Company Quick10K Filing
CNL Healthcare Properties II
Price1.00 EPS688,891
Shares-0 P/E0
MCap-0 P/FCF-0
Net Debt-5 EBIT-1
TEV-5 TEV/EBIT8
TTM 2019-09-30, in MM, except price, ratios
10-Q 2019-09-30 Filed 2019-11-14
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-09
10-K 2018-12-31 Filed 2019-03-20
10-Q 2018-09-30 Filed 2018-11-08
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-31 Filed 2018-03-15
10-Q 2017-09-30 Filed 2017-11-08
10-Q 2017-06-30 Filed 2017-08-09
10-Q 2017-03-31 Filed 2017-05-11
10-K 2016-12-31 Filed 2017-02-15
10-Q 2016-09-30 Filed 2016-11-10
10-Q 2016-06-30 Filed 2016-08-10
10-Q 2016-03-31 Filed 2016-05-06
8-K 2020-03-19
8-K 2020-02-28
8-K 2020-01-24
8-K 2019-11-01
8-K 2019-09-10
8-K 2019-05-06
8-K 2019-03-13
8-K 2019-03-01
8-K 2019-01-24
8-K 2018-10-31
8-K 2018-09-28
8-K 2018-08-31
8-K 2018-07-03
8-K 2018-06-12
8-K 2018-03-14
8-K 2018-03-06
8-K 2018-01-30
8-K 2017-12-31
8-K 2017-12-27

CHPII 10Q Quarterly Report

Item 1. Condensed Consolidated Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Mine Safety Disclosure - Not Applicable
Item 5. Other Information - None
Item 6. Exhibits
EX-31.1 chpii-ex311_8.htm
EX-31.2 chpii-ex312_6.htm
EX-32.1 chpii-ex321_7.htm

CNL Healthcare Properties II Earnings 2019-09-30

Balance SheetIncome StatementCash Flow
705642281402015201620182020
Assets, Equity
2.51.91.20.6-0.1-0.72017201820192020
Rev, G Profit, Net Income
25155-5-15-252015201620182020
Ops, Inv, Fin

10-Q 1 chpii-10q_20190930.htm 10-Q chpii-10q_20190930.htm

 

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, 2019

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, 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

Securities registered pursuant to Section 12(b) of the Act:

 

 

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

None

N/A

N/A

The number of shares of the registrant’s outstanding common stock as of October 31, 2019 was 4,899,139 Class A shares.

 

 


 

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

 

INDEX

 

 

 

 

 

PART I.  FINANCIAL INFORMATION

 

PAGE

 

 

 

 

Item 1.Condensed Consolidated Financial Information (unaudited):

 

 

 

Condensed Consolidated Statement of Net Assets (Liquidation Basis)

 

1

 

Condensed Consolidated Balance Sheet (Going Concern Basis)

 

2

 

Condensed Consolidated Statement of Changes in Net Assets (Liquidation Basis)

 

3

 

Condensed Consolidated Statements of Operations (Going Concern Basis)

 

4

 

Condensed Consolidated Statements of Equity (Going Concern Basis)

 

5

 

Condensed Consolidated Statements of Cash Flows (Going Concern Basis)

 

6

 

Notes to Condensed Consolidated Financial Statements

 

7

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

 

21

Item 3.Quantitative and Qualitative Disclosures about Market Risk

 

28

Item 4.Controls and Procedures

 

28

 

 

 

 

PART II.  OTHER INFORMATION

 

 

 

 

 

 

Item 1.Legal Proceedings

 

29

Item 1A.Risk Factors

 

29

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

 

29

Item 3.Defaults Upon Senior Securities

 

29

Item 4.Mine Safety Disclosures

 

29

Item 5.Other Information

 

29

Item 6.Exhibits

 

29

 

 

 

 

Exhibit Index

 

30

Signatures

 

31

 

 

 

 


 

Item 1. Condensed Consolidated Financial Information

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF NET ASSETS

(Liquidation Basis)

(Unaudited)

 

 

 

September 30,

ASSETS

 

2019

Real estate investment properties

$

 

48,000,000

Cash

 

 

4,652,043

Restricted cash

 

 

321,115

Other assets

 

 

249,320

Total assets

$

 

53,222,478

 

 

 

 

LIABILITIES

 

 

 

Mortgage loans

$

 

6,150,000

Liability for estimated costs in excess of estimated receipts during liquidation

 

 

2,369,538

Accounts payable and accrued liabilities

 

 

908,002

Other liabilities

 

 

38,495

Due to related parties

 

 

78,079

Total liabilities

 

 

9,544,114

Commitments and contingencies (Note 13)

 

 

 

Net assets in liquidation

$

 

43,678,364

 

See accompanying notes to condensed consolidated financial statements.

