Filed Pursuant to Rule 424(b)(3)
Registration No. 333-191706
CARTER VALIDUS MISSION CRITICAL REIT II, INC.
SUPPLEMENT NO. 8 DATED SEPTEMBER 30, 2016
TO THE PROSPECTUS DATED APRIL 27, 2016
This document supplements, and should be read in conjunction with, the prospectus of Carter Validus Mission Critical REIT II, Inc. (the “Company”), dated April 27, 2016, Supplement No. 6 dated August 18, 2016 (which consolidated and replaced all previous supplements to the prospectus), and Supplement No. 7 dated September 21, 2016.
The purpose of this prospectus supplement is to describe the following:
| (1) | the status of our public offering of shares of common stock; |
| (2) | the determination of an estimated per share net asset value of our Class A common stock and Class T common stock; |
| (3) | the revised primary offering prices per Class A share and Class T share, effective October 1, 2016; |
| (4) | the revised distribution reinvestment plan prices per Class A share of common stock and Class T share of common stock, effective October 1, 2016; |
| (5) | the revised share repurchase prices pursuant to our share repurchase program, effective September 30, 2016, and the amendment and restatement of our share repurchase program, effective October 30, 2016; |
| (6) | updates to the “Risk Factors” section of our prospectus; |
| (7) | updates to the “Plan of Distribution” section of our prospectus; |
| (8) | an update regarding the distribution and servicing fee payable to our dealer manager; |
| (9) | our indemnification agreements with our executive officers and directors; |
| (10) | updates regarding our credit facility; and |
| (11) | revised forms of our subscription agreements. |
Status of Our Public Offering
We commenced our initial public offering of $2,350,000,000 of shares of our common stock (the “Offering”), consisting of up to $2,250,000,000 of shares in our primary offering and up to $100,000,000 of shares pursuant to our distribution reinvestment plan, on May 29, 2014. We are publicly offering shares of Class A common stock and Class T common stock, in any combination with a dollar value up to the maximum offering amount. As of September 28, 2016, we had accepted investors’ subscriptions for and issued approximately 66,295,000 shares of Class A common stock and 9,063,000 shares of Class T common stock in the Offering, resulting in receipt of gross proceeds of approximately $657,298,000 and $86,705,000, respectively. As of September 28, 2016, we had approximately $1,605,997,000 in Class A shares and Class T shares of common stock remaining in our Offering.
Determination of the Estimated Per Share Net Asset Value
The following information supplements, and should be read in conjunction with, all discussions contained in our prospectus regarding our calculation of an estimated per share value:
We disclose in our prospectus that our board of directors will determine an estimated per share net asset value, or NAV, based on the input of our advisor, our audit committee, and one or more independent valuation firms.
On September 29, 2016, our board of directors, at the recommendation of the audit committee, which is comprised solely of independent directors, unanimously approved and established an estimated per share NAV of $9.07 per share of each of our Class A common stock and Class T common stock, or the Estimated Per Share NAV, as of June 30, 2016, or the Valuation Date. The Estimated Per Share NAV is based on the estimated value of our assets less the estimated value of our liabilities, divided by the approximate number of shares outstanding on a fully diluted basis, calculated as of the Valuation Date. We are providing this Estimated Per Share NAV to assist broker-dealers in connection with their obligations under National Association of Securities Dealers Conduct Rule 2340, as required by the Financial Industry Regulatory Authority, or FINRA, with respect to customer account statements. This valuation was performed in accordance with the provisions of Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by the Investment Program Association, or the IPA, in April 2013, or the IPA Valuation Guidelines, in addition to guidance from the SEC. We believe that there were no material changes between the Valuation Date and the date of this supplement that would impact the Estimated Per Share NAV.
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The audit committee, pursuant to authority delegated by our board of directors, was responsible for the oversight of the valuation process, including the review and approval of the valuation process and methodology used to determine the Estimated Per Share NAV, the consistency of the valuation and appraisal methodologies with real estate industry standards and practices, and the reasonableness of the assumptions used in the valuations and appraisals.
The Estimated Per Share NAV was determined by our board of directors after consultation with our advisor and Robert A. Stanger & Co, Inc., or Stanger, an independent third-party valuation firm. The engagement of Stanger was approved by the audit committee. Stanger prepared an appraisal report, or the Appraisal Report, summarizing key information and assumptions and providing a value on 40 of the 42 properties in our portfolio as of June 30, 2016, or the Appraised Properties. Stanger also prepared a net asset value report, or the NAV Report, and together with the Appraisal Report, the Reports, which estimates the NAV of our Class A common stock and Class T common stock as of June 30, 2016. The NAV Report relied upon the Appraisal Report for the Appraised Properties, the June 30, 2016 book value of the Vibra Rehabilitation Hospital and Post Acute Las Vegas Rehabilitation Hospital development properties, or the Development Properties, Stanger’s estimate of our advisor’s subordinated share of net sales proceeds due upon liquidation of our portfolio, and our advisor's estimate of the value of our operating partnership’s credit facility and our other assets and liabilities, to calculate an estimated per share NAV of our common stock. The process for estimating the value of our assets and liabilities was performed in accordance with the provisions of the IPA Valuation Guidelines.
Upon the audit committee’s receipt and review of the Reports, the audit committee recommended $9.07 as the estimated per share NAV of each of our Class A common stock and Class T common stock as of June 30, 2016 to our board of directors. Upon our board of directors’ receipt and review of the Reports and recommendation of the audit committee, our board of directors approved $9.07 as the estimated per share NAV of each of our Class A common stock and Class T common stock as of June 30, 2016.
