent or hinder the enforcement or foreclosure of this Mortgage, but hereby waives the benefit of such laws.  Mortgagor for itself and all who may claim through or under it waives any and all right to have the property and estates

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comprising the Property marshalled upon any foreclosure of the lien hereof and agrees that any court having jurisdiction to foreclose such lien may order the Property sold as an entirety. Mortgagor hereby waives any and all rights of redemption from sale under any judgment of foreclosure of this Mortgage on behalf of Mortgagor and on behalf of each and every person acquiring any interest in or title to the Property of any nature whatsoever, subsequent to the date of this Mortgage.  The foregoing waiver of right of redemption is made pursuant to the provisions of applicable law.

7.11Severability.  If any provision of this Mortgage should be held unenforceable or void, that provision shall be deemed severable from the remaining provisions and shall in no way affect the validity of this Mortgage.

7.12Notices. Any notice, demand, request or other communication which any party hereto may be required or may desire to give hereunder shall be in writing and shall be deemed to have been properly given (a) if hand delivered, when delivered; (b) if mailed by United States Certified Mail (postage prepaid, return receipt requested), three Business Days after mailing (c) if by Federal Express or other reliable overnight courier service, on the next Business Day after delivered to such courier service or (d) if by telecopier on the day of transmission so long as copy is sent on the same day by overnight courier as set forth below:  

Mortgagor:	CHP II Riverview FL Owner, LLC CHP II Riverview FL Tenant, LLC c/o CNL Healthcare Properties II, Inc. South Orange Avenue Orlando, Florida  32801 Attention: Chief Financial Officer and General Counsel
Mortgagee:	Florida Community Bank, N.A. 369 N. New York Avenue Winter Park, Florida  32789 Attention: Commercial Real Estate Dept.

or at such other address as the party to be served with notice may have furnished in writing to the party seeking or desiring to serve notice as a place for the service of notice.

Any notice or demand delivered to the person or entity named above to accept notices and demands for Mortgagor shall constitute notice or demand duly delivered to Mortgagor, even if delivery is refused.

7.13Future Advances. The total amount of indebtedness secured hereby may increase or decrease from time to time, but the total unpaid principal balance of indebtedness secured hereby (including disbursements that the Bank may, but shall not be obligated to, make under this Mortgage, the Loan Documents or any other document with respect thereto) at any one time outstanding may be substantially less but shall not exceed $33,150,000.00, plus interest thereon, and any disbursements made for the enforcement of this Mortgage and any remedies hereunder, payment of taxes, special assessments, utilities or insurance on the Property and interest on such disbursements and all disbursements by Mortgagee pursuant to applicable law (all such indebtedness being hereinafter referred to as the maximum amount secured hereby). This Mortgage shall be valid and have priority to the extent of the maximum amount secured hereby over all subsequent liens and encumbrances, including statutory liens, excepting solely taxes and assessments levied on the Property given priority by law.

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7.14Mortgagee’s Lien for Service Charge and Expenses.  At all times, regardless of whether any Loan proceeds have been disbursed, this Mortgage secures (in addition to any Loan proceeds disbursed from time to time) the payment of any and all loan commissions, service charges, liquidated damages, expenses and advances due to or incurred by Mortgagee not to exceed the maximum amount secured hereby.  

7.15WAIVER OF TRIAL BY JURY.  MORTGAGOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION ARISING IN ANY WAY IN CONNECTION WITH THIS MORTGAGE, THE NOTE, OR ANY OF THE OTHER LOAN DOCUMENTS, THE LOAN OR ANY OTHER STATEMENTS OR ACTIONS OF MORTGAGOR OR MORTGAGEE.  MORTGAGOR ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS MORTGAGE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS DISCUSSED THIS WAIVER WITH SUCH LEGAL COUNSEL.  MORTGAGOR FURTHER ACKNOWLEDGES THAT (i) IT HAS READ AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THIS WAIVER, (ii) THIS WAIVER IS A MATERIAL INDUCEMENT FOR MORTGAGEE TO MAKE THE LOAN, ENTER INTO THIS MORTGAGE AND EACH OF THE OTHER LOAN DOCUMENTS, AND (iii) THIS WAIVER SHALL BE EFFECTIVE AS TO EACH OF SUCH OTHER LOAN DOCUMENTS AS IF FULLY INCORPORATED THEREIN.

7.16Inconsistencies.

In the event of any inconsistency between this Mortgage and the Loan Agreement, the terms hereof shall be controlling as necessary to create, preserve and/or maintain a valid security interest upon the Property, otherwise the provisions of the Loan Agreement shall be controlling.

7.17UCC Financing Statements.

Mortgagor hereby authorizes Mortgagee to file UCC financing statements to perfect Mortgagee’s security interest in any part of the Property.  In addition, Mortgagor agrees to sign any and all other documents that Mortgagee deems necessary in its reasonable discretion to perfect, protect, and continue Mortgagee’s lien and security interest on the Property.

[Signature page to follow]

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IN WITNESS WHEREOF, Mortgagor has executed this Mortgage, Assignment of Rents, Security Agreement and Fixture Filing as of the date first above written.

Witnesses:	Mortgagor:
/s/ Kathy S. Hall Print Name: Kathy S. Hall /s/ Cathleen A. Coffey Print Name: Cathleen A. Coffey /s/ Kathy S. Hall Print Name: Kathy S. Hall /s/ Cathleen A. Coffey Print Name: Cathleen A. Coffey		CHP II RIVERVIEW FL OWNER, LLC, a Delaware limited liability company By: /s/ Brett S. Bryant Name:  Brett S. Bryant Its:  Vice President CHP II RIVERVIEW FL TENANT, LLC, a Delaware limited liability company By: /s/ Brett S. Bryant Name:  Brett S. Bryant Its:  Vice President

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STATE OF FLORIDA

COUNTY OF ORANGE

The foregoing instrument was acknowledged before me this 27th day of August, 2018, by Brett S. Bryant, as Vice President of CHP II RIVERVIEW FL OWNER, LLC, a Delaware limited liability company, on behalf of the company.

/s/ Kathy S. Hall

Signature of Notary Public

Kathy S. Hall

(Print Notary Name)

AFFIX NOTARY STAMP

My Commission Expires: 3/21/2021

Commission No.: GG 085220

☒ Personally known, or

☐ Produced Identification

Type of Identification Produced:

STATE OF FLORIDA

COUNTY OF ORANGE

The foregoing instrument was acknowledged before me this 27th day of August, 2018, by Brett S. Bryant, as Vice President of CHP II RIVERVIEW FL TENANT, LLC, a Delaware limited liability company, on behalf of the company.