 

1


 

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Going Concern Basis)

(Unaudited)

 

 

 

December 31,

 

ASSETS

 

2018

 

Real estate investment properties, net

 

$

42,969,180

 

Assets held for sale, net

 

 

14,202,202

 

Cash

 

 

8,003,576

 

Intangibles, net

 

 

1,497,809

 

Other assets

 

 

382,637

 

Restricted cash

 

 

233,971

 

Total assets

 

$

67,289,375

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

Liabilities:

 

 

 

 

Mortgage loans, net

 

$

18,665,013

 

Liabilities associated with assets held for sale

 

 

6,247,187

 

Accounts payable and accrued liabilities

 

 

497,081

 

Other liabilities

 

 

128,957

 

Due to related parties

 

 

85,902

 

Total liabilities

 

 

25,624,140

 

 

 

 

 

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

 

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, 1,200,000,000 shares authorized;

   4,899,139 shares both issued and outstanding

 

 

48,995

 

Class T Common stock, $0.01 par value per share, 700,000,000 shares authorized;

   none issued or outstanding

 

 

Class I Common stock, $0.01 par value per share, 100,000,000 shares authorized;

   none issued or outstanding

 

 

Capital in excess of par value

 

 

48,039,220

 

Accumulated loss

 

 

(3,464,160)

 

Accumulated distributions

 

 

(2,958,820)

 

Total stockholders' equity

 

 

41,665,235

 

Total liabilities and stockholders' equity

 

$

67,289,375

 

 

See accompanying notes to condensed consolidated financial statements.

 

2


 

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS

(Liquidation Basis)

(Unaudited)

 

 

 

Period from

September 1, 2019

through

 

 

 

September 30, 2019

 

Net assets in liquidation, beginning of period (Note 5)

 

$

43,796,825

 

Changes in net assets in liquidation:

 

 

 

 

Cash payments net of cash receipts

 

 

(118,461)

 

Net assets in liquidation, end of period

 

$

43,678,364

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


 

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Going Concern Basis)

(Unaudited)

 

 

 

Two Months

 

 

Quarter

 

 

Eight Months

 

 

Nine Months

 

 

 

Ended

 

 

Ended

 

 

Ended

 

 

Ended

 

 

 

August 31,

 

 

September 30,

 

 

August 31,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Resident fees and services

 

$

1,490,631

 

 

$

1,483,924

 

 

$

5,841,081

 

 

$

3,748,684

 

Total revenues

 

 

1,490,631

 

 

 

1,483,924

 

 

 

5,841,081

 

 

 

3,748,684

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

 

1,020,058

 

 

 

942,446

 

 

 

3,735,511

 

 

 

2,181,612

 

General and administrative expenses

 

 

371,795

 

 

 

300,989

 

 

 

1,197,034

 

 

 

905,686

 

Acquisition fees and expenses

 

 

 

 

 

 

 

 

 

 

 

818

 

Property management fees

 

 

74,216

 

 

 

73,996

 

 

 

291,842

 

 

 

228,318

 

Depreciation and amortization

 

 

451,154

 

 

 

438,469

 

 

 

1,795,444

 

 

 

1,087,147

 

Total operating expenses

 

 

1,917,223

 

 

 

1,755,900

 

 

 

7,019,831

 

 

 

4,403,581

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(426,592)

 

 

 

(271,976)

 

 

 

(1,178,750)

 

 

 

(654,897)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income

 

 

8,744

 

 

 

9,884

 

 

 

27,004

 

 

 

9,946

 

Interest expense and loan cost amortization

 