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The table below sets forth the calculation of our Estimated Per Share NAV as of June 30, 2016. Certain amounts are reflected net of non-controlling interests, as applicable.
| Estimated Per Share NAV | ||||||||
| (In Thousands, Except Share and Per Share Data) | ||||||||
| Gross | Per Share | |||||||
| Assets | ||||||||
| Total Real Estate, Net | $ | 680,551 | $ | 10.01 | ||||
| Cash and Cash Equivalents | 35,648 | 0.52 | ||||||
| Other Assets | 8,402 | 0.12 | ||||||
| Total Assets | 724,601 | 10.65 | ||||||
| Liabilities & Stockholders' Equity | ||||||||
| Liabilities: | ||||||||
| Credit Facility | (95,000 | ) | (1.40 | ) | ||||
| Accounts Payable Due to Affiliates | (1,034 | ) | (0.02 | ) | ||||
| Accounts Payable and Other Liabilities | (11,153 | ) | (0.16 | ) | ||||
| Total Liabilities | (107,187 | ) | (1.58 | ) | ||||
| Stockholders' Equity | 617,414 | 9.07 | ||||||
| Less: Advisor Promote | — | — | ||||||
| Stockholders' Equity, Net of Promote | $ | 617,414 | $ | 9.07 | ||||
| Fully Diluted Shares Outstanding | 68,037,354 | |||||||
| Class A Shares | Class T Shares | |||||||
| Estimated Value Per Share | $ | 9.07 | $ | 9.07 | ||||
| Estimated Enterprise Value | None | None | ||||||
| Estimated Upfront Selling Commission and Dealer Manager fees | 1.008 | 0.579 | ||||||
| Revised Primary Offering Price Per Share | $ | 10.078 | $ | 9.649 | ||||
Methodology and Key Assumptions
In determining the Estimated Per Share NAV, our board of directors considered the recommendation of the audit committee, the Reports provided by Stanger and information provided by our advisor. Our goal in calculating the Estimated Per Share NAV is to arrive at a value that is reasonable and supportable using what the audit committee and our board of directors each deems to be appropriate valuation methodologies and assumptions.
FINRA’s current rules provide no guidance on the methodology an issuer must use to determine its estimated per share NAV. As with any valuation methodology, the methodologies used are based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different Estimated Per Share NAV, and these differences could be significant. The Estimated Per Share NAV is not audited and does not represent the fair value of our assets less its liabilities according to U.S. generally accepted accounting principles, nor does it represent a liquidation value of our assets and liabilities or the amount our shares of common stock would trade at on a national securities exchange. The estimated asset values may not, however, represent current market value or book value. The estimated value of the Appraised Properties does not necessarily represent the value we would receive or accept if our assets were marketed for sale. The Estimated Per Share NAV does not reflect a discount for the fact that the Company is externally managed, nor does it reflect a real estate portfolio premium/discount compared to the sum of the individual property values. The Estimated Per Share NAV also does not take into account estimated disposition costs and fees for real estate properties that are not held for sale.
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Real Estate Valuation
As described above, we engaged Stanger to provide an appraisal of the Appraised Properties, which consists of 40 of the 42 properties in our portfolio as of June 30, 2016. In preparing the Appraisal Report, Stanger, among other things:
| • | performed a site visit of each Appraised Property; |
| • | interviewed our officers or our advisor’s personnel to obtain information relating to the physical condition of each Appraised Property, including known environmental conditions, status of ongoing or planned property additions and reconfigurations, and other factors for such leased properties; |
| • | reviewed lease agreements for each Appraised Property and discussed with us or our advisor certain lease provisions and factors on each property; and |
| • | reviewed the acquisition criteria and parameters used by real estate investors for properties similar to the subject properties, including a search of real estate data sources and publications concerning real estate buyer’s criteria, discussions with sources deemed appropriate, and a review of transaction data for similar properties. |
Stanger employed the income approach to estimate the value of the Appraised Properties, which involves an economic analysis of the property based on its potential to provide future net annual income. As part of the valuation, a direct capitalization analysis and a discounted cash flow analysis were used to determine the value of our interest in the portfolio, by valuing the subject interest in each Appraised Property in the portfolio based upon the leases that encumber such property. The indicated value by the income approach represents the amount an investor would probably pay for the expectation of receiving the net cash flow from the property during the subject lease term and the proceeds from the ultimate sale of the property.
The Appraisal Report summarizes key inputs and assumptions and provides a value for each of the Appraised Properties that Stanger appraised using financial information we provided and our advisor provided. From such review, Stanger selected the appropriate cash flow discount rates, residual discount rates, and terminal capitalization rates in its discounted cash flow analysis and the appropriate direct capitalization rate in its direct capitalization analysis. In the NAV Report, the Development Properties were included at their June 30, 2016 book value.