/s/ Kathy S. Hall

Signature of Notary Public

Kathy S. Hall

(Print Notary Name)

AFFIX NOTARY STAMP

My Commission Expires: 3/21/2021

Commission No.: GG 085220

☒ Personally known, or

☐ Produced Identification

Type of Identification Produced:

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EXHIBIT A

Description of Premises

A parcel of land lying in Government Lot 4 of Section 17, Township 30 South, Range 20 East, Hillsborough County, Florida, being more particularly described as follows:

Commence at the Southeast corner of said Government Lot 4, also being the Southeast corner of the Southwest 1/4 of said Section 17, run thence, along the East boundary of said Government Lot 4, also being the East boundary of said Southwest 1/4 of Section 17, North 00°09'55" East 105.07 feet; thence North 89°50'05" West 34.79 feet to a point on the Westerly right-of-way line of U.S. Highway No. 301 (State Road No. 43), per Florida Department of Transportation Right-of-Way Map Section No. 10010-2528; thence South 88°49'38" West 643.18 feet; thence North 00°11'48" East 312.29 feet to the Point of Beginning; continue North 00°11'48" East 170.10 feet; thence North 00°14'54" East 209.63 feet; thence South 89°45'06" East 55.24 feet; thence North 18°06'54" East 23.01 feet; thence North 44°43'00" East 43.75 feet to a point of curvature; thence Easterly 252.80 feet, along the arc of a curve to the right, having a radius of 161.00 feet and a central angle of 89°57'51" (chord bearing North 89°41'55" East 227.62 feet), to a point of tangency; thence South 45°19'09" East 6.35 feet; thence South 77°06'33" East 93.42 feet; thence South 22°12'08" East 38.34 feet; thence South 345.27 feet; thence West 61.33 feet; thence South 24.18 feet; thence West 287.87 feet to a point of curvature; thence Southwesterly 36.89 feet, along the arc of a curve to the left, having a radius of 32.22 feet and a central angle of 65°36'16" (chord bearing South 57°11'52" West 34.91 feet); thence North 60°50'22" West 31.66 feet; thence North 89°48'12" West 26.17 feet to the Point of Beginning.

 

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:  November 8, 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:  November 8, 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 September 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:  November 8, 2018	By:	/s/ Stephen H. Mauldin
		Stephen H. Mauldin
		Chief Executive Officer and President
Date:  November 8, 2018	By:	/s/ Ixchell C. Duarte
		Ixchell C. Duarte
		Chief Financial Officer, Senior Vice President and Treasurer

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Nov. 01, 2018
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
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	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Common Stock, Shares Outstanding		4,899,140

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
ASSETS
Real estate investment properties, net	$ 53,941,517	$ 31,085,939
Cash	9,696,074	12,310,920
Intangibles, net	5,307,372	4,653,504
Other assets	533,837	192,423
Restricted cash	268,312	110,999
Total assets	69,747,112	48,353,785
Liabilities:
Mortgages and notes payable, net	24,476,945	19,532,986
Due to related parties	1,505,955	1,023,909
Accounts payable and accrued liabilities	1,506,741	836,647
Other liabilities	414,752	450,311
Total liabilities	27,904,393	21,843,853
Commitments and contingencies (Note 11)
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	46,937,915	28,984,932
Accumulated loss	(2,858,095)	(1,658,977)
Accumulated distributions	(2,286,353)	(846,200)
Total stockholders' equity	41,842,719	26,509,932
Total liabilities and stockholders' equity	69,747,112	48,353,785
Class A Common Stock
Stockholders' equity:
Common stock value	8,971	8,080
Total stockholders' equity	8,971	8,080
Class T Common Stock
Stockholders' equity:
Common stock value	35,482	20,492
Total stockholders' equity	35,482	20,492
Class I Common Stock
Stockholders' equity:
Common stock value	4,799	1,605
Total stockholders' equity	$ 4,799	$ 1,605

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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) - $ / shares	Sep. 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	909,695	808,011
Common stock, shares outstanding	897,081	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	3,554,014	2,049,223
Common stock, shares outstanding	3,548,178	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	479,851	160,490
Common stock, shares outstanding	479,851	160,490

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Revenues:
Rental income and tenant reimbursements	$ 422,967		$ 1,253,209
Total revenues	1,906,891	$ 1,095,696	5,001,893	$ 2,178,566
Operating expenses:
Property operating expenses	1,139,378	626,933	2,728,764	1,236,358
General and administrative expenses	300,879	178,940	906,961	664,727
Acquisition fees and expenses			818
Depreciation and amortization	570,105	324,417	1,480,712	647,185
Total operating expenses	2,095,896	1,194,860	5,378,504	2,684,712
Operating loss	(189,005)	(99,164)	(376,611)	(506,146)
Other income (expense):
Interest and other income	9,884		9,946
Interest expense and loan cost amortization	(289,504)	(196,489)	(797,208)	(402,683)
Total other expense	(279,620)	(196,489)	(787,262)	(402,683)
Loss before income taxes	(468,625)	(295,653)	(1,163,873)	(908,829)
Income tax (benefit) expense	(9,938)	12,253	35,245	41,878
Net loss attributable to common stockholders	(458,687)	(307,906)	(1,199,118)	(950,707)
Health Care Resident Service
Revenues:
Resident fees and services	1,483,924	1,095,696	3,748,684	2,178,566
Management Service
Operating expenses:
Property management fees	85,534	64,570	261,249	136,442
Class A Common Stock
Other income (expense):
Net loss attributable to common stockholders	$ (87,907)	$ (108,891)	$ (257,552)	$ (342,975)
Net loss per share of common stock outstanding (basic and diluted)	$ (0.10)	$ (0.16)	$ (0.30)	$ (0.65)
Weighted average number of common shares outstanding (basic and diluted)	879,674	693,354	857,729	529,801
Distributions declared per common share	$ 0.1440	$ 0.1440	$ 0.4320	$ 0.3930
Class T Common Stock
Other income (expense):
Net loss attributable to common stockholders	$ (327,896)	$ (189,504)	$ (845,906)	$ (584,620)
Net loss per share of common stock outstanding (basic and diluted)	$ (0.10)	$ (0.16)	$ (0.30)	$ (0.65)
Weighted average number of common shares outstanding (basic and diluted)	3,281,231	1,206,653	2,817,132	903,076
Distributions declared per common share	$ 0.1177	$ 0.1169	$ 0.3530	$ 0.3087
Class I Common Stock
Other income (expense):
Net loss attributable to common stockholders	$ (42,884)	$ (9,511)	$ (95,660)	$ (23,112)
Net loss per share of common stock outstanding (basic and diluted)	$ (0.10)	$ (0.16)	$ (0.30)	$ (0.65)
Weighted average number of common shares outstanding (basic and diluted)	429,142	60,561	318,577	35,702
Distributions declared per common share	$ 0.1310	$ 0.1328	$ 0.3936	$ 0.3715

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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	$ 16,665,946	16,650,186			$ 3,781	$ 11,178	$ 801
Subscriptions received for common stock, including distribution reinvestments (in shares)	2,200,000				378,053	1,117,844	80,135
Stock dividends issued		(143)			$ 55	$ 85	$ 3
Stock dividends issued (in shares)	14,000				5,454	8,549	291
Stock issuance and offering costs	$ (1,366,381)	(1,366,381)
Net loss	(950,707)		(950,707)
Cash distributions declared	(477,359)			(477,359)
Ending Balance at Sep. 30, 2017	19,704,254	21,509,803	(1,293,154)	(534,720)	$ 7,087	$ 14,349	$ 889
Ending Balance (in shares) at Sep. 30, 2017					708,626	1,434,980	88,880
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	$ 19,752,438	19,733,531			$ 937	$ 14,803	$ 3,167
Subscriptions received for common stock, including distribution reinvestments (in shares)	4,900,000				93,663	1,480,250	316,665
Stock dividends issued		(352)			$ 80	$ 245	$ 27
Stock dividends issued (in shares)	14,000				8,021	24,541	2,696
Redemptions of common stock	$ (185,460)	(185,276)			$ (126)	$ (58)
Redemptions of common stock, shares					(12,614)	(5,836)
Stock issuance and offering costs	(1,594,920)	(1,594,920)
Net loss	(1,199,118)		(1,199,118)
Cash distributions declared	(1,440,153)			(1,440,153)
Ending Balance at Sep. 30, 2018	$ 41,842,719	$ 46,937,915	$ (2,858,095)	$ (2,286,353)	$ 8,971	$ 35,482	$ 4,799
Ending Balance (in shares) at Sep. 30, 2018					897,081	3,548,178	479,851

