OVERVIEW BROCHURE. Built on Experience

Transcription

1 OVERVIEW BROCHURE Built on Experience For general use with the public. No offering is made to residents of New York, Maryland or any other state, except by a prospectus filed with the Department of Law of the state of New York, the Maryland Division of Securities or the respective state securities administrator. Neither the U.S. Securities and Exchange Commission, the attorney general of the state of New York, the Maryland Division of Securities nor any other state securities administrator has passed on or endorsed the merits of the REIT s offering or the adequacy or accuracy of this piece or the REIT s prospectus. Any representation to the contrary is unlawful.

2 RISK FACTORS Investing in a non-traded REIT is a higher risk, longer term investment and is not suitable for all investors. Shares may lose value, or investors could lose their entire investment. The REIT was recently organized and has a limited operating history on which investors may evaluate operations and prospects for the future. The REIT is a blind pool offering that is in the initial stages of property acquisitions and has made limited investments. This is a best-efforts offering and if the REIT raises substantially less than the maximum offering amount, it may not be able to invest in a large variety of portfolio assets, which will subject investors to greater risk. Non-traded REITs are illiquid. There is no public trading market for the shares. The REIT does not expect to offer a liquidity event in the near future and investors should be prepared to hold shares for an indefinite period of time. If investors are able to sell their shares, it would likely be at a substantial discount. There are significant limitations on the redemption of investors shares under the REIT s redemption plan. The REIT can determine not to redeem any shares or to redeem only a portion of the shares for which redemption is requested. In no event will more than 5 percent of the weighted average of all share classes of the outstanding shares be redeemed in any 12-month period. The REIT may modify, suspend or terminate the redemption plan at any time. Holding periods may be waived for qualifying events. The REIT is obligated to pay substantial fees to its advisor, managing dealer, property manager and their respective affiliates for their services in managing the day-to-day operations of the REIT based upon agreements that have not been negotiated at arm s length, and some of which are payable based upon factors other than the quality of services. These fees could influence their advice and judgment in performing services. In addition, certain officers and directors of the advisor also serve as the REIT s officers and directors, as well as officers and directors of competing programs, resulting in conflicts of interest. There is no guarantee of future distributions or that distributions will be paid at all. Due to the high levels of investment costs and fees incurred during the REIT's initial phase, distributions will not be fully covered by cash flows from operating activities and will be paid from expense waivers, borrowings and offering proceeds. For the year ended Dec. 31, 2017, approximately 30 percent of cash distributions were covered by operating cash flow and 70 percent were funded by offering proceeds. For the year ended Dec. 31, 2016, distributions were not covered by operating cash flow and were 100 percent funded by offering proceeds. Distributions paid from sources other than operating cash flow, now and in the future, are not sustainable, can reduce investors overall return and may be dilutive. The per share amount of distributions on Class A, Class T and Class I shares will differ because of the timing of certain class-specific expenses. Specifically, distributions on Class T shares and Class I shares will be lower than distributions on Class A shares because the REIT is required to pay ongoing distribution and servicing fees with respect to the Class T shares and Class I shares. These fees are not applicable to Class A shares. If the REIT fails to maintain its qualification as a REIT for any taxable year, it will be subject to federal income tax and net earnings available for investment or distributions would be reduced. The use of leverage to acquire assets may hinder the REIT s ability to pay distributions and/or decrease the value of shareholders' investments. There are significant risks associated with the seniors housing and healthcare sectors, including market risks impacting demand, competition from other entities, litigation risks and the cost of being responsive to changing government regulations. The REIT s success in these sectors is dependent, in part, on the ability to evaluate local conditions, identify appropriate opportunities and find qualified tenants or, where properties are acquired through a taxable REIT subsidiary, engage and retain qualified independent managers. Read the prospectus, including the Risk Factors section, for full details. GENERAL NOTICES This is not an offer to sell nor a solicitation of an offer to buy shares of the REIT. Only the prospectus makes such an offer. This piece must be read in conjunction with the prospectus in order to understand fully all the objectives, risks, charges and expenses associated with an investment and must not be relied upon to make a decision. The information herein does not supplement or revise any information in the REIT's public filings. To the extent information herein conflicts with the prospectus, the information in the prospectus shall govern. The prospectus is available on sec.gov and cnlhealthcarepropertiesii.com. Forward-looking statements are based on current expectations and may be identified by words such as believes, expects, may, could and terms of similar substance and speak only as of the date made. Actual results could differ materially due to risks and uncertainties that are beyond the REIT s ability to control or accurately predict. Investors should not place undue reliance on forward-looking statements. Managing dealer of CNL Healthcare Properties II is CNL Securities, member FINRA/SIPC. Shares are offered to the public through selling firms. Selling firms are reminded that the REIT's communications must be accompanied or preceded by a prospectus. This material is provided by CNL and its affiliates and is intended for general use with the public. CNL and its affiliates cannot provide investment advice for any individual or any individual situation, and are not acting in a fiduciary capacity to any investor. Do not look to this material for any investment advice. CNL and its affiliates have financial interests that are served by the sale of CNL Healthcare Properties II s shares. 1