As of June 30, 2016, the Company owned 42 properties. The total aggregate purchase price of these properties was approximately $625 million. The total aggregate purchase price of $625 million was determined in accordance with generally accepted accounting principles in the United States, or GAAP. In addition, through the Valuation Date, the Company had invested $4.2 million in capital improvements on these real estate assets since inception. As of the Valuation Date, the total value of the Appraised Properties at the Company’s respective ownership interest, as provided by Stanger, and the June 30, 2016 book value of the Development Properties was approximately $681 million. This represents an approximately 8.23% increase in the total value of the real estate assets over the aggregate purchase price and aggregate improvements. The following summarizes the key assumptions that were used in the discounted cash flow and direct capitalization models to arrive at the appraised value of the Appraised Properties:
| Range | Weighted Average | |||||
| Terminal Capitalization Rate | 6.25% | 10.00% | 7.32% | |||
| Cash Flow Discount Rate | 4.75% | 9.00% | 7.35% | |||
| Residual Discount Rate | 7.00% | 9.50% | 8.01% | |||
| Direct Capitalization Rate | 5.25% | 7.50% | 6.38% | |||
| Income and Expense Growth | 3.00% | 3.00% | ||||
While we believe that Stanger’s assumptions and inputs are reasonable, a change in these assumptions and inputs would significantly impact the calculation of the appraised value of the Appraised Properties and thus, the Estimated Per Share NAV. The table below illustrates the impact on the Estimated Per Share NAV if the terminal capitalization rates, discount rates and direct capitalization rates were adjusted by 25 basis points or 5.0%, assuming the value conclusion for each Appraised Property is based on the method being sensitized and all other factors remain unchanged:
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| Estimated Per Share NAV due to: | ||||||||||||||||
| Increase | Decrease | Increase | Decrease | |||||||||||||
| 25 Basis Points | 25 Basis Points | 5.0% | 5.0% | |||||||||||||
| Terminal Capitalization Rate | $ | 8.84 | $ | 9.12 | $ | 8.79 | $ | 9.18 | ||||||||
| Cash Flow Discount Rate | $ | 8.88 | $ | 9.07 | $ | 8.81 | $ | 9.05 | ||||||||
| Residual Discount Rate | $ | 8.85 | $ | 9.10 | $ | 8.78 | $ | 9.18 | ||||||||
| Direct Capitalization Rate | $ | 8.80 | $ | 9.58 | $ | 8.71 | $ | 9.70 | ||||||||
Cash, Other Assets, Other Liabilities and Credit Facility
The fair value of our cash, other assets, other liabilities and our operating partnership’s credit facility were estimated by our advisor to approximate carrying value as of the Valuation Date.
The carrying value of a majority of our other assets and liabilities are considered to equal their fair value due to their short maturities or liquid nature. Certain balances, such as straight-line rent receivables, lease intangible assets and liabilities, estimated liability for distribution and servicing fees and deferred financing costs, have been eliminated for the purpose of the valuation due to the fact that the value of those balances were already considered in the valuation of the respective investments.
Different parties using different assumptions and estimates could derive a different estimated per share NAV, and these differences could be significant. The value of our shares will fluctuate over time in response to developments related to individual assets in our portfolio and the management of those assets and in response to the real estate and finance markets.
Advisor Promote
The Estimated Per Share NAV was calculated net of our advisor’s subordinated participation in net sale proceeds in the event of a liquidation of the portfolio, or the Advisor Promote, which we advised Stanger was equal to 15.0% of net sale proceeds after stockholders are paid return of capital plus a 6.0% cumulative, non-compounded return. Stanger estimated the value of the Advisor Promote at $0 as of the Valuation Date.
The Board’s Determination of the Estimated Per Share NAV
Based upon a review of the Reports provided by Stanger, upon the recommendation of the audit committee, our board of directors estimated the per share NAV of each of the Class A common stock and Class T common stock to be $9.07.
Limitations of the Estimated Per Share NAV
The various factors considered by our board of directors in determining the Estimated Per Share NAV were based on a number of assumptions and estimates that may not be accurate or complete. As disclosed above, we are providing the Estimated Per Share NAV to assist broker-dealers that participate, or participated, in our offering in meeting their customer account statement reporting obligations. As with any valuation methodology, the methodologies used are based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different Estimated Per Share NAV. The Estimated Per Share NAV is not audited and does not represent the fair value of our assets or liabilities according to GAAP.
Accordingly, with respect to the Estimated Per Share NAV, we can give no assurance that:
| • | a stockholder would be able to resell his or her Class A shares of common stock or Class T shares of common stock at the Estimated Per Share NAV; |
| • | a stockholder would ultimately realize distributions per share equal to our Estimated Per Share NAV upon liquidation of our assets and settlement of our liabilities or a sale of our company; |
| • | our shares of Class A common stock and Class T common stock would trade at the Estimated Per Share NAV on a national securities exchange; |
| • | a different independent third-party appraiser or other third-party valuation firm would agree with our Estimated Per Share NAV; or |
| • | the Estimated Per Share NAV, or the methodology used to estimate the Estimated Per Share NAV, will be found by any regulatory authority to comply with ERISA, the Internal Revenue Code of 1986, as amended, or other regulatory requirements. |
Similarly, the amount a stockholder may receive upon repurchase of his or her shares, if he or she participates in our share repurchase program, may be greater than or less than the amount a stockholder paid for the shares, regardless of any increase in the underlying value of any assets we own.
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The Estimated Per Share NAV is based on the estimated value of our assets less the estimated value of our liabilities divided by the number of shares outstanding on an adjusted fully diluted basis, calculated as of June 30, 2016. The Estimated Per Share NAV was based upon 68,037,354 shares of equity interest outstanding as of June 30, 2016, which was comprised of (i) 68,020,354 outstanding shares of our common stock, plus (ii) 17,000 shares of unvested restricted Class A common stock issued to our independent directors, which shares vest ratably over time.
Further, the value of our shares will fluctuate over time as a result of, among other things, developments related to individual assets and responses to the real estate and capital markets. As discussed above, the Estimated Per Share NAV does not reflect a discount for the fact that we are externally managed, nor does it reflect a real estate portfolio premium/discount versus the sum of the individual property values. The Estimated Per Share NAV also does not take into account estimated disposition costs and fees for real estate properties that are not held for sale. We currently expect to utilize an independent valuation firm to update the Estimated Per Share NAV in the second half of 2017, in accordance with IPA Valuation Guidelines, but we are not required to update the Estimated Per Share NAV more frequently than annually.