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CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Operating activities:
Net cash flows provided by operating activities	$ 204,725	$ 82,390
Investing activities:
Acquisition of property	(24,740,622)	(21,854,119)
Payment of direct acquisition costs		(6,187)
Capital expenditures	(72,330)	(58,781)
Net cash used in investing activities	(24,812,952)	(21,919,087)
Financing activities:
Subscriptions received for common stock through primary offering	19,009,962	16,448,354
Payment of underwriting compensation	(984,483)	(967,600)
Payment of cash distributions, net of distribution reinvestments	(597,676)	(259,767)
Redemptions of common stock	(185,460)
Proceeds from mortgages and notes payable	5,000,000	16,050,000
Payment of loan costs	(91,649)	(208,035)
Net cash flows provided by financing activities	22,150,694	31,062,952
Net (decrease) increase in cash and restricted cash	(2,457,533)	9,226,255
Cash and restricted cash at beginning of period	12,421,919	6,360,241
Cash and restricted cash at end of period	9,964,386	15,586,496
Amounts incurred but not paid (including amounts due to related parties):
Acquisition fees and expenses related to asset acquisition	91,097	24,900
Loan costs	27,807
Selling commissions and dealer manager fees	41,651	16,438
Annual distribution and stockholder servicing fee	1,395,460	$ 549,449
Assumption of liabilities on acquisition of property	$ 115,779

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Organization

9 Months Ended

Sep. 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 elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with the year ended December 31, 2017.  The Company is sponsored by CNL Financial Group, LLC (“Sponsor” or “CNL”) and 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.  

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 meant that CNL Securities Corp. (“Dealer Manager”), an affiliate of the Sponsor, used its best efforts but was not required to sell any specific amount of shares.  The Company also offered up to $250 million, in any combination, of Class A, Class T and Class I shares pursuant to its distribution reinvestment plan (“Reinvestment Plan” and, together with the Primary Offering, the “Offering”).  

On August 31, 2018, the Company’s board of directors approved the termination of its Offering and the suspension of its Reinvestment Plan, effective October 1, 2018. The Company also suspended its share redemption plan (“Redemption Plan”) and discontinued its stock dividends concurrently.  In October 2018, the Company deregistered the unsold shares of its common stock under its previous registration statement on Form S-11.  In addition, the Company announced it had formed a special committee consisting solely of its independent directors (“Special Committee”) to consider possible strategic alternatives available to the Company, including, without limitation, (i) an orderly disposition of the Company’s assets or one or more of the Company’s asset classes and the distribution of the net sale proceeds thereof to the stockholders of the Company and (ii) a potential business combination or other transaction.  Although the Company has formed the Special Committee for the exploration of possible strategic alternatives, the Company is not obligated to enter into any particular transaction or any transaction at all.

As of September 30, 2018, the Company had received aggregate Offering proceeds of approximately $51.2 million (4.9 million shares), including approximately $1.2 million (0.1 million shares) of proceeds pursuant to the Reinvestment Plan.  The Company has contributed the net proceeds from its Offering to CHP II Partners, LP (“Operating Partnership”) in exchange for partnership interests.  The Company owns 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 owns 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 leased its two seniors housing properties to single member limited liability companies wholly-owned by TRS Holdings and engaged 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; whereas, its medical office building has been leased on a net or modified gross basis to third-party tenants.

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 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 nine months ended September 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.

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.

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.

2. Summary of Significant Accounting Policies (continued)

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. 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.  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 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 does not expect of adoption of this ASU will have a material impact on the Company’s consolidated financial statements.

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Revenue

9 Months Ended

Sep. 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.

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

	Nine Months Ended September 30,
Type of Investment	Number of Units				Revenues				Percentage of Revenues
Resident fees and services:	2018		2017		2018		2017		2018			2017
Assisted living		129		67	$	2,706,757	$	1,609,755		72.2	%		73.9	%
Memory care		52		22		998,661		556,818		26.6	%		25.6	%
Other revenues	―		―			43,266		11,993		1.2	%		0.5	%
		181		89	$	3,748,684	$	2,178,566		100.0	%		100.0	%

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Real Estate Acquisitions

9 Months Ended

Sep. 30, 2018

Business Combinations [Abstract]

Real Estate Acquisitions

4. Real Estate Acquisitions

During the nine months ended September 30, 2018, the Company acquired a seniors housing community in Riverview, Florida (“Riverview”) for a purchase price of approximately $24.3 million.  In connection therewith, the Company incurred approximately $0.7 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 92 resident units (62 assisted living and 30 memory care units) and is operated under a RIDEA structure pursuant to a five-year property management agreement with Fosters Development, Inc. (“Fosters”).

During the nine months ended September 30, 2017, the Company acquired a seniors housing community in Pensacola, Florida (“Summer Vista”) 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 resident units (67 assisted living and 22 memory care 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 the above mentioned acquisitions, and the related assets acquired and liabilities assumed in connection with the acquisitions:

	September 30,
	2018			2017
Land and land improvements	$	1,763,286		$	2,269,406
Buildings and building improvements		21,087,594			17,611,786
Furniture, fixtures and equipment		813,747			857,338
In-place resident agreement    intangibles (1)		1,282,871			1,286,507
Liabilities assumed		(115,779	)		(170,918	)
Total purchase price consideration	$	24,831,719		$	21,854,119

FOOTNOTE:

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

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Real Estate Assets, net

9 Months Ended

Sep. 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 September 30, 2018 and December 31, 2017 are as follows:

	September 30,			December 31,
	2018			2017
Land and land improvements	$	4,446,358		$	2,683,051
Building and building improvements		49,197,217			28,109,037
Furniture, fixtures and equipment		1,764,570			879,288
Less: accumulated depreciation		(1,466,628	)		(585,437	)
Real estate assets, net	$	53,941,517		$	31,085,939

Depreciation expense on the Company’s real estate assets, net was approximately $0.3 million and $0.9 million for the quarter and nine months ended September 30, 2018, respectively, and approximately $0.2 million and $0.4 million for the quarter and nine months ended September 30, 2017, respectively.

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Intangibles, net

9 Months Ended

Sep. 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 September 30, 2018 and December 31, 2017 are as follows:

	September 30,			December 31,
	2018			2017
In-place lease intangibles	$	2,209,247		$	2,209,125
In-place resident agreement intangibles		2,569,378			1,286,507
Below-market ground lease intangibles		1,543,910			1,543,824
Less: accumulated amortization		(1,015,163	)		(385,952	)
Intangible assets, net	$	5,307,372		$	4,653,504
Below-market lease intangibles	$	(340,409	)	$	(340,390	)
Less: accumulated amortization		22,915		―
Intangible liabilities, net (1)	$	(317,494	)	$	(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 $0.6 million for the quarter and nine months ended September 30, 2018, respectively, of which approximately $10,000 and $30,000 was treated as an increase of property operating expenses and approximately $0.2 million and $0.6 million was included in depreciation and amortization.  Amortization on the Company’s intangible assets was approximately $0.1 million and $0.3 million for the quarter and nine months ended September 30, 2017, respectively, all of which was included in depreciation and amortization.

Amortization on the Company’s intangible liabilities was approximately $8,000 and $23,000 for the quarter and nine months ended September 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 nine months ended September 30, 2017.