3 2

4 3

5 Built on Experience The market for seniors housing and healthcare real estate may benefit from several large-scale trends that will play out in the United States over the coming decades. With an established track record in these markets, CNL Financial Group (CNL) is an experienced sponsor that has longstanding relationships with leading industry operators. 1 Launched in 2016, CNL Healthcare Properties II is a non-traded real estate investment trust (REIT) that builds on CNL s expertise to help investors who are seeking income and long-term growth capitalize on this continuing opportunity. 2 With a strategic focus on seniors housing and healthcare real estate, this non-traded REIT offers: n Access to a durable sector. n Income generation. 3 n An experienced manager. 1 While the majority of CNL REITs produced positive returns, some prior programs have been adversely affected by general economic conditions and other external factors. There is no assurance the stated objectives will be met. 1 CNL Healthcare Properties II has a limited operating history. The prior performance of real estate programs sponsored by CNL may not be indicative of the future results of CNL Healthcare Properties II. Prior programs sponsored by CNL have been adversely affected by general economic conditions and other external factors during their respective operating periods. While the majority of CNL REITs produced positive returns for shareholders, all investing involves variables outside of anyone s control. During select periods, some REIT programs sponsored by CNL had a backlog of redemption requests that were unfulfilled and experienced net operating losses. During and after the global financial crisis in 2008, some REITs experienced impairments and declining performance, which impacted the REITs valuation. 2 CNL Healthcare Properties II intends to qualify and elect REIT tax status beginning with the taxable year ending Dec. 31, There is no guarantee of future distributions or that distributions will be paid at all. Due to the high levels of investment costs and fees incurred during the REIT's initial phase, distributions will not be fully covered by cash flows from operating activities and will be paid from expense waivers, borrowings and offering proceeds, which can reduce investors overall return and may be dilutive. 4

6 The Four Dimensions of Investing in Seniors Housing and Healthcare Real Estate CNL Healthcare Properties II intends to strategically capitalize on several long-term shifts in the United States, which are combining to make seniors housing and healthcare real estate an attractive investment opportunity. Collectively, these can be thought of as the 4Ds. Demographic Shift The U.S. population is steadily getting older and living longer. This demographic trend will continue for the next several decades and will trigger corresponding shifts in the real estate required to house and care for aging residents. According to the U.S. Census Bureau, the seniors population will increase by more than 50 percent by During this period, more than 11,000 people will turn 65 every day. 5 The seniors population is anticipated to increase by 55% from Seniors Population (Millions) There are significant risks associated with the seniors housing and healthcare sectors, including market risks impacting demand, competition from other entities, litigation risks and the cost of being responsive to changing government regulations. Favorable market conditions cannot provide any certainty that investors in a non-traded REIT will realize positive returns. Past performance is not indicative of future results. Factors could cause actual results to vary materially from those expressed in forwardlooking statements. 4 "Projections of the Population by Sex and Selected Age Groups for the United States: ," Population Projections, U.S. Census Bureau, accessed March 31, 2017 (data as of December 2014). 5 Sandra L. Colby and Jennifer M. Ortman, "The Baby Boom Cohort in the United States: 2012 to 2060," U.S. Census Bureau, May

