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Section 1: N-CSR (N-CSR)

Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM N-CSR
 

 
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
 
Investment Company Act file number: 811-23109
 

 
CC Real Estate Income Fund
(Exact name of registrant as specified in charter)
 

 
590 Madison Avenue, 34th Floor
 
New York, NY
10022
(Address of principal executive offices)
(Zip code)
 

 
Kevin P. Traenkle
Chief Executive Officer and President
CC Real Estate Income Fund
590 Madison Avenue, 34
th Floor
New York, NY 10022
(Name and address of agent for service)
 
Copy to:
Sandra Matrick Forman, Esq.
Colony Capital, Inc.
590 Madison Avenue, 34th Floor
New York, NY 10022
 

 
Registrant’s telephone number, including area code: (212) 547-2600
 
Date of fiscal year end: December 31, 2018
 
Date of reporting period: December 31, 2018
 






Item 1. Reports to Stockholders.
 
The annual report (the “Annual Report”) of CC Real Estate Income Fund, formerly NorthStar Real Estate Capital Income Fund (the “Fund”) for the year ended December 31, 2018 transmitted to shareholders pursuant to Rule 30e-1 promulgated under the Investment Company Act of 1940, as amended (the “1940 Act”), is as follows:




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Table of Contents
 
CC Real Estate Income Fund
Annual Report for the Year Ended December 31, 2018:
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 

CC Real Estate Income Master Fund
Annual Report for the Year Ended December 31, 2018
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 










Report of Independent Registered Public Accounting Firm



To the Board of Trustees and Shareholders of CC Real Estate Income Fund

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of CC Real Estate Income Fund (the "Feeder Fund") as of December 31, 2018, the related statement of operations for the year ended December 31, 2018, and the statement of changes in net assets for each of the two years in the period ended December 31, 2018, including the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Feeder Fund as of December 31, 2018, the results of its operations for the year then ended, and the changes in its net assets for each of the two years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Feeder Fund’s management. Our responsibility is to express an opinion on the Feeder Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Feeder Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Subsequent Event

As discussed in Note 11 to the financial statements, the Board of Trustees approved on February 21, 2019, a plan of dissolution, liquidation, and termination for the Feeder Fund.

/s/ PricewaterhouseCoopers LLP
New York, New York
February 28, 2019

We have served as the auditor of one or more investment companies in the CC Real Estate Income Funds group since 2016.





7



CC Real Estate Income Fund
Statement of Assets and Liabilities
 
 
 
As of
 
 
December 31, 2018
Assets
 
 
Investment in CC Real Estate Income Master Fund (Cost $30,585,665)
 
$
29,465,988

Distributions receivable from CC Real Estate Income Master Fund
 
182,743

Cash
 
46,365

Deferred offering costs
 
15,956

Receivable for common shares issued
 
8,983

Total assets
 
29,720,035

 
 
 
Liabilities
 
 
Shareholder distributions payable
 
173,790

Professional fees payable
 
18,964

Transfer agent fees payable
 
9,900

Offering costs payable
 
6,618

Expense reimbursement due to advisor
 
1,078

Other liabilities and accrued expenses
 
34,183

Total liabilities
 
244,533

Net assets
 
$
29,475,502

 
 
 
Commitments and contingencies (Note 8)
 
 
 
 
 
Composition of net assets
 
 
Common shares, $0.001 par value per share, unlimited shares authorized, 2,464,198 Class A and 951,580 Class I shares issued and outstanding
 
$
3,416

Paid-in capital in excess of par value
 
30,730,902

Total distributable earnings
 
(1,258,816
)
Net assets
 
$
29,475,502

 
 
 
Net asset value per Class A shares
 
$
8.63

Net asset value per Class I shares
 
$
8.63

 
Refer to notes to accompanying financial statements.