Revised Primary Offering Prices
Commencing on October 1, 2016, the offering price for shares of our Class A common stock pursuant to our primary offering is $10.078 per share, which reflects the $9.07 estimated per share NAV, a 7.0% selling commission and a 3.0% dealer manager fee, and the offering price for shares of our Class T common stock pursuant to our primary offering is $9.649 per share, which reflects the $9.07 estimated per share NAV, a 3.0% selling commission and a 3.0% dealer manager fee. Accordingly, all references to a $10.00 per Class A share primary offering price and $9.574 per Class T share primary offering price throughout the prospectus are hereby superseded and replaced with $10.078 per Class A share and $9.649 per Class T share. All subscriptions for primary offering shares that were received in good order and fully funded by the close of business on September 30, 2016 were processed using the $10.00 per Class A share primary offering price and $9.574 per Class T share primary offering price; all subscriptions for primary offering shares received and/or funded after the close of business on September 30, 2016 will be processed using a $10.078 per Class A share primary offering price and $9.649 per Class T share primary offering price.
Revised Distribution Reinvestment Plan Prices
The following information supplements, and should be read in conjunction with, the sections of our prospectus captioned “Prospectus Summary - Distribution Reinvestment Plan” on page 30 of the prospectus and “Distribution Reinvestment Plan” on page 191 of the prospectus and elsewhere where the context requires:
Commencing on October 1, 2016, shares of our Class A common stock issued pursuant to our Second Amended and Restated Distribution Reinvestment Plan, or the DRIP, will be issued for $9.574 per share, which is 95% of the purchase price per Class A share in our primary offering, and shares of our Class T common stock issued pursuant to the DRIP will be issued for $9.167 per share, which is 95% of the purchase price per Class T share in our primary offering.
A participant may terminate or modify his or her participation in the DRIP at any time by delivering a written notice to the administrator. To be effective for any distribution, such termination notice must be received by the administrator at least 10 days prior to the last day of the month to which the distribution relates. Any written notice of termination should be sent by mail to DST Systems, Inc., P.O. Box 219312, Kansas City, MO 64121-9312.
Stockholders who presently participate in the DRIP do not need to take any action to continue their participation in the DRIP.
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The table on the cover page of our prospectus and all similar discussions appearing throughout our prospectus are superseded and replaced in their entirety as follows:
Aggregate Price to Public(1) | Selling Commissions(2) | Dealer Manager Fee(2) | Proceeds Before Expenses to Us(1)(3) | |||||||||||||
| Primary Offering | ||||||||||||||||
| Per Class A Share | $ | 10.078 | $ | 0.705 | $ | 0.303 | $ | 9.07 | ||||||||
| Per Class T Share | $ | 9.649 | $ | 0.289 | $ | 0.289 | $ | 9.07 | ||||||||
| Maximum Offering | $ | 2,250,000,000 | $ | 157,500,000 | $ | 67,500,000 | $ | 2,025,000,000 | ||||||||
| Distribution Reinvestment Plan | ||||||||||||||||
| Per Class A Share | $ | 9.574 | $ | — | $ | — | $ | 9.574 | ||||||||
| Per Class T Share | $ | 9.167 | $ | — | $ | — | $ | 9.167 | ||||||||
| Maximum Offering | $ | 100,000,000 | $ | — | $ | — | $ | 100,000,000 | ||||||||
| Total Maximum Offering (Primary and Distribution Reinvestment Plan) | $ | 2,350,000,000 | $ | 157,500,000 | $ | 67,500,000 | $ | 2,125,000,000 | ||||||||
| (1) | The table assumes that all of the primary offering gross proceeds come from sales of Class A shares. We reserve the right to reallocate shares being offered between Class A and Class T shares and between the primary offering and the distribution reinvestment plan. |
| (2) | The table excludes the distribution and servicing fees for Class T shares, which will be paid over time and may be paid from offering proceeds or other sources. With respect to Class T shares sold in the primary offering, we will pay our dealer manager a distribution and servicing fee that accrues daily equal to 1/365th of 1.0% of the most recent purchase price per Class T share on a continuous basis from year to year, payable out of amounts that otherwise would be distributed to holders of Class T shares; provided, however, that upon the termination of our primary offering, the distribution and servicing fee shall be an amount that accrues daily equal to 1/365th of up to 1.0% of the most recent estimated NAV per Class T share on a continuous basis from year to year. We will cease paying distribution and servicing fees with respect to all Class T shares sold in the primary offering on the earliest to occur of the following: (i) a listing of the Class T shares on a national securities exchange, (ii) following the completion of this Offering, total underwriting compensation in this Offering equaling 10% of the gross proceeds from our primary offering, (iii) there are no longer any Class T shares outstanding; or (iv) the fourth anniversary of the last day of the fiscal quarter in which our primary offering terminates. We cannot predict when this will occur. No selling commissions, dealer manager fees or distribution and servicing fees will be paid on shares under the distribution reinvestment plan. |
| (3) | Proceeds are calculated before deducting issuer costs other than upfront selling commissions and the dealer manager fee. These issuer costs are expected to consist of, among others, expenses of our organization and offering. See "Plan Distribution" section of the prospectus. |
Revised Share Repurchase Prices and the Amended and Restated Share Repurchase Program
The following information supplements, and should be read in conjunction with, the sections of our prospectus captioned “Prospectus Summary - Share Repurchase Program” beginning on page 30 of the prospectus and “Share Repurchase Program” beginning on page 192 of the prospectus and elsewhere where the context requires.
In accordance with our share repurchase program, after such time as our board of directors has determined a reasonable estimate of the value of our Class A shares or Class T shares, as applicable, and unless the shares are being redeemed in connection with a stockholder’s death or Qualifying Disability, the per share repurchase price will be based on the most recent estimated value of the Class A shares or Class T shares, as applicable, as follows: after one year from the purchase date, 92.5% of the most recent estimated value of each Class A share or Class T share, as applicable; after two years from the purchase date, 95% of the most recent estimated value of each Class A share or Class T share, as applicable; after three years from the purchase date, 97.5% of the most recent estimated value of each Class A share or Class T share, as applicable; and after four years from the purchase date, 100% of the most recent estimated value of each Class A share or Class T share, as applicable (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock). As a result of our board of directors’ determination of the Estimated Per Share NAV, commencing on October 1, 2016, the Estimated Per Share NAV of $9.07 shall serve as the most recent estimated per share value for Class A shares and Class T shares for purposes of the share redemption program.