7 Demand for Healthcare As a result of demographic shifts and ongoing chronic illnesses, healthcare spending is projected to continue rising, both in absolute terms and as a percentage of the U.S. gross domestic product (GDP). National healthcare spending is projected to account for approximately 20 percent of the GDP by Demand for care increases with age and will drive the need for new medical office buildings, acute-care and post acute care facilities and other types of healthcare real estate. Annual physician office visits increase significantly with age 7 8 Visits Per Capita Under 18 Years Years Years 65+ Years Similarly, the demand for seniors housing continues to rise. Yet, the new supply of these buildings is not keeping pace. In fact, a 284 percent increase in annual unit production is needed to address the projected demands for It is important to note that industry growth projections also could increase competition and may impact the availability of real estate investments and suitable tenants. Projected demand, limited supply growth in seniors housing 8 Required Production Rate To Meet Expected Demand ( ) 96,000 units/year Current Production Rate ( ) 25,000 units/year Population demand is not the only factor in actual demand. In-home care or care outside traditional healthcare real estate facilities may impact the actual demand trend. 6 National Healthcare Expenditure Projections 2016 to 2025, Centers for Medicare and Medicaid Services, accessed June 19, "U.S. Office Investment Forecast," Marcus & Millichap, A Projection of U.S. Seniors Housing Demand , American Seniors Housing Association, Summer

8 The Four Dimensions of Investing in Seniors Housing and Healthcare Real Estate Delivery of Care Recent developments in the healthcare industry including new technology and reforms to the Affordable Care Act are changing the way hospitals and physicians deliver care to patients. There is a greater emphasis on value and efficiency, as well as continued pressure to reduce healthcare costs and reduce exposure to Medicare and Medicaid reimbursements. As a result, healthcare providers are treating more patients in outpatient facilities rather than in hospitals. Approximately two-thirds of all surgeries no longer require an overnight hospital stay, thus impacting the need for available real estate. 9 For example, greater outpatient care requires far more facilities, such as medical office buildings and surgical care centers, which intend to be more convenient and are often preferred by patients. Outpatient surgeries have increased more than 30 percent over the past two decades. 9 Patient Surgeries in U.S. (Millions) Outpatient Inpatient There are significant risks associated with the seniors housing and healthcare sectors, including market risks impacting demand, competition from other entities, litigation risks and the cost of being responsive to changing government regulations. Favorable market conditions cannot provide any certainty that investors in a non-traded REIT will realize positive returns. Past performance is not indicative of future results. Factors could cause actual results to vary materially from those expressed in forward-looking statements. 9 Trendwatch Chartbook 2016, American Hospital Association, May

9 Durable Sector While many real estate sectors are impacted by macro-economic events that cascade to a particular market, seniors housing and healthcare real estate is largely nondiscretionary, or needs based, mostly insulating it from economic drivers. This is why the healthcare employment growth rate has remained steady at approximately two percent per year, whereas all other sectors saw a change in employment numbers that mirrored economic trends over the past decade. 10 In addition, investments in seniors housing real estate assets have proven to be a durable strategy, as the average annual asking rent for seniors housing 11, 12, 13 units has outpaced inflation. Steady growth of healthcare employment sector 10 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% Non Farm Healthcare The average annual asking rent for seniors housing outpaced the average inflation for U.S. cities 11,12,13 Average Annual Seniors 2.5% Housing Rental Growth Rate Average Annual Consumer Price Index Growth Rate 1.8% 10 Consumer Employment Statistics," U.S. Bureau of Labor Statistics, accessed on March 13, Consumer Price Index, U.S. Bureau of Labor Statistics, accessed on March 13, NIC MAP Data Service, National Investment Center for Seniors Housing & Care, 4Q This is not indicative of how an investment in CNL Healthcare Properties II will perform in relationship to inflation. There is no assurance the asking rental growth rate will continue to increase or will not reverse itself in the future. Seniors housing rental rates have not outpaced the consumer price index growth rates for every calendar year. Trends for seniors housing rent growth rates differ based upon the supply and demand experienced in varying geographical regions. 8

10 Experienced Management Team Launched in 2016, CNL Healthcare Properties II draws upon the long-standing relationships with leading industry operators and extensive seniors CNL has successfully guided a prior seniors housing and healthcare REIT from inception through liquidation. housing and healthcare operating experience of CNL, its sponsor. CNL, a private investment management firm providing real estate and alternative investments, has successfully launched three seniors housing and healthcare REITs, guiding one from inception through liquidation. As with all investments, there are no guarantees CNL Healthcare Properties II will experience results similar to the performance of CNL s prior seniors housing and healthcare REITs. CNL Healthcare Properties II and its advisor, CHP II Advisors, LLC, believe that a proactive asset management approach and strong operator relationships are significant advantages to uncovering opportunities in the seniors housing and healthcare sectors. The advisor s team is able to strategically identify and analyze potential investment opportunities. This group of sector experts has extensive experience, resulting in unique insight, knowledge of the business and relationships. These relationships have often provided access to exclusive, off-market investment opportunities. CNL Healthcare Properties II has a limited operating history. Prior programs sponsored by CNL have been adversely affected by general economic conditions and other external factors during their respective operating periods. While the majority of CNL REITs produced positive returns for shareholders, all investing involves variables outside of anyone s control. During select periods, some REIT programs sponsored by CNL had a backlog of redemption requests that were unfulfilled and experienced net operating losses. During and after the global financial crisis in 2008, some REITs experienced impairments and declining performance, which impacted the REITs valuation. Investing will not provide an ownership interest in CNL headquarters, the property pictured above. 9