8


CC Real Estate Income Fund
Statement of Operations
 
 
 
For the
 
 
Year Ended
 
 
December 31, 2018
Investment income
 
 
Distributions from CC Real Estate Income Master Fund
 
$
2,035,897

Interest income
 
711

Total investment income
 
2,036,608

 
 
 
Operating expenses
 
 
Offering costs
 
89,966

Transfer agent fees
 
78,000

Professional fees
 
22,551

Printing fees
 
13,000

Other expenses
 
1,630

Total expenses
 
205,147

Less: Expense reimbursement from Advisor (Note 4)
 
(66,298
)
Net investment income before tax expense
 
1,897,759

Income tax (benefit)
 
(1,181
)
Net investment income
 
1,898,940

 
 
 
Net Realized Loss and Unrealized Depreciation on Investments
 
 
Net realized loss on investment
 
(31,027
)
Net change in unrealized depreciation on investments
 
(1,263,629
)
Total net realized loss and unrealized depreciation on investments
 
(1,294,656
)
Net increase in net assets resulting from operations
 
$
604,284

 
Refer to notes to accompanying financial statements.
 


9


CC Real Estate Income Fund
Statements of Changes in Net Assets
 
 
 
For the
 
For the
 
 
 
Year Ended
 
Year Ended
 
 
 
December 31, 2018
 
December 31, 2017
 
Operations:
 
 
 
 
 
Net investment income
 
$
1,898,940

 
$
618,565

 
Net realized loss on investments
 
(31,027
)
 

 
Net change in unrealized (depreciation)/appreciation on investments
 
(1,263,629
)
 
143,952

 
Net increase in net assets resulting from operations
 
604,284

 
762,517

 
 
 
 
 
 
 
Shareholder Distributions
 
 
 
 
 
From distributable earnings
 
(1,949,609
)
 
(684,876
)
 
Net decrease in net assets resulting from shareholder distributions
 
(1,949,609
)
 
(684,876
)
 
 
 
 
 
 
 
Capital Transactions
 
 
 
 
 
Issuance of Class A shares, net (Note 3)
 
410,699

 
21,562,654

 
Issuance of Class I shares, net (Note 3)
 
4,646,357

 
4,943,234

 
Contributions from affiliate (Note 4)
 
5,075

 
59,993

 
Reinvestment of shareholder distributions (Note 3)
 
246,032

 
45,239

 
Repurchase of common shares (Note 3)
 
(1,280,980
)
 

 
Offering costs (Note 2)
 
54,803

 
(54,803
)
 
Net increase in net assets resulting from capital transactions
 
4,081,986

 
26,556,317

 
 
 
 
 
 
 
Total increase in net assets
 
2,736,661

 
26,633,958

 
Net assets at beginning of period
 
26,738,841

 
104,883

 
Net assets at end of period
 
$
29,475,502

 
$
26,738,841

(a) 
 
(a)
For the year ended December 31, 2017, net assets included accumulated net investment income of $605,184. This amount is not disclosed for the year ended December 31, 2018 pursuant to amended Regulation S-X. Refer to Note 12, “SEC Regulations.”


Refer to notes to accompanying financial statements.


10


CC REAL ESTATE INCOME FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2018
1.
Business and Organization

CC Real Estate Income Fund (the “RE Income Fund”), formerly NorthStar Real Estate Capital Income Fund, was organized as a Delaware statutory trust on October 2, 2015. The RE Income Fund’s primary investment objectives are to generate attractive and consistent income and preserve and protect shareholders’ capital, with a secondary objective of capital appreciation. The RE Income Fund has two share classes and intends to invest substantially all of its net assets in CC Real Estate Income Master Fund (the “Master Fund”), formerly NorthStar Real Estate Capital Income Master Fund. The Master Fund’s investment objective and strategies are substantially the same as the RE Income Fund’s. The RE Income Fund’s audited financial statements should be read in conjunction with the attached audited financial statements for the Master Fund.
 
The RE Income Fund together with CC Real Estate Income Fund-T (“RE Income Fund-T”), formerly NorthStar Real Estate Capital Income Fund-T, and collectively the Trusts, which is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), and whose principal investment strategy is to invest substantially all of its assets in the Master Fund, commenced operations on May 6, 2016.

Two additional feeder funds of the Master Fund, CC Real Estate Income Fund-ADV (“RE Income Fund-ADV”), formerly NorthStar Real Estate Capital Income Fund-ADV, and CC Real Estate Income Fund-C (“RE Income Fund-C”), formerly NorthStar Real Estate Capital Income Fund-C, and collectively together with the Trusts and RE Income Fund-ADV, the “Feeder Funds” were formed on May 5, 2017 and September 20, 2017, respectively. RE Income Fund-ADV and RE Income Fund-C commenced their operations on November 8, 2017 and on January 30, 2018, respectively, the date when their respective registration statements were declared effective by the U.S. Securities and Exchange Commission (“SEC”).