The estimated future amortization on the Company’s intangibles for the remainder of 2018, each of the next four years and thereafter, in the aggregate, as of September 30, 2018 is as follows:

	In-Place Lease Intangibles		In-Place Resident Agreement Intangibles		Below- market Ground Leases		Total Assets		Below- market leases		Total Liabilities
2018	$	56,939	$	256,938	$	9,897	$	323,774	$	7,638	$	7,638
2019		227,754		899,100		39,587		1,166,441		30,553		30,553
2020		198,365		513,148		39,587		751,100		27,103		27,103
2021		188,568		85,525		39,587		313,680		25,953		25,953
2022		188,568	―			39,587		228,155		25,953		25,953
Thereafter		1,178,248	―			1,345,974		2,524,222		200,294		200,294
	$	2,038,442	$	1,754,711	$	1,514,219	$	5,307,372	$	317,494	$	317,494

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Indebtedness

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Indebtedness

7. Indebtedness

In August 2018, in connection with the Riverview acquisition, the Company entered into a secured mortgage loan agreement with Florida Community Bank in the amount of approximately $5.0 million (“Riverview Loan”).  The Riverview loan matures on August 31, 2023.  The Riverview loan accrues interest at a rate of the sum of LIBOR plus 2.25%, with monthly payments of interest for the first 24 months, and monthly payments of interest and principal during the remaining months using a 30-year amortization period with the remaining balance payable at maturity.  The Company may prepay, without penalty, all or any part of the Riverview Loan at any time.

The following table provides details of the Company’s indebtedness as of September 30, 2018 and December 31, 2017:

	September 30,			December 31,
	2018			2017
Mortgages and notes payable:
Mortgage loans (1)	$	24,500,000		$	19,500,000
Notes payable		312,500			312,500
Mortgages and notes payable		24,812,500			19,812,500
Loan costs, net		(335,555	)		(279,514	)
Total mortgages and notes payable, net	$	24,476,945		$	19,532,986

FOOTNOTE:

(1) As of September 30, 2018, the Company’s mortgage loans are collateralized by its Summer Vista, Mid America Surgery, and Riverview properties.

The fair market value of the mortgage and notes payable was approximately $24.9 million as of September 30, 2018, which is based on current rates and spreads the Company would expect to obtain for similar borrowings.  Since this methodology includes inputs that are less observable by the public and are not necessarily reflected in active markets, the measurement of the estimated fair values is categorized as Level 3 on the three-level valuation hierarchy.

The following is a schedule of future principal payments and maturity for the Company’s indebtedness for the remainder of 2018, each of the next four years and thereafter, in the aggregate, as of September 30, 2018:

2018	$	32,036
2019		199,072
2020		5,829,156
2021		295,611
2022		13,304,382
Thereafter		5,152,243
	$	24,812,500

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Related Party Arrangements

9 Months Ended

Sep. 30, 2018

Related Party Transactions [Abstract]

Related Party Arrangements

8. 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 received 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 could be reallowed to participating broker dealers.  In addition, for Class T shares sold in the Primary Offering, the Dealer Manager could choose the respective amounts of the commission and dealer manager fee, provided that the selling commission did 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.  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.  Refer to Note 12. “Subsequent Events” for additional information.

The Company recorded 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.  The Company’s distribution and stockholder servicing fees liability was approximately $1.4 million as of September 30, 2018.  The Company’s obligation to pay the annual distribution and stockholder servicing fee ceased effective October 31, 2018 upon the conversion of the Class T and Class I shares into Class A Shares.  Refer to Note 12. “Subsequent Events” for additional information.  

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.

8. 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 Advisor received an investment services fee of 2.25% of the purchase price of properties for services in connection with the selection, evaluation, structure and purchase of assets.

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.  For the Expense Year ended September 30, 2018, the Company’s total operating expenses were in excess of this limitation by approximately $0.4 million.  As of September 30, 2018, the Company had received cumulative approvals from its independent directors for total operating expenses in excess of this limitation of approximately $0.9 million.  The Company’s independent directors determined that the higher relationship of operating expenses to average invested assets was justified based on unattained capital raise expectations which limited the number of investments, 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 nine months ended September 30, 2018, the Company paid cash distributions of approximately $38,000 and $114,000, respectively, and issued stock dividends of approximately 1,000 shares and 2,000 shares, respectively, to the Advisor.  For the quarter and nine months ended September 30, 2017, the Company paid cash distributions of approximately $40,000 and $108,000, respectively, and issued stock dividends of approximately 800 shares and 3,000 shares, respectively.

8. 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 nine months ended September 30, 2018 and cumulatively as of September 30, 2018:

	Quarter Ended				Nine Months Ended				As of
	September 30,				September 30,				September 30,
	2018		2017		2018		2017		2018
Fees for services rendered:
Asset management fees	$	87,488	$	42,800	$	229,088	$	86,060	$	359,454
Advisor personnel expenses (1)		112,784		95,805		362,555		320,204		798,958
Total fees for services rendered	$	200,272	$	138,605	$	591,643	$	406,264	$	1,158,412
Then-current offering price or NAV	$	10.06	$	10.93	$	10.06	$	10.93	$	10.06
Restricted stock shares (2)		19,908		12,681		58,811		37,170		115,150
Cash distributions on restricted stock (3)	$	8,113	$	―	$	16,226	$	―	$	16,226
Stock dividends on restricted stock (4)		170		―		340		―		340

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 September 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.

8. Related Party Arrangements (continued)

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

	Quarter Ended				Nine Months Ended				Unpaid amounts as of (1)
	September 30,				September 30,				September 30,		December 31,
	2018		2017		2018		2017		2018		2017
Selling commissions (2)	$	121,413	$	138,544	$	343,087	$	481,913	$	16,522	$	10,000
Dealer manager fees (2)		153,073		161,461		429,356		422,112		25,129		18,150
Distribution and stockholder    servicing fees (2)		307,630		239,677		822,477		462,356		1,395,460		798,524
	$	582,116	$	539,682	$	1,594,920	$	1,366,381	$	1,437,111	$	826,674

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

	Quarter Ended				Nine Months Ended				Unpaid amounts as of (1)
	September 30,				September 30,				September 30,		December 31,
	2018		2017		2018		2017		2018		2017
Reimbursable expenses:
Operating expenses (3)	$	227,393	$	221,415	$	754,188	$	652,824	$	68,844	$	197,235
Acquisition fees and expenses		8,680		5,816		10,183		27,705	―		―
		236,073		227,231		764,371		680,529		68,844		197,235
Investment Service Fees (4)		545,625	―			545,625		481,500	―		―
Asset Management Fees (5)		87,488		42,800		229,088		86,060	―		―
	$	869,186	$	270,031	$	1,539,084	$	1,248,089	$	68,844	$	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 nine months ended September 30, 2018, approximately $0.1 million and $0.4 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 $0.4 million, respectively. For the quarter and nine months ended September 30, 2017, approximately $0.1 million and $0.3 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 nine months ended September 30, 2018 the Company incurred approximately $0.5 million in investment services fees, all of which were capitalized and included in real estate investment properties, net in the accompanying condensed consolidated balance sheets. For the nine months ended September 30, 2017, the Company incurred approximately $0.5 million in investment service fees, all of which were 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 September 30, 2017.

⁽⁵⁾ For the quarter and nine months ended September 30, 2018, the Company incurred approximately $0.1 million and $0.2 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 nine months ended September 30, 2017, the Company incurred approximately $43,000 and $86,000 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

9 Months Ended

Sep. 30, 2018

Equity [Abstract]

Equity

9. Equity

Subscription Proceeds — As of September 30, 2018 and 2017, the Company had received aggregate subscription proceeds of approximately $51.2 million (4.9 million shares) and $23.3 million (2.2 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 $1.2 million (0.1 million shares) and $221,000 (22,100 shares), respectively, of subscription proceeds pursuant to the Reinvestment Plan.  The Company terminated and closed its Primary Offering effective October 1, 2018 and concurrently suspended the Reinvestment Plan.