11 CNL Healthcare Properties II and its advisor were recently organized and have limited operating histories on which investors may evaluate operations and prospects for the future. Both the REIT s sponsor and advisor are affiliates of CNL. Some prior programs sponsored by CNL have been adversely affected from time to time by general economic conditions, capital market trends and other external factors during their respective operating periods. Please read the prospectus before investing. Since its inception in 1973, CNL and/or its affiliates have: Formed or acquired companies with more than $34 BILLION in assets. Distributed 9 non-traded REITs, 7 of which have gone full cycle. Invested in seniors housing and healthcare in 4 non-traded REITs. Invested approximately $8.4 BILLION in seniors housing and healthcare real estate. 14 As of Dec. 31, Past performance is not indicative of future results. 14 CNL's total seniors housing and healthcare real estate investment is approximately $7.97 billion of the approximately $8.43 billion collective real estate investment of CNL and its joint venture partners. 10

12 CNL Financial Group Timeline Seniors housing and healthcare industry pioneer First restaurant property is purchased First public investment offering, CNL Income Fund CNL Hotels & Resorts launched Inception of CNL Real Estate & Development CNL Lifestyle Properties launched CNL Retirement sold Commenced dist Chambers Street CNL is founded by James M. Seneff, Jr. CNL Securities registered as a broker-dealer with FINRA and the SEC CNL Restaurant Properties launched CNL Retirement Properties launched CNL Restaurant Properties liquidated 15 CNL Securities established First REIT launched F Investing will not provide an ownership interest in CNL headquarters, the properties pictured above the timeline. 15 CNL Restaurant Properties and 18 CNL Income Funds merged with and into U.S. Restaurant Properties, specifically through a reverse merger. The name was then changed to Trustreet Properties (TSY) and continued to trade on the NYSE. 11

13 Re-entry into the healthcare industry Properties ribution of 16 Properties CNL Growth Properties launched CNL Healthcare Properties launched Corporate Capital Trust launched Corporate Capital Trust II launched Global Income Trust liquidated CNL Lifestyle Properties liquidated CNL Growth Properties liquidated Corporate Capital Trust listed on NYSE 17 CNL Hotels & Resorts sold Inception of CNL Commercial Real Estate Global Income Trust Chambers Street Properties launched 16 listed on NYSE CNL Healthcare Properties II launched CNL Strategic Capital launched irst product with a partner First Business Development Company (BDC) launched 16 Chambers Street Properties, formerly CB Richard Ellis Realty Trust, was a REIT for which CNL Securities was the distributor between November 2006 and January CNL Financial Group owned an interest in its advisor and parent holding company. CNL entities are no longer affiliated with Chambers Street Properties. 17 Corporate Capital Trust listed on the NYSE on Nov. 14, 2017, upon which KKR Credit Advisors (US) LLC became the sole advisor. CNL is no longer affiliated with Corporate Capital Trust. 12

