Built on Experience

[Pages:100]Built on Experience

Life Expectancy

LONGER LIFE EXPECTANCY

87 86 85 84 83 82 81 80 79 79.4 78 77 76

2015

80.2 2020

81.7 2030

83.0 2040

85.6 84.4

2050

2060

SOURCE: "Projected Life Expectancy at Birth by Sex, Race and Hispanic Origin for the United States: 2015 to 2060," U.S. Census Bureau, accessed Jan. 26, 2017 (data as of December 2014). Factors could cause actual results to vary materially.

OUTPATIENT VS. INPATIENT SURGERY

Summer Vista Assisted Living Community Pensacola, Fla.

Millions

Outpatient surgeries have increased more than 30% over the past two decades.

18 17 16 15 14 13 12 11 10

9 1994

1999

2004

2009

Outpatient Surgeries in the U.S.

Inpatient Surgeries in the U.S.

2014

Past performance is not indicative of future results. There is continued pressure to reduce healthcare costs and reduce exposure to Medicare and Medicaid reimbursements. SOURCE: Trendwatch Chartbook 2016, American Hospital Association, May 12, 2016. Favorable market conditions cannot provide any certainty that investors in a non-traded REIT will realize positive returns.

2016 ANNUAL REPORT

To Our Shareholders

Building upon our extensive previous experience in seniors housing and healthcare real estate, coupled with continuing favorable demographic and economic trends, we launched CNL Healthcare Properties II in 2016. We began offering shares of common stock last March and in July 2016, we had raised suf cient funds to meet our minimum offering requirement and commence operations. CNL Healthcare Properties II is the third healthcare real estate investment trust (REIT) sponsored by CNL Financial Group, which successfully launched and led two previous seniors housing and healthcare REITs with a combined asset value of $8.6 billion.

In March 2017, we purchased our rst asset -- Summer Vista Assisted Living Community in Pensacola, Florida -- for approximately $21.5 million. Summer Vista is a new resortstyle senior living community that opened last year, offering 67 assisted living units and 22 memory care units, along with best-in-class amenities and care services. At the time we purchased the asset, the community was already 98 percent occupied and largely a private pay facility. Summer Vista will continue to be managed by SRI Management, LLC, which has demonstrated solid operational performance at other assets owned by CNL and provided us the opportunity to purchase an off-market, relationship-driven asset.

CNL Healthcare Properties II is committed to a focused investment strategy and operational discipline that we believe allow us to align with the interests of shareholders, while also differentiating our product offering from other healthcarerelated REITs. For example, our decision to offer multiple share classes of common stock through various distribution channels provides options for shareholders and their advisors when making investment decisions. Additionally, our board of directors approved an amendment to our charter, which was subsequently approved by shareholders at a special meeting in March, along with related amendments to our agreement with our dealer manager to reduce overall fees on all three share classes of our common stock. Further, our board recently authorized an increase to our total distribution. This change increased the monthly cash distribution to $0.048 per share (previously $0.0350) and reduced the stock dividend to 0.00100625 per share

(previously 0.001881250) for all share classes of common stock, less class-speci c expenses, for shareholders of record on April 1, 2017, May 1, 2017, and June 1, 2017. We anticipate these changes will make CNL Healthcare Properties II even more attractive to a broader group of investors, allowing us to create increased momentum in the early phase of the company's life cycle.

We intend to build our portfolio by capitalizing not only on our deep healthcare knowledge, industry relationships and experience, but also on several long-term trends in the U.S., outlined below. We believe these trends make seniors housing and healthcare real estate a compelling and timely investment opportunity.

An Aging Population The number of Americans aged 65 and older is growing steadily year after year, triggering increased demand for housing and care. The U.S. Census Bureau reports that the number of seniors will more than double between 2015 and 2060. Over the next several decades, more than 12,000 Americans will turn 65 each and every day.

A Greater Demand for Healthcare and Seniors Housing Our country's population is living longer, healthier lives as we age; however, we are increasingly subject to chronic illnesses, both of which drive demand for healthcare. Healthcare spending has been rising as the population ages, and is expected to grow dramatically. The Congressional Budget Of ce reports that national healthcare spending is the largest governmental expenditure, and spending is expected to increase from approximately 16 percent of the U.S. GDP (2013) to nearly 25 percent by 2040. Incrementally more medical of ce buildings, acute-care, post-acute care and other types of healthcare facilities will be needed to meet this forecasted demand.

In like fashion, the demand for seniors housing with a variety of living arrangements, services and care options continues to grow. However, by many estimates, the construction of new seniors housing communities is not meeting the expected need. The American Seniors Housing Association projects the

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annual growth rate in seniors housing units per year must triple the current rate of development between 2015 and 2040 to meet this forecasted demand. Affordability is not an issue however, as it is estimated that more than four people aged 75 or older can afford to pay for every one assisted living unit available today.

Changes in the Delivery of Healthcare Healthcare is rapidly evolving with greater emphasis on improving patient outcomes and controlling costs. As a result, many healthcare procedures have shifted from hospital-based to more cost-effective outpatient settings. Also, medical advances, particularly in surgery, have reduced the need for overnight hospital stays by nearly two-thirds. We expect this trend to drive the need for more healthcare properties, particularly well-located medical of ce buildings and surgical care centers.