 

(51,505)

 

 

 

(220,314)

 

 

 

(567,415)

 

 

 

(595,497)

 

Total other expense

 

 

(42,761)

 

 

 

(210,430)

 

 

 

(540,411)

 

 

 

(585,551)

 

Loss before income taxes

 

 

(469,353)

 

 

 

(482,406)

 

 

 

(1,719,161)

 

 

 

(1,240,448)

 

Income tax benefit (expense)

 

 

 

 

 

9,938

 

 

 

(30,533)

 

 

 

(35,245)

 

Loss from continuing operations

 

 

(469,353)

 

 

 

(472,468)

 

 

 

(1,749,694)

 

 

 

(1,275,693)

 

Income from discontinued operations

 

 

 

 

 

13,781

 

 

 

1,666,868

 

 

 

76,575

 

Net loss

 

$

(469,353)

 

 

$

(458,687)

 

 

$

(82,826)

 

 

$

(1,199,118)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A common stock (basic and diluted):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to Class A stockholders

 

$

(469,353)

 

 

$

(87,907)

 

 

$

(82,826)

 

 

$

(257,552)

 

Net loss per share of Class A common stock outstanding

 

$

(0.10)

 

 

$

(0.10)

 

 

$

(0.02)

 

 

$

(0.30)

 

Weighted average number of Class A common shares outstanding

 

 

4,899,139

 

 

 

879,674

 

 

 

4,899,139

 

 

 

857,729

 

Distributions declared per Class A common share

 

$

 

 

$

0.1440

 

 

$

0.1440

 

 

$

0.4320

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class T common stock (basic and diluted):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to Class T stockholders

 

$

 

 

$

(327,896)

 

 

$

 

 

$

(845,906)

 

Net loss per share of Class T common stock outstanding

 

$

 

 

$

(0.10)

 

 

$

 

 

$

(0.30)

 

Weighted average number of Class T common shares outstanding

 

 

 

 

 

3,281,231

 

 

 

 

 

 

2,817,132

 

Distributions declared per Class T common share

 

$

 

 

$

0.1177

 

 

$

 

 

$

0.3530

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class I common stock (basic and diluted):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to Class I stockholders

 

$

 

 

$

(42,884)

 

 

$

 

 

$

(95,660)

 

Net loss per share of Class I common stock outstanding

 

$

 

 

$

(0.10)

 

 

$

 

 

$

(0.30)

 

Weighted average number of Class I common shares outstanding

 

 

 

 

 

429,142

 

 

 

 

 

 

318,577

 

Distributions declared per Class I common share

 

$

 

 

$

0.1310

 

 

$

 

 

$

0.3936

 

 

See accompanying notes to condensed consolidated financial statements.

 

4


 

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Going Concern Basis)

(Unaudited)

 

 

 

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 June 30, 2019

 

4,899,139

 

$

48,995

 

 

$

 

 

$

 

$

48,039,220

 

$

(3,077,633)

 

$

(3,664,293)

 

$

41,346,289

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(469,353)

 

 

 

 

(469,353)

Balance at August 31, 2019

 

4,899,139

 

$

48,995

 

 

$

 

 

$

 

$

48,039,220

 

$

(3,546,986)

 

$

(3,664,293)

 

$

40,876,936

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

4,899,139

 

$

48,995

 

 

$

 

 

$

 

$

48,039,220

 

$

(3,464,160)

 

$

(2,958,820)

 

$

41,665,235

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(82,826)

 

 

 

 

(82,826)

Cash distributions declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(705,473)

 

 

(705,473)

Balance at August 31, 2019

 

4,899,139

 

$

48,995

 

 

$

 

 

$

 

$

48,039,220

 

$

(3,546,986)

 

$

(3,664,293)

 

$

40,876,936

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018

 

866,325

 

$

8,663

 

3,010,868

 

$

30,109

 

348,644

 

$

3,487

 

$

40,355,933

 

$

(2,399,408)

 

$

(1,731,573)

 

$

36,267,211

Subscriptions received for common stock,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

including distribution reinvestments

 

27,937

 

 

280

 

530,986

 

 

5,310

 

129,978

 

 