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On September 29, 2016, the Board approved and adopted the Amended and Restated Share Repurchase Program, or the Amended and Restated SRP, which will take effect on October 30, 2016. The following information will supersede and replace the section captioned "Prospectus Summary - Share Repurchase Program" beginning on page 30 of the prospectus on October 30, 2016, the effective date of the Amended and Restated SRP.
Amended and Restated Share Repurchase Program
Our shares of Class A common stock and Class T common stock are currently not listed on a national securities exchange and we will not seek to list our stock unless and until such time as our independent directors believe that the listing of our stock would be in the best interests of our stockholders. In order to provide stockholders with the benefit of some interim liquidity, our board of directors has adopted a share repurchase program that enables our stockholders to sell their shares back to us after they have held them for at least one year, subject to the significant conditions and limitations in our share repurchase program. The terms of our share repurchase program are more flexible in cases involving the death or disability of a stockholder.
Repurchases of shares of our common stock, when requested, are at our sole discretion and generally will be made monthly. We will limit the number of shares repurchased during any calendar year to 5.0% of the number of shares of our common stock outstanding on December 31st of the previous calendar year. In addition, we are only authorized to repurchase shares using the proceeds received from the sale of shares under our distribution reinvestment plan during the prior calendar year and other operating funds, if any, as our board of directors, in its sole discretion may reserve for this purpose. Due to these limitations, we cannot guarantee that we will be able to accommodate all repurchase requests.
A stockholder must have beneficially held its Class A shares or Class T shares, as applicable for at least one year prior to offering them for sale to us through our share repurchase program, unless the Class A shares or Class T shares, as applicable, are being repurchased in connection with a stockholder’s death, Qualifying Disability, or certain other exigent circumstances. The purchase price for shares repurchased under our share repurchase program will be 100.0% of the most recent estimated value of the Class A common stock or Class T common stock, as applicable (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock). Our board of directors reserves the right, in its sole discretion, at any time and from time to time, to waive the one-year holding period requirement in the event of the death or Qualifying Disability of a stockholder, other involuntary exigent circumstances such as bankruptcy, or a mandatory distribution requirement under a stockholder’s IRA.
The share repurchase program will immediately terminate if our shares are listed on any national securities exchange. In addition, our board of directors may suspend (in whole or in part) the share repurchase program at any time and from time to time upon notice to our stockholders and amend or terminate the share repurchase program at any time upon 30 days’ prior written notice to our stockholders. We will notify our stockholders of such developments (1) in a Current Report on Form 8- K, in an annual or quarterly report, or (2) by means of a separate mailing to you. Further, our board of directors reserves the right, in its sole discretion, to reject any requests for repurchases. For additional information on our share repurchase program and the shares, if any, purchased thereunder, refer to the section of this prospectus captioned “Share Repurchase Program."
The following information will supersede and replace in its entirety the section captioned "Share Repurchase Program" beginning on page 192 of the prospectus on October 30, 2016, the effective date of the Amended and Restated SRP.
AMENDED AND RESTATED SHARE REPURCHASE PROGRAM
Prior to the time, if any, that our shares are listed on a national securities exchange, our share repurchase program, as described below, may provide eligible stockholders with limited, interim liquidity by enabling them to sell shares back to us, subject to restrictions and applicable law. A stockholder must have beneficially held its Class A shares or Class T shares, as applicable, for at least one year prior to offering them for sale to us through our share repurchase program, unless the Class A shares or Class T shares, as applicable, are being repurchased in connection with a stockholder’s death, Qualifying Disability, or certain other exigent circumstances. The purchase price for shares repurchased under our share repurchase program will be 100.0% of the most recent estimated value of the Class A common stock or Class T common stock, as applicable (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock). Our board of directors reserves the right, in its sole discretion, at any time and from time to time, to waive the one-year holding period requirement in the event of the death or Qualifying Disability of a stockholder, other involuntary exigent circumstances such as bankruptcy, or a mandatory distribution requirement under a stockholder’s IRA.
At any time the repurchase price is determined by any method other than the net asset value of the Class A shares or Class T shares, as applicable, if we have sold property and have made one or more special distributions to our stockholders of all or a portion of the net proceeds from such sales, the per share repurchase price will be reduced by the net sale proceeds per share distributed to investors prior to the repurchase date. Our board of directors will, in its sole discretion, determine which distributions, if any, constitute a special distribution. While our board of directors does not have specific criteria for determining special distributions, we expect that special distributions will only occur upon the sale of a property and the subsequent
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distribution of the net sale proceeds. Upon receipt of a request for repurchase, we will conduct a Uniform Commercial Code search to ensure that no liens are held against the shares. We will not repurchase any shares subject to a lien. Any costs in conducting the Uniform Commercial Code search will be borne by us.
Repurchases of shares of our common stock, when requested, are at our sole discretion and generally will be made monthly. Each stockholder whose repurchase request is granted will receive the repurchase amount within ten days after the end of the month in which we grant its repurchase request. Subject to certain limitations described in this prospectus, we will also repurchase shares upon the request of the estate, heir or beneficiary of a deceased stockholder. We will limit the number of shares repurchased pursuant to our share repurchase program as follows: during any calendar year, we will not repurchase in excess of 5.0% of the number of shares of common stock outstanding on December 31st of the previous calendar year. As a result, some or all of a stockholders’ shares may not be repurchased.
Our sponsor, advisor, directors and their respective affiliates are prohibited from receiving a fee in connection with the share repurchase program. Affiliates of our advisors are eligible to have their shares repurchased on the same terms as other stockholders.