Distributions — For the nine months ended September 30, 2018 and 2017, the Company declared and paid cash distributions of approximately $1.4 million and $0.5 million, respectively, which were net of class-specific expenses.  In addition, the Company declared and issued stock dividends of approximately 35,000 and 14,000 shares of common stock during the nine months ended September 30, 2018 and 2017, respectively.

For the nine months ended September 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 nine months ended September 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 September 2018, the Company’s board of directors declared a monthly cash distribution of $0.0480, less class-specific expenses, on each outstanding share of common stock on October 1, 2018, November 1, 2018 and December 1, 2018.  These distributions are to be paid and distributed by December 31, 2018.  In connection with the termination of the Offering effective October 1, 2018, the Company’s board of directors determined that it does not intend to authorize additional stock dividends at this time.  Refer to Note 12. “Subsequent Events” for additional information.

Redemptions — During the nine months ended September 30, 2018, the Company received requests for the redemption of common stock under its Redemption Plan of approximately $59,000 in Class T shares and $127,000 in Class A shares, which were approved for redemption at a weighted average price per share of $10.05 and paid in March 2018, June 2018, and September 2018, respectively.  There were no redemptions requested during the nine months ended September 30, 2017.  In connection with the termination of the Offering and the board of directors’ decision to consider possible strategic alternatives available to the Company, the Redemption Plan was suspended effective October 1, 2018 and the Company no longer accepts or processes any redemption requests received after such date.

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Income Taxes

9 Months Ended

Sep. 30, 2018

Income Tax Disclosure [Abstract]

Income Taxes

10. Income Taxes

The accompanying condensed consolidated financial statements include an interim tax provision for the quarter and nine months ended September 30, 2018 and 2017.  The Company recorded a total provision for income tax (benefit) expense of approximately ($10,000) and $35,000 for the quarter and nine months ended September 30, 2018, respectively, and approximately $12,000 and $42,000 for the quarter and nine months ended September 30, 2017, respectively.  Of the approximate $35,000 in income tax expense for the nine months ended September 30, 2018, approximately $32,000 represent current income tax expense, and approximately $3,000 represents 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 $42,000 in income tax expense for the nine months ended September 30, 2017, $73,000 represents current income tax expense offset by $31,000 of deferred tax benefit.

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Commitment and Contingencies

9 Months Ended

Sep. 30, 2018

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

11. 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

9 Months Ended

Sep. 30, 2018

Subsequent Events [Abstract]

Subsequent Events

12. Subsequent Events

In October 2018, the Company repaid approximately $0.3 million of promissory notes and redeemed approximately $0.3 million (26,000 shares) of shares, which were both previously issued in connection with a private placement offering in August 2016.

In connection with the close of the Offering effective October 1, 2018, certain underwriting compensation limits were met and, effective October 31, 2018, each Class T and Class I share automatically converted into a Class A share pursuant to the terms of the Company’s charter.  The Class T and Class I shares converted into Class A shares on a one-for-one basis because the most recent estimated NAV per share of $10.06, which was approved by the Company’s board of directors as of December 31, 2017, is the same for all share classes.  Stockholders who received Class A shares upon the conversion will no longer be subject to the class-specific expenses associated with Class T and Class I shares.  The Company’s obligation to pay the approximate $1.4 million distribution and stockholder servicing fees liability as of September 30, 2018 to the Dealer Manager ceased effective October 31, 2018 upon the conversion of the Class T and Class I shares into Class A Shares.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 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 nine months ended September 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.

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.

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. 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.  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 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 does not expect of adoption of this ASU will have a material impact on the Company’s consolidated financial statements.

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Revenue (Tables)

9 Months Ended

Sep. 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 nine months ended September 30, 2018 and 2017:

	Nine Months Ended September 30,
Type of Investment	Number of Units				Revenues				Percentage of Revenues
Resident fees and services:	2018		2017		2018		2017		2018			2017
Assisted living		129		67	$	2,706,757	$	1,609,755		72.2	%		73.9	%
Memory care		52		22		998,661		556,818		26.6	%		25.6	%
Other revenues	―		―			43,266		11,993		1.2	%		0.5	%
		181		89	$	3,748,684	$	2,178,566		100.0	%		100.0	%

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Real Estate Acquisitions (Tables)

9 Months Ended

Sep. 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 the above mentioned acquisitions, and the related assets acquired and liabilities assumed in connection with the acquisitions:

	September 30,
	2018			2017
Land and land improvements	$	1,763,286		$	2,269,406
Buildings and building improvements		21,087,594			17,611,786
Furniture, fixtures and equipment		813,747			857,338
In-place resident agreement    intangibles (1)		1,282,871			1,286,507
Liabilities assumed		(115,779	)		(170,918	)
Total purchase price consideration	$	24,831,719		$	21,854,119

FOOTNOTE:

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

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Real Estate Assets, net (Tables)

9 Months Ended

Sep. 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 September 30, 2018 and December 31, 2017 are as follows:

	September 30,			December 31,
	2018			2017
Land and land improvements	$	4,446,358		$	2,683,051
Building and building improvements		49,197,217			28,109,037
Furniture, fixtures and equipment		1,764,570			879,288
Less: accumulated depreciation		(1,466,628	)		(585,437	)
Real estate assets, net	$	53,941,517		$	31,085,939

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Intangibles, net (Tables)

9 Months Ended

Sep. 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 September 30, 2018 and December 31, 2017 are as follows:

	September 30,			December 31,
	2018			2017
In-place lease intangibles	$	2,209,247		$	2,209,125
In-place resident agreement intangibles		2,569,378			1,286,507
Below-market ground lease intangibles		1,543,910			1,543,824
Less: accumulated amortization		(1,015,163	)		(385,952	)
Intangible assets, net	$	5,307,372		$	4,653,504
Below-market lease intangibles	$	(340,409	)	$	(340,390	)
Less: accumulated amortization		22,915		―
Intangible liabilities, net (1)	$	(317,494	)	$	(340,390	)

FOOTNOTE:

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

Schedule of Estimated Future Amortization of Intangibles

The estimated future amortization on the Company’s intangibles for the remainder of 2018, each of the next four years and thereafter, in the aggregate, as of September 30, 2018 is as follows:

	In-Place Lease Intangibles		In-Place Resident Agreement Intangibles		Below- market Ground Leases		Total Assets		Below- market leases		Total Liabilities
2018	$	56,939	$	256,938	$	9,897	$	323,774	$	7,638	$	7,638
2019		227,754		899,100		39,587		1,166,441		30,553		30,553
2020		198,365		513,148		39,587		751,100		27,103		27,103
2021		188,568		85,525		39,587		313,680		25,953		25,953
2022		188,568	―			39,587		228,155		25,953		25,953
Thereafter		1,178,248	―			1,345,974		2,524,222		200,294		200,294
	$	2,038,442	$	1,754,711	$	1,514,219	$	5,307,372	$	317,494	$	317,494

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Indebtedness (Tables)

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Schedule of Indebtedness

The following table provides details of the Company’s indebtedness as of September 30, 2018 and December 31, 2017:

	September 30,			December 31,
	2018			2017
Mortgages and notes payable:
Mortgage loans (1)	$	24,500,000		$	19,500,000
Notes payable		312,500			312,500
Mortgages and notes payable		24,812,500			19,812,500
Loan costs, net		(335,555	)		(279,514	)
Total mortgages and notes payable, net	$	24,476,945		$	19,532,986