1,300

 

 

7,197,379

 

 

 

 

 

 

7,204,269

Stock dividends issued

 

2,819

 

 

28

 

9,622

 

 

96

 

1,229

 

 

12

 

 

(136)

 

 

 

 

 

 

Redemptions of common stock

 

—  

 

 

― 

 

(3,298)

 

 

(33)

 

 

 

 

 

(33,146)

 

 

 

 

 

 

(33,179)

Stock issuance and offering costs

 

 

 

 

 

 

 

 

 

 

 

(582,115)

 

 

 

 

 

 

(582,115)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(458,687)

 

 

 

 

(458,687)

Cash distributions declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(554,780)

 

 

(554,780)

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, 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

 

See accompanying notes to condensed consolidated financial statements.

 

5


 

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Going Concern Basis)

(Unaudited)

 

 

 

Eight Months

Ended

August 31,

 

 

Nine Months

Ended

September 30,

 

 

 

2019

 

 

2018

 

Operating activities:

 

 

 

 

 

 

 

 

Net cash flows provided by (used in) operating activities – continuing operations

 

$

679,646

 

 

$

(336,905)

 

Net cash flows provided by operating activities – discontinued operations

 

 

188,175

 

 

 

541,630

 

Net cash flows provided by operating activities

 

 

867,821

 

 

 

204,725

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Acquisition of properties

 

 

 

 

(24,740,622)

 

Capital expenditures

 

 

(112,713)

 

 

 

(49,179)

 

Net cash flows used in investing activities – continuing operations

 

 

(112,713)

 

 

 

(24,789,801)

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 

 

(23,151)

 

Proceeds from sale of real estate

 

 

15,044,231

 

 

 

Net cash flows provided by (used in) investing activities – discontinued operations

 

 

15,044,231

 

 

 

(23,151)

 

 

 

 

 

 

 

 

 

 

Net cash flows provided by (used in) investing activities

 

 

14,931,518

 

 

 

(24,812,952)

 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Subscriptions received for common stock through primary offering

 

 

 

 

19,009,962

 

Payment of underwriting compensation

 

 

 

 

(984,483)

 

Payment of cash distributions, net of distribution reinvestments during 2018

 

 

(705,473)

 

 

 

(597,676)

 

Redemptions of common stock

 

 

 

 

(185,460)

 

Repayment of mortgage loans

 

 

(18,350,000)

 

 

 

Proceeds from mortgage loans

 

 

 

 

5,000,000

 

Payment of loan costs

 

 

 

 

(91,649)

 

Net cash flows (used in) provided by financing activities

 

 

(19,055,473)

 

 

 

22,150,694

 

 

 

 

 

 

 

 

 

 

Net decrease in cash and restricted cash

 

 

(3,256,134)

 

 

 

(2,457,533)

 

Cash and restricted cash at beginning of period, including held for sale

 

 

8,237,547

 

 

 

12,421,919

 

Cash and restricted cash at end of period, including held for sale

 

$

4,981,413

 

 

$

9,964,386

 

 

 

 

 

 

 

 

 

 

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

 

Loan costs

 

$

 

 

$

27,807

 

Selling commissions and Dealer Manager fees

 

$

 

 

$

41,651

 

Annual distribution and stockholder servicing fee

 

$

 

 

$

1,395,460

 

Assumption of liabilities on acquisition of property

 

$

 

 

$

115,779

 

 

See accompanying notes to condensed consolidated financial statements.

 

6


 

CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 (UNAUDITED)

 

1.

Organization

CNL Healthcare Properties II, Inc. (“Company”) is a Maryland corporation that incorporated on July 10, 2015 and elected to be taxed as a real estate investment trust (“REIT”) for United States (“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 and dispositions, 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”).  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.

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.  Through the close of its Offering, the Company had received aggregate 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.  

In 2018, 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 with an unrelated third-party or affiliated party of the Company’s Sponsor.  In January 2019, the Special Committee engaged SunTrust Robinson Humphrey, Inc., an investment banker, to act as a financial advisor to the aforementioned Special Committee and, subsequently, the Company committed to a plan to sell its medical office building (“MOB”), Mid America Surgery Institute (“Mid America Surgery”).  