As of December 31, 2018, approximately 85.9%, 9.7%, 0.3% and 0.4% of the Master Fund’s outstanding common shares of beneficial interest, par value $0.001 per share, or its common shares, were held by RE Income Fund, RE Income Fund-T, RE Income Fund-ADV and RE Income Fund-C, respectively. The remaining 3.7% was held by Colony Capital FV Holdings, LLC (“Colony Capital FV”) an affiliate of Colony Capital (defined below).
 
The RE Income Fund and the Master Fund are externally managed by CNI RECF Advisors, LLC (formerly known as NSAM B-RECF Ltd., the “Advisor”), a Delaware limited liability company, which is a registered investment advisor under the Investment Advisers Act of 1940, as amended, (the “Advisers Act”). Prior to January 11, 2017, the RE Income Fund and the Master Fund were externally managed by an affiliate of NorthStar Asset Management Group Inc. (NYSE: NSAM) (“NSAM”). Effective January 10, 2017, NSAM completed its previously announced merger (the “Merger”) with Colony Capital, Inc., and NorthStar Realty Finance Group (“NorthStar Realty”) to create Colony NorthStar, Inc., an internally-managed equity real estate investment trust (“REIT”), with a diversified real estate and investment management platform and publicly-traded on the NYSE. In addition, following the Merger, the Advisor became a subsidiary of Colony NorthStar, Inc. Effective June 25, 2018, Colony NorthStar, Inc. changed its name to Colony Capital, Inc. (“Colony Capital”) and now trades on the NYSE under the ticker symbol “CLNY.” Colony Capital manages capital on behalf of its stockholders, as well as institutional and retail investors in private funds, non-traded and traded REITs and registered investment companies.
 
Pursuant to a separate investment advisory agreement with each of the RE Income Fund (the “Trust Advisory Agreement”) and the Master Fund (the “Master Fund Advisory Agreement”), the Advisor oversees the management of the RE Income Fund’s and the Master Fund’s activities, respectively, including investment strategies, investment goals, asset allocation, asset management, leverage limitations, reporting requirements and other guidelines in addition to the general monitoring of the RE Income Fund and the Master Fund’s portfolios, subject to the oversight of the RE Income Fund’s Board of Trustees (the “Board”) and the Master Fund’s board of trustees, respectively. The Advisor also provides certain other administrative services, including marketing, investor relations and certain accounting services and maintenance of certain books and records on behalf of the RE Income Fund and the Master Fund, furnishes office facilities and equipment, provides clerical services to the RE Income Fund and the Master Fund, performs the calculation and publication of the RE Income Fund’s and the Master Fund’s net asset value (“NAV”), oversees the preparation and filing of the RE Income Fund’s and the Master Fund’s tax returns, the payment of the RE Income Fund’s and the Master Fund’s expenses and the performance oversight of various third party service providers.
 
The RE Income Fund is registered under the 1940 Act, as a non-diversified, closed-end management investment company that intends to elect to be treated, and intends to qualify annually thereafter, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”) beginning with the taxable year ending December 31, 2018. Refer to Note 2, “Summary of Significant Accounting Policies - Income Taxes” for further details.
 


11

CC REAL ESTATE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018

2.
Summary of Significant Accounting Policies
 
Basis of Presentation

The accompanying audited financial statements of the RE Income Fund have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) The RE Income Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 946 Financial Services - Investment Companies.

Investment in the Master Fund

The RE Income Fund’s investment in the Master Fund is recorded at fair value and is based upon the RE Income Fund’s percentage ownership of the common shares of the Master Fund. The performance of the RE Income Fund is directly affected by the performance of the Master Fund. As of December 31, 2018, the RE Income Fund held an 85.9% ownership interest, or approximately $29.5 million in the Master Fund.
 
Use of Estimates
 
The preparation of the RE Income Fund’s audited financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that could affect the amounts reported in the financial statements and the accompanying notes. Actual results may differ from those estimates and those differences may be material.
 
Cash
 
As of December 31, 2018, cash represents cash held in custody at MUFG Union Bank, N.A. in a bank deposit account that, at times, may exceed federally insured limits.
 