Schedule of Future Principal Payments and Maturity

The following is a schedule of future principal payments and maturity for the Company’s indebtedness for the remainder of 2018, each of the next four years and thereafter, in the aggregate, as of September 30, 2018:

2018	$	32,036
2019		199,072
2020		5,829,156
2021		295,611
2022		13,304,382
Thereafter		5,152,243
	$	24,812,500

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Related Party Arrangements (Tables)

9 Months Ended

Sep. 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 nine months ended September 30, 2018 and 2017, and related amounts unpaid as of September 30, 2018 and December 31, 2017 are as follows:

	Quarter Ended				Nine Months Ended				Unpaid amounts as of (1)
	September 30,				September 30,				September 30,		December 31,
	2018		2017		2018		2017		2018		2017
Reimbursable expenses:
Operating expenses (3)	$	227,393	$	221,415	$	754,188	$	652,824	$	68,844	$	197,235
Acquisition fees and expenses		8,680		5,816		10,183		27,705	―		―
		236,073		227,231		764,371		680,529		68,844		197,235
Investment Service Fees (4)		545,625	―			545,625		481,500	―		―
Asset Management Fees (5)		87,488		42,800		229,088		86,060	―		―
	$	869,186	$	270,031	$	1,539,084	$	1,248,089	$	68,844	$	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 nine months ended September 30, 2018, approximately $0.1 million and $0.4 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 $0.4 million, respectively. For the quarter and nine months ended September 30, 2017, approximately $0.1 million and $0.3 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 nine months ended September 30, 2018 the Company incurred approximately $0.5 million in investment services fees, all of which were capitalized and included in real estate investment properties, net in the accompanying condensed consolidated balance sheets. For the nine months ended September 30, 2017, the Company incurred approximately $0.5 million in investment service fees, all of which were 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 September 30, 2017.

⁽⁵⁾ For the quarter and nine months ended September 30, 2018, the Company incurred approximately $0.1 million and $0.2 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 nine months ended September 30, 2017, the Company incurred approximately $43,000 and $86,000 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 nine months ended September 30, 2018 and 2017, and related amounts unpaid as of September 30, 2018 and December 31, 2017 are as follows:

	Quarter Ended				Nine Months Ended				Unpaid amounts as of (1)
	September 30,				September 30,				September 30,		December 31,
	2018		2017		2018		2017		2018		2017
Selling commissions (2)	$	121,413	$	138,544	$	343,087	$	481,913	$	16,522	$	10,000
Dealer manager fees (2)		153,073		161,461		429,356		422,112		25,129		18,150
Distribution and stockholder    servicing fees (2)		307,630		239,677		822,477		462,356		1,395,460		798,524
	$	582,116	$	539,682	$	1,594,920	$	1,366,381	$	1,437,111	$	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 nine months ended September 30, 2018 and cumulatively as of September 30, 2018:

	Quarter Ended				Nine Months Ended				As of
	September 30,				September 30,				September 30,
	2018		2017		2018		2017		2018
Fees for services rendered:
Asset management fees	$	87,488	$	42,800	$	229,088	$	86,060	$	359,454
Advisor personnel expenses (1)		112,784		95,805		362,555		320,204		798,958
Total fees for services rendered	$	200,272	$	138,605	$	591,643	$	406,264	$	1,158,412
Then-current offering price or NAV	$	10.06	$	10.93	$	10.06	$	10.93	$	10.06
Restricted stock shares (2)		19,908		12,681		58,811		37,170		115,150
Cash distributions on restricted stock (3)	$	8,113	$	―	$	16,226	$	―	$	16,226
Stock dividends on restricted stock (4)		170		―		340		―		340

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 September 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 ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Mar. 02, 2016
Organization Consolidation And Presentation Of Financial Statements Disclosure [Line Items]
Aggregate offering proceeds	$ 19,009,962	$ 16,448,354
Common stock, shares sold	4,900,000	2,200,000
Initial Public Offering
Organization Consolidation And Presentation Of Financial Statements Disclosure [Line Items]
Common stock, value authorized			$ 1,750,000,000
Aggregate offering proceeds	$ 51,200,000
Common stock, shares sold	4,900,000
Reinvestment Plan
Organization Consolidation And Presentation Of Financial Statements Disclosure [Line Items]
Common stock, value authorized			$ 250,000,000
Aggregate offering proceeds	$ 1,200,000
Common stock, shares sold	100,000

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Revenue - Schedule of Disaggregated Revenue for Resident Fees and Services (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($) ResidentialUnit	Sep. 30, 2017 USD ($) ResidentialUnit
Disaggregation Of Revenue [Line Items]
Resident fees and services: Number of Units | ResidentialUnit			181	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	$ 1,483,924	$ 1,095,696	$ 3,748,684	$ 2,178,566
Assisted Living
Disaggregation Of Revenue [Line Items]
Resident fees and services: Number of Units | ResidentialUnit			129	67
Resident fees and services: Percentage of Revenues			72.20%	73.90%
Assisted Living | Health Care Resident Service
Disaggregation Of Revenue [Line Items]
Resident fees and services: Revenues			$ 2,706,757	$ 1,609,755
Memory Care
Disaggregation Of Revenue [Line Items]
Resident fees and services: Number of Units | ResidentialUnit			52	22
Resident fees and services: Percentage of Revenues			26.60%	25.60%
Memory Care | Health Care Resident Service
Disaggregation Of Revenue [Line Items]
Resident fees and services: Revenues			$ 998,661	$ 556,818
Other Revenues
Disaggregation Of Revenue [Line Items]
Resident fees and services: Percentage of Revenues			1.20%	0.50%
Other Revenues | Health Care Resident Service
Disaggregation Of Revenue [Line Items]
Resident fees and services: Revenues			$ 43,266	$ 11,993

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Real Estate Acquisitions - Additional Information (Details)	9 Months Ended
	Sep. 30, 2018 USD ($) Residential AssistedLiving MemoryCare	Sep. 30, 2017 USD ($) Residential AssistedLiving MemoryCare
Business Acquisition [Line Items]
Acquisition fees and expenses	$ 818
Fosters
Business Acquisition [Line Items]
Property management agreement period	5 years
Superior Residences
Business Acquisition [Line Items]
Property management agreement period		5 years
Riverview Florida
Business Acquisition [Line Items]
Purchase price	$ 24,300,000
Acquisition fees and expenses	$ 700,000
Number of resident units | Residential	92
Riverview Florida | Assisted Living
Business Acquisition [Line Items]
Number of resident units | AssistedLiving	62
Riverview Florida | Memory Care
Business Acquisition [Line Items]
Number of resident units | MemoryCare	30
Summer Vista
Business Acquisition [Line Items]
Purchase price		$ 21,400,000
Acquisition fees and expenses		$ 600,000
Number of resident units | Residential		89
Summer Vista | Assisted Living
Business Acquisition [Line Items]
Number of resident units | AssistedLiving		67
Summer Vista | Memory Care
Business Acquisition [Line Items]
Number of resident units | MemoryCare		22

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Real Estate Acquisitions - Summary of Purchase Price Allocation and Related Assets Acquired and Liabilities Assumed (Details) - Riverview and Summer Vista - USD ($)		Sep. 30, 2018	Sep. 30, 2017
Business Acquisition [Line Items]
Land and land improvements		$ 1,763,286	$ 2,269,406
Buildings and building improvements		21,087,594	17,611,786
Furniture, fixtures and equipment		813,747	857,338
In-place resident agreement intangibles	[1]	1,282,871	1,286,507
Liabilities assumed		(115,779)	(170,918)
Total purchase price consideration		$ 24,831,719	$ 21,854,119