In March 2019, the Company entered into an asset purchase agreement (“Sale Agreement”) with HCP Medical Office Buildings, LLC related to the sale of Mid America Surgery for a gross sales price of $15.4 million (“MOB Sale”), subject to certain pro-rations and other adjustments as described in the Sale Agreement.  In May 2019, the Company completed the MOB Sale.  

In March 2019, in connection with the exploration of strategic alternatives, the Company’s board of directors suspended regular cash distributions to stockholders effective April 1, 2019. In addition, in March 2019, the Company’s advisory agreement was amended and restated to eliminate acquisition fees and dispositions fees as well as to reduce the asset management fees (“AUM Fees”) to 0.40% per annum of average invested assets.  The Company’s board of directors and its Advisor also agreed to terminate the Expense Support Agreement effective April 1, 2019; refer to Note 11. “Related Party Arrangements” for additional information.  Moreover, effective April 1, 2019, the Advisor waived its rights to any AUM Fees going forward, with such waiver to remain in effect through the Company’s dissolution and liquidation.    

 

7


CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 (UNAUDITED)

 

1.

Organization (continued)

As of September 30, 2019, the Company owned two seniors housing communities that are leased to single member limited liability companies wholly-owned by TRS Holdings, a subsidiary of the Company.  TRS Holdings has 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.

In September 2019, the Company's stockholders approved a plan of dissolution ("Plan of Dissolution") as further described in Note 2. “Plan of Dissolution.” As a result of the adoption of the Plan of Dissolution, all of the Company's real estate properties are considered held for sale and the Company has adopted the liquidation basis of accounting ("Liquidation Basis of Accounting") effective September 1, 2019 as described in Note 4. "Net Assets in Liquidation."  There can be no assurance that the Company will have a liquidity event in the near term.

2.

Plan of Dissolution

As described in Note 1. “Organization,” the Plan of Dissolution approved by stockholders in September 2019 authorizes the Company to undertake the sale of all its assets, distribute the net proceeds after payment of all of the Company's liabilities to stockholders as liquidating distributions, wind-up the Company’s operations and dissolve the Company in accordance with Maryland law.  The Company is permitted to provide for the payment of any unascertained or contingent liabilities and may do so by purchasing insurance, establishing a reserve fund or in other ways deemed necessary.  

 

The Plan of Dissolution enables the Company to sell any and all of its assets without further approval of the stockholders and provides that liquidating distributions be made to the stockholders as determined by the board. Pursuant to applicable REIT rules, in order to be able to deduct liquidating distributions as dividends, the Company must distribute all of the net proceeds from the sale of its assets to stockholders by September 2021, which represents 24 months following the stockholders’ approval of the Plan of Dissolution.  However, if the Company cannot sell its assets and pay its debts within 24 months, or if the board of directors and the Special Committee determine that it is otherwise advisable to do so, the Company may transfer and assign its remaining assets to a liquidating trust.  Upon such transfer and assignment, stockholders will receive interests in the liquidating trust.  The liquidating trust will pay or provide for all of the Company’s liabilities and distribute any remaining net proceeds from the sale of its assets to the holders of interests in the liquidating trust.

 

The dissolution process and the amount and timing of liquidating distributions to stockholders involves risks and uncertainties. Accordingly, it is not possible to predict the timing or aggregate amount which will ultimately be distributed to stockholders and no assurance can be given that the distributions will equal or exceed the estimate of net assets presented in the accompanying condensed consolidated statement of net assets.

 

The Company expects to continue to qualify as a REIT throughout the liquidation until such time as any remaining assets, if any, are transferred into a liquidating trust. The board of directors shall use commercially reasonable efforts to continue to cause the Company to maintain its REIT status, provided however, the board of directors may elect to terminate the Company's status as a REIT if it determines that such termination would be in the best interest of the stockholders.

3.

