UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 25, 2021

 

 

CNL Healthcare Properties, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Maryland   000-54685   27-2876363

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

450 South Orange Ave.

Orlando, Florida 32801

(Address of Principal Executive Offices; Zip Code)

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

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐

Pre-commencement communications pursuant to Rule 13e-4 (c) under the Exchange Act (17 CFR 240.13e-4(c))

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

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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.  ☐

 

 

 

Item 1.01 Entry Into a Material Definitive Agreement.

On May 25, 2021, the Board of Directors (the “Board”) of CNL Healthcare Properties, Inc. (the “Company”) approved the Third Amendment to the Advisory Agreement effective as of May 26, 2021 (the “Advisory Agreement Amendment”) by and among the Company, CHP Partners, LP, the Company’s operating partnership (the “Operating Partnership”) and CNL Healthcare Corp., the Company’s advisor (the “Advisor”).

To promote further alignment between the Advisor and Company shareholders, the Advisory Agreement Amendment lowered the asset management fee paid by the Company to the Advisor from 1% per annum to 0.80% per annum based on the monthly average of the sum of the Company’s and the Operating Partnership’s respective daily real estate asset value plus the outstanding principal amount of any loans made. The Advisory Agreement Amendment further lowered the disposition fee paid by the Company to the Advisor from up to 1% to up to 0.80% of gross market capitalization or gross sales price upon a sale, liquidity event of transfer of assets, subject to and net of any real estate and brokerage fees and commissions paid to unaffiliated parties, while affirming the Advisor will perform substantial services in the event of such a sale, liquidity event or transfer of assets and be entitled to receive a disposition fee unless determined otherwise by the independent directors.

The Board also renewed the Advisory Agreement for an additional year ending June 8, 2022.

Item 7.01 Regulation FD Disclosure.

On May 27, 2021, the Company issued a letter to its stockholders providing an update on the Company including the effect to date of COVID-19 on the Company’s senior housing properties and financial condition and the fee changes to the Advisory Agreement, which letter will be mailed to the Company’s stockholders and posted on the Company’s website at www.cnlhealthcareproperties.com. A copy of the letter is filed as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference solely for the purposes of this Item 7.01 disclosure.

Pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), the information contained in this Item 7.01 disclosure, including Exhibit 99.1, is deemed to have been furnished and shall not be deemed to be “filed” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of such section, nor shall any of such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

By furnishing the information contained in this Item 7.01 disclosure, including Exhibit 99.1, the Company makes no admission as to the materiality of such information.

Item 8.01 Other Events.

Company Update

On May 27, 2021, the Company issued a letter to its stockholders providing an update on the Company including the effect to date of COVID-19 on the Company’s senior housing properties and financial condition and the fee changes to the Advisory Agreement.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits.

 

10.1    Third Amendment to Advisory Agreement by and among the Company, Operating Partnership and Advisor dated May 26, 2021.
99.1    Letter to Company stockholders dated May 27, 2021.

Caution Concerning Forward-Looking Statements

Statements in this Current Report on Form 8-K that are not statements of historical fact, including statements about the purported value of the Company’s common stock, 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 harbors created by Section 21E of the Securities Exchange Act of 1934, as amended. 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, statements of future economic performance, 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” and “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, estimated per share value of the Company’s common stock, and other matters. The Company’s forward-looking statements are not guarantees of future performance. While the Company’s management believes its forward-looking statements are reasonable, such statements are inherently susceptible to uncertainty and changes in circumstances. As with any projection or forecast, forward-looking statements are necessarily dependent on assumptions, data and/or methods that may be incorrect or imprecise and may not be realized. The Company’s forward-looking statements are based on management’s current expectations and a variety of risks, uncertainties and other factors, many of which are beyond the Company’s inability 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.

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 forward-looking 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 Securities and Exchange Commission, including, but not limited to, the Company’s quarterly reports on Form 10-Q, and the Company’s annual report on Form 10-K, copies of which may be obtained from the Company’s website at http://www.cnlhealthcareproperties.com.