Valuation of Portfolio Investments
 
The RE Income Fund intends to invest substantially all of its net assets in the Master Fund. As such, the RE Income Fund determines the NAV of its common shares of beneficial interest daily based on the value of its interest in the Master Fund (as provided by the Master Fund). The RE Income Fund calculates NAV per common share by subtracting total liabilities (including accrued expenses or distributions) from the total assets of the RE Income Fund (the value of its interest in the Master Fund, plus cash or other assets, including interest and distributions accrued but not yet received) and dividing the result by the total number of outstanding common shares of the RE Income Fund. Refer to Note 2, “Summary of Significant Accounting Policies” to the financial statements of the Master Fund for information on the Master Fund’s policies regarding the valuation of its portfolio investments.

Revenue Recognition
 
Realized gains and losses from Master Fund transactions will be calculated on the specific identification basis. Master Fund transactions are recorded on the effective date of the subscription in or the redemption from the Master Fund. Distributions received from the Master Fund are recorded as investment income on ex-dividend date.
 
Organization and Offering Costs
 
Organization costs include, among other things, the cost of formation, including the cost of legal services and other fees pertaining to the RE Income Fund’s organization. Offering costs include, among other things, legal, accounting, printing and other costs pertaining to the preparation of the RE Income Fund’s Registration Statement on Form N-2 related to the public offering of its common shares. Historically, the RE Income Fund charged offering costs against capital in excess of par value on its financial statements in error. In the current period, the RE Income Fund corrected its accounting treatment for offering costs to record such costs as a deferred charge and thereafter amortize to expense over 12 months on a straight-line basis. Also, during the current year, the RE Income Fund reclassified $54,803 of offering costs to a deferred charge, which had been recorded as a reduction to capital in 2017. Management concluded that the impact of the error and its correction is not material to the current or previously presented financial statements. Organization costs incurred directly by the RE Income Fund are expensed as incurred.
 
The Advisor and its affiliates are entitled to receive reimbursement for costs each has paid on behalf of the RE Income Fund in connection with the offering. The RE Income Fund will be obligated to reimburse the Advisor and its affiliates, as applicable, for organization and offering costs (“O&O Costs”) to a limit of 1.0% of the aggregate proceeds from the offering, after the payment of

12

CC REAL ESTATE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018

selling commissions and dealer manager fees. The RE Income Fund estimates that it will incur approximately $27.3 million of O&O Costs if the maximum number of shares is sold. The RE Income Fund records O&O Costs each period based upon an allocation determined by the expectation of total O&O Costs to be reimbursed. For allocated O&O, organization costs are recorded as an expense in the statement of operations. Offering costs are recorded as a deferred charge and are thereafter amortized to expense over 12 months on a straight-line basis. In addition, the RE Income Fund indirectly bears its pro rata portion of O&O Costs incurred by the Master Fund based on its ownership of the Master Fund shares.
 
As of December 31, 2018, the Advisor and its affiliates incurred approximately $2.5 million of O&O Costs on behalf of the RE Income Fund. For the year ended December 31, 2018 and the year ended December 31, 2017, approximately $5.1 million and $6.4 million, respectively, of gross proceeds from external investors were raised from the offering. As of December 31, 2018 and December 31, 2017, approximately $51,000 and $55,000, respectively, of offering costs were allocated to the RE Income Fund. As of December 31, 2018, offering costs payable by the RE Income Fund to the Advisor was $6,618. For the year ended December 31, 2017, approximately $11,000 of organization costs were incurred by the RE Income Fund and reimbursed to the Advisor. There were no organization costs incurred by the RE Income Fund for the year ended December 31, 2018. Since inception of the RE Income Fund, all O&O Costs have been incurred by the Advisor.
 
Income Taxes

The RE Income Fund intends to elect to be treated for federal income tax purposes as a RIC under Subchapter M of the Code, beginning with the taxable year ending December 31, 2018. To maintain qualification as a RIC, the RE Income Fund must, among other things, meet certain source-of-income and asset diversification requirements and distribute to their respective shareholders, for each taxable year, at least 90% of its “investment company taxable income” and its net tax-exempt interest income. In general, a RIC’s “investment company taxable income” for any taxable year is its taxable income, determined without regard to net capital gains and with certain other adjustments. As a RIC, the RE Income Fund will not have to pay corporate-level federal income taxes on any income that it distributes to its shareholders. The RE Income Fund intends to distribute all or substantially all of their “investment company taxable income,” net tax-exempt interest income, if any, and net capital gains, if any, on an annual basis in order to maintain their RIC status each year and to avoid any federal income taxes on income. The RE Income Fund will also be subject to nondeductible federal excise taxes if it does not distribute at least 98.0% of net ordinary income, if any, and 98.2% of any capital gain net income, if any.
 