Funding for the share repurchase program will come exclusively from proceeds we receive from the sale of shares under our distribution reinvestment plan during the prior calendar year and other operating funds, if any, as our board of directors, in its sole discretion, may reserve for this purpose. We cannot guarantee that the funds set aside for the share repurchase program will be sufficient to accommodate all requests made each month. However, a stockholder may withdraw its request at any time or ask that we honor the request when funds are available.
If funds available for our share repurchase program are not sufficient to accommodate all requests, shares will be repurchased as follows: (i) first, pro rata as to repurchases upon the death or Qualifying Disability of a stockholder; (ii) next, pro rata as to repurchases to stockholders who demonstrate, in the discretion of our board of directors, another involuntary exigent circumstance, such as bankruptcy; (iii) next, pro rata as to repurchases to stockholders subject to a mandatory distribution requirement under such stockholder’s IRA; and (iv) finally, pro rata as to all other repurchase requests.
A stockholder or his or her estate, heir or beneficiary may present to us fewer than all of the shares then-owned for repurchase. Repurchase requests made (i) on behalf of a deceased stockholder or a stockholder with a Qualifying Disability; (ii) by a stockholder due to another involuntary exigent circumstance, such as bankruptcy, or (iii) by a stockholder, due to a mandatory distribution under such stockholder’s IRA, shall be made within 360 days of such event.
A stockholder who wishes to have shares repurchased must mail or deliver to us a written request on a form provided by us and executed by the stockholder, its trustee or authorized agent, which we must receive at least five business days prior to the end of the month in which the stockholder is requesting a repurchase of his or her shares. An estate, heir or beneficiary that wishes to have shares repurchased following the death of a stockholder must mail or deliver to us a written request on a form provided by us, including evidence acceptable to our board of directors of the death of the stockholder, and executed by the executor or executrix of the estate, the heir or beneficiary, or their trustee or authorized agent.
Unrepurchased shares may be passed to an estate, heir or beneficiary following the death of a stockholder. If the shares are to be repurchased under any conditions outlined herein, we will forward the documents necessary to effect the repurchase, including any signature guaranty we may require. Our share repurchase program provides stockholders only a limited ability to repurchase shares for cash until a secondary market develops for our shares, at which time the program would terminate. No such market presently exists, and we cannot assure you that any market for your shares will ever develop.
In order for a disability to entitle a stockholder to the special repurchase terms described above, (a Qualifying Disability), (1) the stockholder would have to receive a determination of disability based upon a physical or mental condition or impairment arising after the date the stockholder acquired the shares to be repurchased, and (2) such determination of disability would have to be made by the governmental agency responsible for reviewing the disability retirement benefits that the stockholder could be eligible to receive (the applicable governmental agency). The applicable governmental agencies would be limited to the following: (i) if the stockholder paid Social Security taxes and, therefore, could be eligible to receive Social Security disability benefits, then the applicable governmental agency would be the Social Security Administration or the agency charged with responsibility for administering Social Security disability benefits at that time if other than the Social Security Administration; (ii) if the stockholder did not pay Social Security benefits and, therefore, could not be eligible to receive Social Security disability benefits, but the stockholder could be eligible to receive disability benefits under the Civil Service Retirement System (“CSRS”), then the applicable governmental agency would be the U.S. Office of Personnel Management or the agency charged with responsibility for administering CSRS benefits at that time if other than the Office of Personnel Management; or (iii) if the stockholder did not pay Social Security taxes and, therefore, could not be eligible to receive Social Security benefits but suffered a disability that resulted in the stockholder’s discharge from military service under conditions that were other than dishonorable and, therefore, could be eligible to receive military disability benefits, then the applicable governmental agency would be the Department of Veterans Affairs or the agency charged with the responsibility for administering military disability benefits at that time if other than the Department of Veterans Affairs. Disability determinations by governmental agencies for
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purposes other than those listed above, including but not limited to worker’s compensation insurance, administration or enforcement of the Rehabilitation Act or Americans with Disabilities Act, or waiver of insurance premiums would not entitle a stockholder to the special repurchase terms described above. Repurchase requests following an award by the applicable governmental agency of disability benefits would have to be accompanied by: (1) the investor’s initial application for disability benefits and (2) a Social Security Administration Notice of Award, a U.S. Office of Personnel Management determination of disability under CSRS, a Veteran’s Administration record of disability-related discharge or such other documentation issued by the applicable governmental agency that we would deem acceptable and would demonstrate an award of the disability benefits.
We understand that the following disabilities do not entitle a worker to Social Security disability benefits:
| • | disabilities occurring after the legal retirement age; and |
| • | disabilities that do not render a worker incapable of performing substantial gainful activity. |
Therefore, such disabilities would not qualify for the special repurchase terms, except in the limited circumstances when the investor would be awarded disability benefits by the other applicable governmental agencies described above.
Shares we purchase under our share repurchase program will have the status of authorized but unissued shares. Shares we acquire through the share repurchase program will not be reissued unless they are first registered with the SEC under the Securities Act and under appropriate state securities laws or otherwise issued in compliance with such laws.
Our board of directors, in its sole discretion, may amend, suspend, reduce, terminate or otherwise change our share repurchase program upon 30 days’ prior notice to our stockholders for any reason it deems appropriate. Because we only repurchase shares on a monthly basis, depending upon when during the month our board of directors makes this determination, it is possible that you would not have any additional opportunities to have your shares repurchased under the prior terms of the program, or at all, upon receipt of the notice. Additionally, we will be required to discontinue sales of shares under our distribution reinvestment plan on May 29, 2017, unless our distribution reinvestment plan offering is extended pursuant to applicable law, or the date we sell all of the shares registered for sale under our distribution reinvestment plan, unless we file a new registration statement with the SEC and applicable states. Because share repurchases will be funded with the net proceeds we receive from the sale of shares under our distribution reinvestment plan, the discontinuance or termination of our distribution reinvestment plan will adversely affect our ability to repurchase shares under the share repurchase program. We will notify our stockholders of such developments (1) in a Current Report on Form 8- K, in an annual or quarterly report, or (2) by means of a separate mailing to you. During this Offering, we would also include this information in a prospectus supplement or post-effective amendment to the registration statement, as then required under federal securities laws.