14 Investment Strategy CNL Healthcare Properties II intends to build a high-quality portfolio diversified by asset class, operator and ownership structure, although there is no assurance these objectives will be met. With the goal of delivering value for shareholders, a four-pronged strategic approach is used to acquire and develop properties. Please note that factors could cause actual results to vary materially from those expressed in forward-looking statements. Focus on Seniors Housing and Healthcare CNL Healthcare Properties II intends to invest in the following categories: Seniors Housing n Active Adult Communities n Independent Living n Assisted Living n Memory Care n Continuing Care Retirement Communities Medical Office n Medical Office Buildings n Specialty Medical n Diagnostic Service n Surgery Centers n Outpatient Rehabilitation Acute Care n General, Acute-Care Hospitals n Specialty Surgical Hospitals Post-Acute Care n Skilled Nursing n Long-Term, Acute-Care Hospitals n Inpatient Rehabilitation Invest in Quality Assets To select the right mix of assets for the portfolio, the management team considers a range of factors. Key Considerations for Seniors Housing n Market demographics, including the age and median income of residents in target areas n Limited regional competition or high barriers to entry n Property amenities attractive to seniors n Proximity to medical facilities, shopping and the arts n Property condition and age Key Considerations for Healthcare n Proximity to medical campuses or affiliation with major healthcare providers n Favorable demographics n Limited regional competition, high barriers to entry and consumer convenient location n Future lease potential n Property condition and age n Constructed specifically for healthcare services There are significant risks associated with the seniors housing and healthcare sectors, including market risks impacting demand, competition from other entities, litigation risks and the cost of being responsive to changing government regulations. The REIT s success in these sectors is dependent, in part, on the ability to evaluate local conditions, identify appropriate opportunities and find qualified tenants or, where properties are acquired through a taxable REIT subsidiary, engage and retain qualified independent managers. CNL Healthcare Properties II may also invest in other income-producing real estate and real estate-related securities and loans. 13

15 Build Value through Development CNL Healthcare Properties II plans to develop new properties in key locations with the goal of delivering enhanced asset value. Strategically investing a limited portion of capital into constructing new properties is intended to: n Generate greater operational income and higher asset values over the long term. 18 n Reduce the average age of the overall portfolio, which makes it relatively more attractive when exploring liquidity alternatives. Additionally, CNL Healthcare Properties II seeks to leverage CNL s relationships with proven developers and operators. The REIT intends to mitigate the significant risks associated with construction by shifting some of the responsibility to the developer for planning construction, obtaining predevelopment approvals and completing a project development plan so a project is shovel ready. The REIT typically provides incentives to its developers to complete the projects on time and on budget. Select Strong Operators and Tenants The selection process for operators and tenants is crucial and CNL Healthcare Properties II will only make a choice after a careful analysis of: n Current operations n Financial performance n Experience and reputation n Local expertise Above all, CNL Healthcare Properties II seeks operators and tenants who have a strong track record of: n Providing care n Retaining employees n Managing assets at a high level of operational and financial performance n Geographic reach Risks can be mitigated by thorough analysis of operators and tenants, but cannot be eliminated altogether. There is no assurance the stated objectives will be met. 18 Development properties will initially reduce the portfolio s cash flows including funds available for distributions, increase financing expenses and be subject to greater risks for obtaining government permits and staying on schedule for construction deadlines. 14

16 Hypothetical Illustration of How a Non-Traded REIT Works A non-traded REIT is a type of investment structure that offers the benefits of professionally managed real estate to individual investors. Investors purchase shares in non-traded REITs, which use the funds to acquire real estate and, to a lesser extent, invest in real estate-related assets. The REIT s real estate holdings intend to generate revenue in the form of rental income from tenants, interest payments or property operating income. The REIT passes the taxable income back to its investors through regular distributions. To maintain REIT tax status, at least 90 percent of the REIT's income must be distributed to its investors. Please note that an investor must review the fees and expenses in the prospectus as there are substantial costs associated with this offering. PURCHASE SHARES ACQUISITION, DEVELOPMENT AND/OR CAPITAL INVESTMENT INVESTORS NON-TRADED REAL ESTATE INVESTMENT TRUSTS (REITs) ASSETS/SECURITIES DISTRIBUTIONS RENTAL INCOME, INTEREST PAYMENTS OR PROPERTY OPERATING LOSS/INCOME There is no assurance these objectives will be met. Non-traded REITs are complex and varied. Please read the REIT s prospectus carefully. In the early stages of a REIT, the investment typically exhibits greater risks which include: few or no properties, limited operating history, has not elected or qualified as a REIT to obtain lower portfolio taxes to improve shareholder returns. Due to the high levels of investment costs and fees incurred with the REIT, early distributions will not be fully covered by cash flows from operating activities and will be paid from expense waivers, borrowings and offering proceeds. After the REIT has a couple of years operating history, the majority, if not all of the distributions should be covered by cash flow from operations. The REIT s limited redemptions and distributions are not guaranteed and subject to suspension, modification or termination by the REIT at any time. During the middle stages of the REITs life cycle, leverage will typically increase and shareholders votes are typically limited to a rare vote on major portfolio changes and members of the board of directors, as detailed in the prospectus and proxy. The REIT s management team and board of directors exercise independence over managing the portfolio s investments. 15