A Needs-Based, Durable Real Estate Market Many commercial real estate asset classes are subject to traditional drivers such as overall economic conditions and job and wage growth. Conversely, seniors housing and healthcare real estate are largely needs-based and thus, often insulated from prevailing economic conditions. Over the past decade, even during the 2008 ? 2010 economic downturn that led to growing unemployment in many sectors, employment in healthcare grew steadily at nearly two percent year over year. Also, the growth rate in the average annual asking rent for seniors housing continues to outpace in ation, further supporting the durability of the sector.

Financial Summary and Results of Operations

As of Dec. 31, 2016, we received aggregate subscription proceeds of approximately $6.6 million (0.6 million shares) in connection with our offering. In addition, between Jan. 1, 2017, and Feb. 6, 2017, we received additional subscription proceeds of approximately $2.3 million (0.2 million shares).

We began monthly distributions in August 2016. From that point through December 2016, we paid monthly cash distributions of $0.0350 (less class-speci c expenses with respect to each share class) per share, together with a stock dividend of 0.001881250 shares of common stock. We believe our total return, hybrid cash-stock distribution strategy provides an important mechanism to help promote

asset and portfolio growth over the intermediate and long term by allowing us the opportunity to thoughtfully invest in new ground-up development projects or value-add opportunities that are not operating at stabilized occupancy.

In 2016, we entered into an agreement with our advisor to provide meaningful nancial support as we build the REIT, to the extent our adjusted operating cash ows are less than cash distributions paid to our investors. If nancial support is needed, our advisor has agreed to forgo the cash payment of asset management fees and reimbursements for certain expenses, in exchange for restricted, forfeitable Class A shares of common stock. As we were launching in 2016, our advisor agreed to permanently waive $84,000 in reimbursable expenses and forgo the restricted shares. Some companies incur signi cant costs associated with activities necessary to establish and commence an investment offering; however, our advisor has agreed to pay and not be reimbursed by the company for all the organizational and offering expenses incurred in connection with this offering, which can be considerable in amount. This represents a meaningful commitment on behalf of our advisor to successfully launch this offering.

Looking Ahead

CNL Healthcare Properties II intends to build a leading portfolio of healthcare-related properties to provide our shareholders with attractive, steady distributions, capital preservation and the opportunity for long-term growth in value.

Our prior successes and deep industry expertise lead us to believe that our investment thesis is well-founded and timely, based upon long-term and compelling demographic and healthcare trends, and market fundamentals that support the opportunity for success. We are pleased to be under way and eager to execute on our business plan.

Thank you for the opportunity to be stewards of your investment in CNL Healthcare Properties II.

Thomas K. Sittema Chairman of the Board

Stephen H. Mauldin President & Chief Executive Of cer

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2016 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: 333-206017

CNL Healthcare Properties II, Inc.

(Exact name of registrant as specified in its charter)

Maryland (State or other jurisdiction of incorporation or organization)

47-4524619 (I.R.S. Employer Identification No.)

CNL Center at City Commons 450 South Orange Avenue Orlando, Florida

(Address of principal executive offices)

32801 (Zip Code)

Registrant's telephone number, including area code (407) 650-1000

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No

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

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

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

Large accelerated filer Non-accelerated filer (Do not check if a smaller reporting company)

Accelerated filer

Smaller reporting company

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

There is currently no established public market for the registrant's shares of common stock. As of June 30, 2016 (the last business day of the registrant's most recently completed second fiscal quarter), the Company did not have any shares of stock held by non-affiliates of the registrant on such date.

The number of shares of the registrant's outstanding Class A, Class T and Class I common stock as of February 6, 2017 was 331,436 shares, 524,730 shares and 8,454 shares, respectively.

DOCUMENTS INCORPORATED BY REFERENCE

Registrant incorporates by reference portions of the CNL Healthcare Properties II, Inc. Definitive Proxy Statement for the 2017 Annual Meeting of Stockholders (Items 10, 11, 12, 13 and 14 of Part III) to be filed no later than April 30, 2017.

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CNL HEALTHCARE PROPERTIES II, INC. AND SUBSIDIARIES

INDEX

Page

Part I.

Statement Regarding Forward Looking Information

3

Item 1. Business

4

Item 1A. Risk Factors

8

Item 1B. Unresolved Staff Comments

48

Item 2. Properties

48

Item 3. Legal Proceedings

48

Item 4. Mine Safety Disclosures

48

Part II.

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities

49

Item 6. Selected Financial Data

52

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

54

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

68

Item 8. Financial Statements and Supplementary Data

69

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

84

Item 9A. Controls and Procedures

84

Item 9B. Other Information

84

Part III.

Item 10. Directors, Executive Officers and Corporate Governance

85

Item 11. Executive Compensation

85

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters

85

Item 13. Certain Relationships and Related Transactions, and Director Independence

85

Item 14. Principal Accountant Fees and Services

85

Part IV.

Item 15. Exhibits and Financial Statement Schedules

86

Signatures

88

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PART I

STATEMENT REGARDING FORWARD LOOKING INFORMATION

Statements contained under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (this "Annual 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 (the "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 forwardlooking statements are not guarantees of future performance. While the Company's management believes its forwardlooking 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 important factors that could cause the Company's actual results to vary materially from those expressed or implied in its forwardlooking statements, please refer to the factors listed and described under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the "Risk Factors" sections of the Company's documents filed from time to time with the U.S. Securities and Exchange Commission, including, but not limited to, this Annual Report and the Company's quarterly reports on Form 10-Q, copies of which may be obtained from the Company's website at .

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.

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