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Dated: May 27, 2021    CNL HEALTHCARE PROPERTIES, INC.
   a Maryland corporation
   By:   

/s/ Ixchell C. Duarte

      Ixchell C. Duarte
      Chief Financial Officer and Treasurer

Exhibit 10.1

THIRD AMENDMENT TO ADVISORY AGREEMENT

THIS THIRD AMENDMENT TO ADVISORY AGREEMENT (this “Amendment”) is made and entered into as of the 26th day of May, 2021 (the “Effective Date”), by and among CNL HEALTHCARE PROPERTIES, INC., a corporation organized under the laws of the State of Maryland f/k/a CNL Healthcare Trust, Inc. (the “Company”), CHP PARTNERS, LP, a limited partnership organized under the laws of the State of Delaware f/k/a CHT Partners, LP (the “Operating Partnership”), and CNL HEALTHCARE CORP., a corporation organized under the laws of the state of Florida f/k/a CNL Properties Corp. (“Advisor”).

RECITALS

WHEREAS, the Company, the Operating Partnership and the Advisor entered into that certain Advisory Agreement dated as of June 8, 2011, as amended by that certain First Amendment to Advisory Agreement by and among the Company, the Operating Partnership and the Advisor, dated as of October 5, 2011, and as amended further by that certain Second Amendment to Advisory Agreement by and among the Company, Operating Partnership and Advisor, dated as of March 20, 2013 (as amended, the “Advisory Agreement”); and

WHEREAS, capitalized terms not defined herein shall have the meaning given to such terms in the Advisory Agreement; and

WHEREAS, the parties desire to enter into this Amendment for the purpose of amending certain provisions of the Advisory Agreement as more particularly set forth herein.

NOW, THEREFORE, for and in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. Recitals. The recitals set forth above are true and correct and constitute a part of this Amendment.

2. Restatement of Asset Management Fee. Section (9)(a) of the Advisory Agreement is hereby deleted and amended and restated in its entirety to read as follows:

“(9)(a) Asset Management Fee. The Company or the Operating Partnership shall pay to the Advisor as compensation for the advisory services rendered to the Company and the Operating Partnership a monthly fee of an amount equal to 0.06667% of the monthly average of the sum of the Company’s and the Operating Partnership’s respective daily Real Estate Asset Value (without duplication), plus the outstanding principal amount of any Loans made, plus the amount invested in Permitted Investments (the “Asset Management Fee”). The Asset Management Fee shall be payable monthly on the first business day following the last day of such month. The Asset Management Fee shall not exceed fees which are competitive for similar services in the same geographic area, and may or may not be taken, in whole or in part as to any year, in the sole discretion of the Advisor. All or any portion of the Asset Management Fee not taken as to any fiscal year shall be deferred without interest and may be taken in such other fiscal year as the Advisor shall determine.”

3. Restatement of Disposition Fee. Section (9)(d) of the Advisory Agreement is hereby deleted and amended and restated in its entirety to read as follows:

“If the Advisor, its Affiliates or related parties provide a substantial amount of services (as determined in good faith by a majority of the Independent Directors) in connection with either a Liquidity Event, or a Sale or transfer of one or more Assets of the Company, the Advisor, Affiliate or related party shall receive a Disposition Fee in an amount equal to (a) 0.80% of the gross market capitalization of the Company upon the occurrence of a Listing, or 0.80% of the gross consideration paid to the Company or its Stockholders upon the occurrence of any other Liquidity Event (including the Sale or transfer of the Company or a portion thereof), or (b) 0.80% of the gross sales price upon the Sale or transfer of one or more Assets (including the Sale of all of the Company’s Assets). When a real estate or brokerage commission is payable in connection with a particular transaction, the total Disposition Fee paid by the Company, as applicable, when added to the sum of all real estate and brokerage fees and commissions paid to unaffiliated parties, shall not exceed the lesser of (i) a Competitive Real Estate Commission, or (ii) 6% of the gross sales price. Notwithstanding the foregoing, upon the occurrence of a Liquidity Event or the Sale of all of the Company’s Assets, in no event shall the Disposition Fee payable to the Advisor exceed 0.80% of the gross market capitalization of the Company or the gross sales price, respectively. Any such Disposition Fee deemed to be earned by the Advisor, Affiliate or related party shall be paid by the Company or the Operating Partnership to the Advisor, Affiliate or related party upon the closing of the transaction. In the event of a Sale of all of the Company’s Assets or the Sale or transfer of the Company or a portion thereof, the Company shall have the option to pay the Disposition Fee in cash, Listed equity Securities received by Stockholders in connection with the Sale of all of the Company’s Assets or the Sale or transfer of the Company, if applicable, or non-Listed equity Securities received by Stockholders in connection with the Sale of all of the Company’s Assets or the Sale or transfer of the Company, if applicable. For the purposes of this Section 9(d), (i) the Advisor, its Affiliates or related parties shall be deemed to have provided a substantial amount of services and entitled to receive a Disposition Fee in connection with a Sale or transfer of one or more Assets of the Company, a Listing or other Liquidity Event after the Effective Date, and (ii) 0.80% of the gross market capitalization upon a Listing or gross consideration paid upon a Liquidity Event or sales price upon a Sale or transfer of Assets shall be deemed to be a Competitive Real Estate Commission for the sole purpose of a Disposition Fee, unless the Independent Directors, acting in good faith, determine otherwise. Notwithstanding the foregoing, no Disposition Fee shall be paid to the Advisor in connection with the Sale by the Company or the Operating Partnership of Real Estate Related Securities that are Securities, Permitted Investments that are Securities or Loans that are Securities, but only to the extent that the foregoing are held as investments by the Company; provided, however, a Disposition Fee in the form of a usual and customary brokerage fee may be paid by the Company or the Operating Partnership to an Affiliate or related party of the Advisor in connection with the disposition of Securities if, at the time of such payment, such Affiliate or related party is a properly registered and licensed broker dealer (or equivalent) in the jurisdiction in which the Securities are being sold and has provided substantial services in connection with the disposition of the Securities. Any such Disposition Fee deemed to be earned by such Affiliate or related party shall be paid by the Company or the Operating Partnership to such Affiliate or related party upon the closing of the Sale of the Securities. Any such Disposition Fee paid to an Affiliate or related party of the Advisor in connection with the Sale of Securities shall be included in Total Operating Expenses for purposes of calculating conformance with the 2%/25% Guidelines.”

4. Binding Effect. This Amendment shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns.

5. Modification/Amendment. This Amendment may only be amended and modified in a writing signed by all of the parties hereto.

6. Execution of Amendment. A party may deliver executed signature pages to this Amendment by facsimile or electronic copy, which facsimile or electronic copy shall be deemed to be an original executed signature page. This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which counterparts together shall constitute one agreement with the same effect as if the parties hereto had signed the same signature page.

7. Ratification. The terms and provisions in the Advisory Agreement are deemed amended if and to the extent inconsistent with the terms of this Amendment. Otherwise, the terms and the provisions in the Advisory Agreement are hereby ratified and confirmed by the parties hereto. Except as modified herein, all other terms and conditions of the Advisory Agreement shall continue in full force and effect.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written

above.