17 Why Invest in a Non-Traded REIT? Non-traded REITs are not intended for all investors. However, for those investors with a long-term focus, REITs may provide: n Portfolio diversification. n Historically low correlation between real estate and other traditional asset classes. n 19, 20 Potential protection against inflation. n Long-term income and growth within a portfolio. n Protection against daily market fluctuations. 21 Non-traded REITs are considered an illiquid investment. CNL Healthcare Properties II has a limited operating history and intends to qualify and elect REIT tax status beginning with the taxable year ending Dec. 31, There is no assurance these objectives will be met. 19 "NCREIF Property Index Returns," National Council on Real Estate Investment Fiduciaries, accessed on March 1, "Consumer Price Index," U.S. Bureau of Labor Statistics, accessed on March 1, There are significant limitations on the redemption of shares. 16

18 Built on experience Strong demographic trends currently underway, along with changes in the healthcare marketplace, have created ideal yet competitive conditions in the seniors housing and healthcare sectors. With deep industry expertise, a strong network of partnerships, and a diversified income and growth strategy, the REIT's management team believes CNL Healthcare Properties II has the elements in place to help investors capitalize on this core investment opportunity. To learn more, investors are encouraged to contact their financial advisor. Financial advisors are invited to contact the managing dealer, CNL Securities, member FINRA/SIPC, at or visit cnlhealthcarepropertiesii.com. 17

19 OFFERING DETAILS MAXIMUM OFFERING SIZE $2 billion shares of Class A, Class T or Class I common stock OFFERING PRICE PER SHARE 22 Class A: $10.99 Class T: $10.56 Class I: $10.06 MINIMUM INVESTMENT $5,000 ASSET FOCUS GEOGRAPHIC FOCUS RETURN OBJECTIVE 23 DISTRIBUTIONS 24 DISTRIBUTION PAYMENT SCHEDULE 24 Seniors housing, medical office, acute care, post-acute care and other income-producing real estate assets United States, with the opportunity for limited international acquisitions Income and growth Combination of cash and stock Declared monthly and paid quarterly DISTRIBUTION REINVESTMENT PRICE Equal to the most current net asset value (NAV) per share for each class REDEMPTION PRICE 25 TAX FORM EXIT STRATEGY FINANCIAL SUITABILITY STANDARDS Limited redemptions available at the NAV per share 1099-DIV While there are no assurances regarding the timing of a liquidity event, the board of directors will consider liquidity event options no later than 2023 $250,000 net worth or $70,000 net worth and $70,000 annual gross income (excluding home, furnishings and personal automobiles). Some states may have additional standards. These states include, but are not limited to, AL, CA, IA, ID, KS, KY, MA, MO, ND, NE, NJ, NM, OR, PA and VT. See the Suitability Stan dards section of the prospectus. Read the prospectus, including the Risk Factors section for full details. 22 As of March 15, Offering prices are based on the estimated NAV per share for each class plus applicable upfront selling commissions and dealer manager fees of 8.5 percent for Class A shares and 4.75 percent for Class T shares. Class I shares are sold without an upfront fee. The public offering price (POP) and estimated NAV do not represent market values, rather they are based upon appraisals and estimates that may be incorrect and unrealized by the portfolio or investors. 23 There is no assurance this objective will be met. 24 There is no guarantee of future distributions or that distributions will be paid at all. Due to the high levels of investment costs and fees incurred during the REIT's initial phase, distributions will not be fully covered by cash flows from operating activities and will be paid from expense waivers, borrowings and offering proceeds. For the year ended Dec. 31, 2017, approximately 30 percent of cash distributions were covered by operating cash flow and 70 percent were funded by offering proceeds. For the year ended Dec. 31, 2016, distributions were not covered by operating cash flow and were 100 percent funded by offering proceeds. Distributions paid from sources other than operating cash flow, now and in the future, are not sustainable, can reduce investors overall return and may be dilutive. 25 In no event will more than 5 percent of the weighted average of all share classes of the outstanding shares be redeemed in any 12-month period. Redemption price is determined by the share redemption plan in the prospectus at the time of redemption. The REIT may modify, suspend or terminate the redemption plan at any time. 18

20 2018 CHP II Advisors, LLC. All Rights Reserved. CNL and the Squares Within Squares design trademarks are used under license from CNL Intellectual Properties, Inc. CHPII-OB CHPII INV