Revised Distribution and Servicing Fee
On September 30, 2016, we entered into an amendment to our dealer manager agreement to, among other things, revise certain terms of the distribution and servicing fee payable to our dealer manager in connection with Class T shares sold in our primary offering. The following information supersedes and replaces all similar information regarding the distribution and servicing fee in the prospectus. The other terms of the distribution and servicing fee are consistent with the terms disclosed of the prospectus:
With respect to Class T shares sold in the primary offering, we pay our dealer manager a distribution and servicing fee that accrues daily equal to 1/365th of 1.0% of the most recent purchase price per Class T share on a continuous basis from year to year, payable out of amounts that otherwise would be distributed to holders of Class T shares; provided, however, that upon the termination of our primary offering, the distribution and servicing fee shall be an amount that accrues daily equal to 1/365th of up to 1.0% of the most recent estimated NAV per Class T share on a continuous basis from year to year.
Risk Factors
The following information supersedes and replaces the risk factor entitled “We will be required to disclose an estimated net asset value, or NAV, per share of our common stock prior to the conclusion of this Offering or shortly after the conclusion of this Offering, and the purchase price you pay for shares of our common stock in this Offering may be higher than such estimated NAV per share. The estimated NAV per share may not be an accurate reflection of the fair value of our assets and liabilities and likely will not represent the amount of net proceeds that would result if we were liquidated or dissolved” in the section entitled “Risk Factors - Risks Related to an Investment in Carter Validus Mission Critical REIT II, Inc.” beginning on page 35 of the prospectus:
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Our estimated value per share of our Class A common stock and Class T common stock are estimates as of a given point in time and likely will not represent the amount of net proceeds that would result if we were liquidated or dissolved or completed a merger or other sale of the company.
The offering prices per Class A share and Class T share are based on our estimated per share NAV of each of our Class A common stock and Class T common stock as of June 30, 2016, as determined by our board of directors on September 29, 2016, which we refer to collectively as our Estimated Per Share NAV, and any applicable per share upfront selling commissions and dealer manager fees.
The price at which stockholders purchase shares and any subsequent values are likely to differ from the price at which a stockholder could resell such shares because: (1) there is no public trading market for our shares at this time; (2) the price does not reflect, and will not reflect, the fair value of our assets as we acquire them, nor does it represent the amount of net proceeds that would result from an immediate liquidation of our assets or sale of the company, because the amount of proceeds available for investment from this offering is net of selling commissions, dealer manager fees, other organization and offering expense reimbursements and acquisition fees and expenses; (3) the estimated value does not take into account how market fluctuations affect the value of our investments, including how the current conditions in the financial and real estate markets may affect the value of our investments; (4) the estimated value does not take into account how developments related to individual assets may increase or decrease the value of our portfolio; and (5) the estimated value does not take into account any portfolio premium or premiums to value that may be achieved in a liquidation of our assets or sale of our portfolio.
Further, the value of our shares will fluctuate over time as a result of, among other things, developments related to individual assets and responses to the real estate and capital markets. The Estimated Per Share NAV does not reflect a discount for the fact that we are externally managed, nor does it reflect a real estate portfolio premium/discount versus the sum of the individual property values. The Estimated Per Share NAV also does not take into account estimated disposition costs and fees for real estate properties that are not held for sale.
There are currently no SEC, federal and state rules that establish requirements specifying the methodology to employ in determining an estimated value per share; provided, however, that pursuant to FINRA rules the determination of the estimated value per share must be conducted by, or with the material assistance or confirmation of, a third-party valuation expert and must be derived from a methodology that conforms to standard industry practice. Subsequent estimates of our Estimated Per Share NAV will be done at least annually. Our Estimated Per Share NAV is an estimate as of a given point in time and likely does not represent the amount of net proceeds that would result from an immediate sale of our assets.
The following risk factors supplement, and should be read in conjunction with, the section of our prospectus entitled “Risk Factors - Risks Related to an Investment in Carter Validus Mission Critical REIT II, Inc.” beginning on page 34 of the prospectus:
The purchase prices you pay for shares of our Class A common stock and Class T common stock are based on the Estimated Per Share NAV at a given point in time, and any applicable per share upfront selling commissions and dealer manager fees. Our Estimated Per Share NAV is based upon a number of estimates, assumptions, judgments and opinions that may not be, or may later prove not to be, accurate or complete, which could make the estimated valuations incorrect. As a result, our Estimated Per Share NAV may not reflect the amount that you might receive for your shares in a market transaction, and the purchase price you pay may be higher than the value of our assets per share of common stock at the time of your purchase.
The per share price for Class A shares and Class T shares in our primary offering and pursuant to our DRIP are based on our most recent Estimated Per Share NAV and applicable upfront commissions and fees. Currently, there are no SEC, federal or state rules that establish requirements specifying the methodology to employ in determining an estimated per share NAV. The audit committee of our board of directors, pursuant to authority delegated by our board of directors, was responsible for the oversight of the valuation process, including the review and approval of the valuation process and methodology used to determine our Estimated Per Share NAV, the consistency of the valuation and appraisal methodologies with real estate industry standards and practices and the reasonableness of the assumptions used in the valuations and appraisals.