[1] At the acquisition date, the weighted-average amortization period on the acquired in-place resident agreement 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)	9 Months Ended
	Sep. 30, 2018
Riverview and Summer Vista
Business Acquisition [Line Items]
Weighted average amortization period on acquired in-place resident agreement intangibles	2 years 6 months

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Real Estate Assets, net - Schedule of Real Estate Assets (Details) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Real Estate [Abstract]
Land and land improvements	$ 4,446,358	$ 2,683,051
Building and building improvements	49,197,217	28,109,037
Furniture, fixtures and equipment	1,764,570	879,288
Less: accumulated depreciation	(1,466,628)	(585,437)
Real estate assets, net	$ 53,941,517	$ 31,085,939

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Real Estate Assets, net - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Real Estate Assets,Net [Member]
Real Estate Properties [Line Items]
Depreciation expense	$ 0.3	$ 0.2	$ 0.9	$ 0.4

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Intangibles, net - Schedule of Gross Carrying Amount and Accumulated Amortization of Intangibles (Details) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Goodwill And Intangible Assets Disclosure [Abstract]
In-place lease intangibles	$ 2,209,247	$ 2,209,125
In-place resident agreement intangibles	2,569,378	1,286,507
Below-market ground lease intangibles	1,543,910	1,543,824
Less: accumulated amortization	(1,015,163)	(385,952)
Intangible assets, net	5,307,372	4,653,504
Below-market lease intangibles	(340,409)	(340,390)
Less: accumulated amortization	22,915
Intangible liabilities, net	$ (317,494)	$ (340,390)

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Intangibles, net - Additional Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Finite Lived Intangible Assets And Liabilities [Line Items]
Amortization expense on intangible assets	$ 200,000		$ 600,000
Amortization of intangible liabilities		$ 0		$ 0
Property Operating Expenses
Finite Lived Intangible Assets And Liabilities [Line Items]
Amortization expense on intangible assets	10,000		30,000
Depreciation And Amortization
Finite Lived Intangible Assets And Liabilities [Line Items]
Amortization expense on intangible assets	200,000	$ 100,000	600,000	$ 300,000
Rental Income from Operating Leases
Finite Lived Intangible Assets And Liabilities [Line Items]
Amortization of intangible liabilities	$ 8,000		$ 23,000

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Intangibles, net - Schedule of Estimated Future Amortization of Intangibles (Details) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Finite Lived Intangible Assets And Liabilities [Line Items]
2018	$ 323,774
2019	1,166,441
2020	751,100
2021	313,680
2022	228,155
Thereafter	2,524,222
Intangible assets, net	5,307,372	$ 4,653,504
2018	7,638
2019	30,553
2020	27,103
2021	25,953
2022	25,953
Thereafter	200,294
Below-market lease intangibles	317,494	$ 340,390
2018	7,638
2019	30,553
2020	27,103
2021	25,953
2022	25,953
Thereafter	200,294
Finite-lived intangible liabilities	317,494
In-Place Lease Intangibles
Finite Lived Intangible Assets And Liabilities [Line Items]
2018	56,939
2019	227,754
2020	198,365
2021	188,568
2022	188,568
Thereafter	1,178,248
Intangible assets, net	2,038,442
In-Place Resident Agreement Intangibles
Finite Lived Intangible Assets And Liabilities [Line Items]
2018	256,938
2019	899,100
2020	513,148
2021	85,525
Intangible assets, net	1,754,711
Below-Market Ground Leases
Finite Lived Intangible Assets And Liabilities [Line Items]
2018	9,897
2019	39,587
2020	39,587
2021	39,587
2022	39,587
Thereafter	1,345,974
Intangible assets, net	$ 1,514,219

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Indebtedness - Additional Information (Details) - USD ($)		1 Months Ended
		Aug. 31, 2018	Sep. 30, 2018	Dec. 31, 2017
Debt Instrument [Line Items]
Secured mortgage loan amount	[1]		$ 24,500,000	$ 19,500,000
Level 3
Debt Instrument [Line Items]
Mortgage and notes payable, fair market value			$ 24,900,000
Riverview Florida
Debt Instrument [Line Items]
Secured mortgage loan amount		$ 5,000,000
Secured mortgage loan, maturity date		Aug. 31, 2023
Secured mortgage loan, payment of interest, term		24 months
Secured mortgage loan, amortization period		30 years
Riverview Florida | LIBOR
Debt Instrument [Line Items]
Secured mortgage loan, interest rate		2.25%

[1] As of September 30, 2018, the Company’s mortgage loans are collateralized by its Summer Vista, Mid America Surgery, and Riverview properties.

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Indebtedness - Schedule of Indebtedness (Details) - USD ($)		Sep. 30, 2018	Dec. 31, 2017
Mortgages and notes payable:
Mortgage loans	[1]	$ 24,500,000	$ 19,500,000
Notes payable		312,500	312,500
Mortgages and notes payable		24,812,500	19,812,500
Loan costs, net		(335,555)	(279,514)
Total mortgages and notes payable, net		$ 24,476,945	$ 19,532,986

[1] As of September 30, 2018, the Company’s mortgage loans are collateralized by its Summer Vista, Mid America Surgery, and Riverview properties.

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Indebtedness - Schedule of Future Principal Payments and Maturity (Details) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Debt Disclosure [Abstract]
2018	$ 32,036
2019	199,072
2020	5,829,156
2021	295,611
2022	13,304,382
Thereafter	5,152,243
Mortgages and notes payable	$ 24,812,500	$ 19,812,500

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Related Party Arrangements - Additional Information (Details) - USD ($)	1 Months Ended	3 Months Ended		9 Months Ended
	Mar. 31, 2017	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Related Party Transaction [Line Items]
Distribution and stockholder servicing fees liability		$ 1,400,000		$ 1,400,000
Cash distributions paid				$ 597,676	$ 259,767
Stock dividends issued				14,000	14,000
Advisor
Related Party Transaction [Line Items]
Monthly asset management fee as percentage of real estate value				0.0667%
Investment service fee as percentage of purchase price of properties				2.25%
Operating expenses in excess of limitation				$ 400,000
Operating expenses in excess of limitation approved				900,000
Cash distributions paid		$ 38,000	$ 40,000	$ 114,000	$ 108,000
Stock dividends issued		1,000	800	2,000	3,000
Class A Common Stock
Related Party Transaction [Line Items]
Stock dividends issued				8,021	5,454
Class T Common Stock
Related Party Transaction [Line Items]
Distribution and stockholder servicing fee				1.00%
Stock dividends issued				24,541	8,549
Class I Common Stock
Related Party Transaction [Line Items]
Distribution and stockholder servicing fee				0.50%
Stock dividends issued				2,696	291
Maximum | Advisor
Related Party Transaction [Line Items]
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		9 Months Ended
		Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Fees for services rendered:
Asset management fees	[1]	$ 87,488	$ 42,800	$ 229,088	$ 86,060
Stock dividends on restricted stock				14,000	14,000
Expense Support Agreement
Fees for services rendered:
Asset management fees		359,454		$ 359,454
Advisor personnel expenses	[2]	798,958		798,958
Total fees for services rendered		1,158,412		1,158,412
Asset management fees		87,488	42,800	229,088	$ 86,060
Advisor personnel expenses	[2]	112,784	95,805	362,555	320,204
Total fees for services rendered		$ 200,272	$ 138,605	$ 591,643	$ 406,264
Then-current offering price or NAV		$ 10.06		$ 10.06
Then-current offering price or NAV		$ 10.06	$ 10.93	$ 10.06	$ 10.93
Expense Support Agreement | Restricted Stock
Fees for services rendered:
Restricted stock shares	[3]	115,150		115,150
Cash distributions on restricted stock	[4]	$ 16,226		$ 16,226
Stock dividends on restricted stock	[5]	340		340
Restricted stock shares	[3]	19,908	12,681	58,811	37,170
Cash distributions on restricted stock	[4]	$ 8,113		$ 16,226
Stock dividends on restricted stock	[5]	170		340