Summary of Significant Accounting Policies

Basis of Presentation - As a result of the approval of the Plan of Dissolution by its stockholders in September 2019, the Company’s financial position and results of operations for the nine months ended September 30, 2019 will be presented using two different presentations.  The Company adopted the Liquidation Basis of Accounting as of September 1, 2019 and for the periods subsequent to September 1, 2019.  As a result, a new statement of financial position (Statement of Net Assets) is presented, which represents the estimated amount of cash that the Company expects to collect on disposal of its assets as it carries out its Plan of Dissolution.  In addition, a new statement of operations (Statement of Changes in Net Assets) reflects any changes in net assets from the original estimated values as of September 1, 2019 through the most recent period presented.

 

8


CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 (UNAUDITED)

 

3.

Summary of Significant Accounting Policies (continued)

All financial results and disclosures up through August 31, 2019, prior to adopting the Liquidation Basis of Accounting, are presented based on a going concern basis (“Going Concern Basis”), which contemplated the realization of assets and liabilities in the normal course of business. As a result, the balance sheet as of December 31, 2018, and the statements of operations and the statements of cash flows for the eight months ended August 31, 2019 and the comparative nine months ended September 30, 2018 used the Going Concern Basis consistent with the presentation in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

The accompanying unaudited 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.

Basis of Presentation Liquidation Basis (Post-Plan of Dissolution) – As a result of the approval of the Plan of Dissolution by its stockholders in September 2019, the Company adopted the Liquidation Basis of Accounting as of September 1, 2019 and for the periods subsequent to September 1, 2019 in accordance with generally accepted accounting principles of the United States (“GAAP”). Accordingly, as of September 1, 2019, the Company’s assets were adjusted to their estimated net realizable value, or liquidation value, which represents the estimated amount of cash that the Company will collect on disposal of its assets as it carries out the Plan of Dissolution. The liquidation value of the Company's operating properties is presented on an undiscounted basis. Estimated costs to dispose of its assets have been presented separately from the related assets. Liabilities are carried at their contractual amounts due or estimated settlement amounts.

The Company accrues costs and income that it expects to incur and earn through the end of liquidation to the extent it has a reasonable basis for estimation. These amounts are classified as a liability for estimated costs in excess of estimated receipts during liquidation in the accompanying condensed consolidated statement of net assets. Actual costs and income may differ from amounts reflected in the financial statements because of inherent uncertainty in estimating future events. These differences may be material. See Note 4. "Liability for Estimated Costs in Excess of Estimated Receipts During Liquidation" for further discussion. Actual costs incurred but unpaid as of September 30, 2019 are included in accounts payable and accrued liabilities, due to related parties and other liabilities in the accompanying condensed consolidated statement of net assets.

Net assets in liquidation represents the estimated liquidation value available to stockholders upon liquidation. Due to the uncertainty in the timing of the anticipated sale date(s) and the estimated cash flows, actual operating results and sale proceeds may differ materially from the amounts estimated.

Basis of Presentation - Going Concern Basis (Pre-Plan of Dissolution)- The accompanying unaudited condensed consolidated financial statements through August 31, 2019 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 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 operating results for the interim period presented. Operating results for the periods ended August 31, 2019 and September 30, 2018 were prepared on the going concern basis of accounting, which contemplates the realization of assets and liabilities in the normal course of business. Amounts as of December 31, 2018 included in the unaudited condensed consolidated financial statements have been derived from the 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, 2018.

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.

9


CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 (UNAUDITED)

 

3.

Summary of Significant Accounting Policies (continued)

Assets Held for Sale, net and Discontinued Operations — The Company determines to classify a property as held for sale once management has the authority to approve and commits to a plan to sell the property, the property is available for immediate sale, there is an active program to locate a buyer, the sale of the property is probable and the transfer of the property is expected to occur within one year.  Upon the determination to classify a property as held for sale, the Company ceases recording further depreciation and amortization relating to the associated assets and those assets are measured at the lower of its carrying amount or fair value less disposition costs and are presented separately in the consolidated balance sheets for all periods presented.  In addition, the Company classifies assets held for sale as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on the Company’s operations and financial results.  For any disposal(s) qualifying as discontinued operations, the Company allocates interest expense and loan cost amortization that directly relates to any mortgage loan(s) collateralized by properties classified as discontinued operations.