Pursuant to the prior approval of the audit committee of our board of directors, which is solely comprised of our independent directors, in accordance with the valuation policies previously adopted by our board of directors, we engaged Robert A. Stanger & Co., Inc., or Stanger, an independent third-party valuation firm, to assist with determining the Estimated Per Share NAV. Our Estimated Per Share NAV was determined after consultation with our advisor and Stanger. Stanger prepared an appraisal report summarizing key information and assumptions and providing a value on 40 of our 42 properties in our portfolio as of June 30, 2016. Stanger also prepared a net asset value report, which estimates the Per Share NAV of each of our Class A and Class T common stock as of June 30, 2016. The valuation was based upon the estimated value of our assets less the estimated value of our liabilities divided by the number of shares outstanding on an adjusted fully diluted basis, calculated as of June 30, 2016, and was performed in accordance with the valuation guidelines established by the Investment Program Association Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs. The Estimated Per
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Share NAV was determined by our board of directors. Subsequent estimates of our per share NAV for each of our Class A common stock and Class T common stock will be prepared at least annually.
Our Estimated Per Share NAV is an estimate as of a given point in time and likely does not represent the amount of net proceeds that would result from an immediate sale of our assets. The Estimated Per Share NAV is not intended to be related to any values at which individual assets may be carried on financial statements under applicable accounting standards. While the determination of our most recent Estimated Per Share NAV was conducted with the material assistance of a third-party valuation expert, with respect to asset valuations, we are not required to obtain asset-by-asset appraisals prepared by certified independent appraisers, nor must any appraisals conform to formats or standards promulgated by any trade organization. Other than the information included in our Current Report on Form 8-K filed on September 30, 2016 regarding the Estimated Per Share NAV, we do not intend to release individual property value estimates or any of the data supporting the Estimated Per Share NAV. See the section of our prospectus captioned “Investment Objectives, Strategy and Policies - Dilution of the Net Tangible Book Value of Our Shares” for further discussion.
It may be difficult to accurately reflect material events that may impact our estimated per share NAV between valuations, and accordingly we may be selling and repurchasing shares at too high or too low a price.
Our independent third-party valuation expert will calculate estimates of the market value of our principal real estate and real estate-related assets, and our board of directors will determine the net value of our real estate and real estate-related assets and liabilities taking into consideration such estimates provided by the independent third-party valuation expert. Our board of directors is ultimately responsible for determining the estimated per share NAV. Since our board of directors will determine our estimated per share NAV at least annually, there may be changes in the value of our properties that are not fully reflected in the most recent estimated per share NAV. As a result, the published estimated per share NAV may not fully reflect changes in value that may have occurred since the prior valuation. Furthermore, our advisor will monitor our portfolio, but it may be difficult to reflect changing market conditions or material events that may impact the value of our portfolio between valuations, or to obtain timely or complete information regarding any such events. Therefore, the estimated per share NAV published before the announcement of an extraordinary event may differ significantly from our actual per share NAV until such time as sufficient information is available and analyzed, the financial impact is fully evaluated, and the appropriate adjustment is made to our estimated per share NAV, as determined by our board of directors. Any resulting disparity may be to the detriment of a purchaser of our shares or a stockholder selling shares pursuant to our share repurchase program.
Plan of Distribution
The following information supersedes and replaces the section entitled “Plan of Distribution - Special Discounts - Friends and Family” on page 209 of the prospectus:
Friends and Family
Our executive officers and managers and their immediate family members, as well as officers and persons associated with our advisor and its members and their affiliates and their immediate family members (including spouses, parents, grandparents, children and siblings) and other individuals designated by our management, and, if approved by our board of directors, joint venture partners, consultants and other service providers, may purchase Class A shares in this Offering at a discount. The purchase price for such shares will be $9.373 per share, reflecting the fact that selling commissions in the amount of $0.705 per share will be waived and not payable in connection with such shares. There is no limit on the number of Class A shares that may be sold to such persons.
Indemnification Agreements
On September 30, 2016, we entered into an indemnification agreement with each of our current directors and executive officers, each referred to herein as an Indemnitee. Each indemnification agreement obligates us to indemnify the respective Indemnitee to the maximum extent permitted by Maryland law against all judgments, penalties, fines and amounts paid in settlement and all expenses actually and reasonably incurred by the Indemnitee or on his or her respective behalf in connection with a proceeding. Each Indemnitee is not entitled to indemnification if it is established that one of the exceptions to indemnification under Maryland law, as set forth in each indemnification agreement, exists.
In addition, each indemnification agreement requires us to advance reasonable expenses incurred by or on behalf of the respective Indemnitee within ten days of our receipt of a statement from the Indemnitee requesting the advance. Each indemnification agreement also provides for procedures for the determination of entitlement to indemnification.
Credit Facility
The following information supplements, and should be read in conjunction with, the table on page 143 contained in the "Investment Objectives, Strategy and Policies - Entry into a Credit Facility" section of the prospectus:
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The following table summarizes information on the properties in which our operating partnership has pledged a security interest that serve as collateral for the KeyBank Credit Facility since August 18, 2016:
| Property | Date Added | Pool Availability | ||
| Somerset Data Center | 09/23/2016 | $7,425,000 | ||
| Integris Lakeside Women’s Hospital | 09/23/2016 | $11,904,000 | ||
As of September 30, 2016, CVOP II had a total pool availability under the KeyBank Credit Facility of $258,714,000 and an aggregate outstanding balance of $135,000,000. As of September 30, 2016, $123,714,000 remained to be drawn on the KeyBank Credit Facility.
Revised Forms of Subscription Agreements
Revised forms of our Subscription Agreement and Additional Subscription Agreement are attached as Appendices B and C, respectively, and supersede and replace Appendices B and C in the prospectus.
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B-1
B-2
B-3
B-4
B-5
B-6
B-7
B-8
B-9
B-10
C-1
C-2
C-3
C-4
C-5
C-6