[1] For the quarter and nine months ended September 30, 2018, the Company incurred approximately $0.1 million and $0.2 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 nine months ended September 30, 2017, the Company incurred approximately $43,000 and $86,000 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 September 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)	9 Months Ended
	Sep. 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		9 Months Ended
		Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Related Party Transaction [Line Items]
Distribution and stockholder servicing fees				$ 1,395,460	$ 549,449
Acquisition fees and expenses				818
Total reimbursable expenses		$ 236,073	$ 227,231	764,371	680,529
Investment Service Fees	[1]	545,625		545,625	481,500
Asset Management Fees	[2]	87,488	42,800	229,088	86,060
Total reimbursable expenses, net		869,186	270,031	1,539,084	1,248,089
Operating expenses, Unpaid amount	[3]	68,844		68,844		$ 197,235
Total reimbursable expenses due	[3]	68,844		68,844		197,235
Related parties, Unpaid amount	[3]	68,844		68,844		197,235
Reimbursable Expense
Related Party Transaction [Line Items]
Operating expenses	[4]	227,393	221,415	754,188	652,824
Acquisition fees and expenses		8,680	5,816	10,183	27,705
Dealer Manager
Related Party Transaction [Line Items]
Selling commissions	[5]	121,413	138,544	343,087	481,913
Dealer manager fees	[5]	153,073	161,461	429,356	422,112
Distribution and stockholder servicing fees	[5]	307,630	239,677	822,477	462,356
Total offering expenses		582,116	$ 539,682	1,594,920	$ 1,366,381
Selling commissions, Unpaid amount	[3]	16,522		16,522		10,000
Dealer Manager fees, Unpaid amount	[3]	25,129		25,129		18,150
Distribution and stockholder servicing fees, Unpaid amount	[3]	1,395,460		1,395,460		798,524
Total offering expenses unpaid	[3]	$ 1,437,111		$ 1,437,111		$ 826,674

[1] For the quarter and nine months ended September 30, 2018 the Company incurred approximately $0.5 million in investment services fees, all of which were capitalized and included in real estate investment properties, net in the accompanying condensed consolidated balance sheets. For the nine months ended September 30, 2017, the Company incurred approximately $0.5 million in investment service fees, all of which were 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 September 30, 2017.

[2] For the quarter and nine months ended September 30, 2018, the Company incurred approximately $0.1 million and $0.2 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 nine months ended September 30, 2017, the Company incurred approximately $43,000 and $86,000 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 nine months ended September 30, 2018, approximately $0.1 million and $0.4 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 $0.4 million, respectively. For the quarter and nine months ended September 30, 2017, approximately $0.1 million and $0.3 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		9 Months Ended
		Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Related Party Transaction [Line Items]
Investment services fees	[1]	$ 545,625		$ 545,625	$ 481,500
Investment service fees capitalized		53,941,517		53,941,517		$ 31,085,939
Investment Services Fees
Related Party Transaction [Line Items]
Investment services fees		500,000	$ 0	500,000	500,000
Investment service fees capitalized		500,000	500,000	500,000	500,000
Expense Support Agreement
Related Party Transaction [Line Items]
Advisor personnel expenses		100,000	100,000	400,000	300,000
Reduction in general and administrative expenses		100,000		400,000
Asset management fees		$ 100,000	$ 43,000	$ 200,000	$ 86,000

[1] For the quarter and nine months ended September 30, 2018 the Company incurred approximately $0.5 million in investment services fees, all of which were capitalized and included in real estate investment properties, net in the accompanying condensed consolidated balance sheets. For the nine months ended September 30, 2017, the Company incurred approximately $0.5 million in investment service fees, all of which were 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 September 30, 2017.

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Equity - Additional Information (Details) - USD ($)				1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended
	Dec. 01, 2018	Nov. 01, 2018	Oct. 01, 2018	Sep. 30, 2018	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2016	Jun. 30, 2018	Mar. 31, 2018
Class Of Stock [Line Items]
Aggregate proceeds from public offering							$ 51,200,000	$ 23,300,000
Common stock, shares sold							4,900,000	2,200,000
Subscription proceeds pursuant to the Reinvestment Plan							$ 1,200,000	$ 221,000
Subscription proceeds pursuant to the Reinvestment Plan, shares							100,000	22,100
Cash distributions declared net of class-specific expenses							$ 1,400,000	$ 500,000
Cash distributions paid net of class-specific expenses							$ 1,400,000	$ 500,000
Stock dividends declared							35,000	35,000
Stock dividends issued (in shares)							14,000	14,000
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
Distributions to be paid and distributed date				Dec. 31, 2018
Dividends payable, date declared				2018-09	2018-09		2018-09
Redemption of common stock, per share				$ 10.05	$ 10.05		$ 10.05			$ 10.05	$ 10.05
Redemptions of common stock							$ 185,460
Class A Common Stock
Class Of Stock [Line Items]
Common stock, shares sold							93,663	378,053
Stock dividends issued (in shares)							8,021	5,454
Redemptions of common stock							$ 127,000	$ 0
Class T Common Stock
Class Of Stock [Line Items]
Redemptions of common stock							$ 59,000	$ 0
Subsequent Event
Class Of Stock [Line Items]
Cash distribution and stock dividend declared date		Nov. 01, 2018	Oct. 01, 2018
Scenario Forecast
Class Of Stock [Line Items]
Cash distribution and stock dividend declared date	Dec. 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]
Stock dividends issued (in shares)					1,000	800	2,000	3,000
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		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Income Tax Disclosure [Abstract]
Income tax (benefit) expense	$ (10,000)	$ 12,000	$ 35,000	$ 42,000
Current income tax expense			32,000	73,000
Decrease to net deferred tax assets			$ (3,000)
Total deferred tax benefit				$ 31,000

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Subsequent Events - Additional Information (Details) - USD ($)		1 Months Ended	9 Months Ended
	Oct. 31, 2018	Oct. 31, 2018	Sep. 30, 2018
Subsequent Event [Line Items]
Redemption of notes, value			$ 185,460
Distribution and stockholder servicing fees liability			1,400,000
Class A Common Stock
Subsequent Event [Line Items]
Redemption of notes, value			$ 126
Redemption of notes, shares			12,614
Dealer Manager | Class A Common Stock
Subsequent Event [Line Items]
Distribution and stockholder servicing fees liability			$ 1,400,000
Subsequent Event | Class A Common Stock
Subsequent Event [Line Items]
Number of shares issued upon conversion of shares	1
Stock conversion basis	The Class T and Class I shares converted into Class A shares on a one-for-one basis
Estimated NAV per share	$ 10.06	$ 10.06
Subsequent Event | Private Placement
Subsequent Event [Line Items]
Redemption of notes, value		$ 300,000
Redemption of notes, shares		26,000
Promissory Notes | Subsequent Event | Private Placement
Subsequent Event [Line Items]
Repayment of debt		$ 300,000