 

CNL HEATHCARE PROPERTIES, INC., a
Maryland corporation
By:  

/s/ Tracey Bracco

  Tracey Bracco, Senior Vice President
CNL HEALTHCARE CORP., a Florida corporation
By:  

/s/ Tammy Tipton

  Tammy Tipton, CFO, SVP and Treasurer
CHP PARTNERS, LP, a
Delaware limited partnership
By: CHP GP, LLC, a Delaware limited liability company,
  its general partner
 

By: CNL Healthcare Properties, Inc., a

 

Maryland corporation, managing member

 

of general partner

 

By: /s/ Tracey Bracco                                    

 

  Tracey Bracco, Senior Vice President

Exhibit 99.1

May 27, 2021

Dear Fellow Shareholder:

As we approach the mid-point of 2021, I again, and on behalf of our board of directors and management team, want to express my appreciation for your ongoing support and confidence in CNL Healthcare Properties. In addition to a high-level update on the business and portfolio, I am writing to highlight that the company has taken meaningful and definitive steps to promote even further alignment with its shareholders.

Effective May 26, our advisor’s asset management fee has been proactively lowered to 0.80% per year, reflecting a reduction of 0.20%. In addition, disposition fees that could be, in part, payable to the advisor have also been reduced from up to 1.00%, to up to 0.80%. These two most recent actions are examples of the continued commitment from our board of directors and advisor to collectively act in the best interest of company shareholders.

As in prior letters, I also want to take this opportunity to update you on our current progress and condition at this stage of the pandemic.

COVID-19 & Portfolio Update

With the rollout of COVID-19 vaccines, we have begun to see positive signs across the seniors housing industry and specifically in our portfolio of 71 communities across the country. Since a peak second wave active case count in late-January of this year, we have experienced a 98% reduction in active COVID-19 cases for our combined resident and staff population. As of May 25, 2021, we counted two resident cases and two confirmed staff cases across our entire portfolio. Not surprisingly, this comes on the heels of completing an active and focused initial vaccination initiative that kicked-off earlier this year and was completed by mid-April. The results of our site-level efforts yielded vaccination adoption rates of over 92% and 52% among our residents and staff, respectively. These statistics are encouraging and we are now focused on vaccination maintenance and diligence as resident move-ins occur and new staff join our communities.

Speaking of move-ins, I am pleased to report that we welcomed the highest number of new residents since February of 2020 and are experiencing pre-pandemic levels of resident inquiries and lead generation — all evidence that we seem to be on a path of recovery. These trends have produced month-over-month occupancy gains for April, which is the first net new occupancy gain since the start of the pandemic. While these recent trends are encouraging, we have much work to do to grow and re-establish occupancy throughout the portfolio.

As a result of strategic and forward-looking steps since the first quarter of 2020, the company is in exceptional financial condition. Our balance sheet remains strong and fiscally responsible, and during the pandemic we did not reduce dividends to shareholders like many other companies in the healthcare and seniors housing industry. Most recently, our board of directors approved payment of second quarter 2021 distributions in an unchanged amount of $0.0512 per share. Equally important, the company’s liquidity position remains enviable with over $150 million in cash, cash equivalents, and readily available capacity under our corporate line of credit as of March 31, 2021.

Looking Ahead

To reiterate my opening above, thank you for your ongoing support and confidence as we continue to navigate through this stage of the pandemic to drive performance and value in our portfolio of principally private-pay seniors housing communities. As market and operational environments permit, our clear strategic objective remains to identify and execute on thoughtful strategic alternatives, in our shareholders’ best interests, to provide further and ultimate liquidity. To that end, our board and its special committee, along with our strategic financial advisors, continue to actively and carefully evaluate potential and emerging options for suitable strategic alternatives.

We will continue to keep you informed as material events occur. However, in the interim, please contact your financial professional or CNL Client Services at 866-650-0650, option 3, with any questions you may have.

Sincerely,

Stephen H. Mauldin

President and Chief Executive Officer

cc: Financial professional

Forward-looking statements are based on current expectations and may be identified by words such as believes, anticipates, expects, may, will, continues, could, and terms of similar substance, and speak only as of the date made. Actual results could differ materially due to risks and uncertainties beyond the company’s ability to control or accurately predict. Shareholders and financial professionals should not place undue reliance on forward-looking statements.