Reclassifications – Certain amounts in the prior year’s condensed consolidated balance sheet, statement of operations and statement of cash flows have been reclassified to conform to the current year’s presentation, primarily related to the classification of the Company’s MOB property as held for sale and discontinued operations, with no effect on the other previously reported consolidated financial statements.  

Adopted Accounting Pronouncements — In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“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 also requires 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 that allows 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 elected the practical expedient and applied the guidance to all of the leases that qualified under the established criteria.  In December 2018, the FASB issued ASU 2018-20, “Leases (Topic 842): Narrow-Scope Improvements for Lessors,” which addressed challenges encountered in determining certain lessor costs paid by the lessee directly to third parties by allowing lessors to exclude these costs from its variable lease payments.  This amendment did not have a material impact on the Company’s financial statements and related disclosures as it conformed Accounting Standard Codification (“ASC”) 842 to the Company’s historical accounting under ASC 840.  In March 2019, the FASB issued ASU 2019-01, “Leases (Topic 842): Codification Improvements,” which clarified the transition guidance related to interim disclosure requirements in the year of adoption.  All of the ASC 842 ASUs are effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2018.

The Company adopted these ASUs on January 1, 2019 using a modified retrospective approach, the adoption of these ASUs did not have a material impact on the Company’s consolidated results of operations or cash flows.  However, the adoption of these ASUs did impact the Company’s consolidated financial position for arrangements such as ground or other leases in which the Company is the lessee.  More specifically, the adoption of ASC 842 resulted in the Company recording operating lease assets and liabilities on January 1, 2019.  The following table provides additional details by financial statement line item of the adjusted presentation in the Company’s consolidated financial position:

 

 

As Presented

 

Effect of

 

As Adjusted

 

December 31,

 

ASC 842

 

January 1,

 

2018

 

Adoption

 

2019

Other assets

$

382,637

 

$

32,500

 

$

415,137

Total assets

$

67,289,375

 

$

32,500

 

$

67,321,875

 

 

 

 

 

 

 

 

 

Other liabilities

$

(128,957)

 

$

(32,500)

 

$

(161,457)

Total liabilities

$

(25,624,140)

 

$

(32,500)

 

$

(25,656,640)

 

10


CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 (UNAUDITED)

 

3.

Summary of Significant Accounting Policies (continued)

 

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 ASU 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 adopted this ASU prospectively on January 1, 2019; the adoption of which did not have a material impact on the Company’s consolidated results of operations or cash flows.

 

4.

Liability for Estimated Costs in Excess of Estimated Receipts During Liquidation

The Liquidation Basis of Accounting requires the Company to estimate net cash flows from operations and to accrue all costs associated with implementing and completing the Plan of Dissolution. The Company currently estimates that it will have costs in excess of estimated receipts during the liquidation. These amounts can vary significantly due to, among other things, the timing and estimates for occupancy, the timing of any property sale(s), direct costs incurred to complete the sale(s), the timing and amounts associated with discharging known and contingent liabilities and the costs associated with the winding up of operations. These costs are estimated and are anticipated to be paid out over the liquidation period.

Upon transition to the Liquidation Basis of Accounting as of September 1, 2019, the Company accrued the following estimated receipts and costs expected to be incurred during liquidation:

 

Resident fees and services

 

$

4,549,487

 

Property operating expenses

 

(3,125,538)

 

Property management fees

 

(245,763)

 

General and administrative

 

(713,957)

 

Interest expense

 

(131,554)

 

Liquidation transaction costs

 

(2,605,872)

 

Liability for estimated costs in excess of estimated receipts during liquidation

 

$

(2,273,197)

 

 

The change in the liability for estimated costs in excess of estimated receipts during liquidation as of September 30, 2019 is as follows:

 

 

 

September 1,

2019

 

Cash Payments

(Receipts)

 

Remeasurement

of Assets and

Liabilities

 

September 30,

2019

Assets:

 

 

 

 

 

 

 

 

Net inflows from real estate investments

 

$

1,178,186

 

 

$

(207,906)

 

 

$

 

 

$

970,280

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Corporate expenditures

 

(713,957)

 

 

87,636

 

 

 

 

(626,321)

 

Interest expense on mortgage loans

 

(131,554)

 

 

23,929