Uncertainty in Income Taxes
 
The RE Income Fund evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax benefits or liabilities in the financial statements. Recognition of a tax benefit or liability with respect to an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The RE Income Fund recognizes interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in the Statement of Operations. For the year ended December 31, 2018, the RE Income Fund did not incur any interest or penalties.
 
Distributions

Distributions to the RE Income Fund’s shareholders are recorded as of the record date.

Distribution Reinvestment Plan
 
The RE Income Fund has adopted an “opt in” distribution reinvestment plan (“DRP”) pursuant to which shareholders may elect to have the full amount of their cash distributions reinvested in additional shares. Participants in the DRP are free to elect to participate or terminate participation in the DRP within a reasonable time as specified in the DRP. If a shareholder does not elect to participate in the DRP, the shareholder will automatically receive any distributions the RE Income Fund declares in cash. The RE Income Fund expects to issue shares pursuant to the DRP at the monthly distribution payment date at a price equal to the NAV per share that is used to determine the offering price of the shares on the date of such monthly distribution payment date. Shares issued pursuant to the DRP will have the same voting rights as shares offered pursuant to the prospectus.


13

CC REAL ESTATE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018


3.
Share Transactions
 
Securities Offered
 
Pursuant to the Declaration of Trust, the RE Income Fund has unlimited shares authorized. The RE Income Fund is offering on a continuing basis two classes of shares of beneficial interest up to 300,000,000 shares pursuant to the registration statement: Class A shares (“Class A Shares”) and Class I shares (“Class I Shares”) at the offering price, which equals the RE Income Fund’s then-current NAV per share, plus any selling commissions and dealer manager fees, if any. The share class differs only in the minimum initial investment required and the sales load investors must pay.

Below is a summary of the RE Income Fund’s share transactions during the year ended December 31, 2018 and the year ended December 31, 2017:
 
 
Year Ended
 
Year Ended
 
 
December 31, 2018
 
December 31, 2017
 
 
Shares
 
Amount
 
Shares
 
Amount
Gross proceeds from issuance of Class A Shares
 
45,192

 
$
435,787

 
2,405,319

 
$
21,686,183

Gross proceeds from issuance of Class I Shares
 
512,526

 
4,646,357

 
549,732

 
4,943,234

Reinvestment of distributions
 
27,066

 
246,032

 
5,015

 
45,239

Total gross proceeds from issuance of shares
 
584,784

 
5,328,176

 
2,960,066

 
26,674,656

Commission and Dealer Manager Fees(1)
 

 
(25,088
)
 

 
(123,529
)
Net proceeds to RE Income Fund
 
584,784

 
5,303,088

 
2,960,066

 
26,551,127

Aggregate Consideration for Repurchased Shares
 
(140,632
)
 
(1,280,980
)
 

 

Net Proceeds from Share Transactions
 
444,152

 
$
4,022,108

 
2,960,066

 
$
26,551,127

______________________
(1)
These fees are paid by the investor.

As of December 31, 2018, 2,464,198 and 951,580 shares of Class A and Class I Shares, respectively, were outstanding. Pursuant to the trustee share purchase and participation program with the Board, trustees can allocate a portion of their trustee fees to investments in the RE Income Fund. Of the Class A Shares issued for the year ended December 31, 2018, subscriptions of $15,688 were made to trustees at an estimated NAV per share of $9.09, resulting in the issuance of 1,725 Class A Shares. The related dealer manager fees and selling commissions were waived.
 
Capital Contribution by Colony Capital
 
Prior to commencement of operations, of Colony Capital FV contributed $100,000 to purchase 11,001 common shares of Class A Shares of the RE Income Fund at a price of $9.09 per share. The related dealer manager fees and selling commissions were waived.

For the year ended December 31, 2018, the Advisor contributed capital of $5,075 to the RE Income Fund. The purpose of the contribution was to reimburse the RE Income Fund for losses resulting from the reprocessing of certain shareholder repurchases. This reimbursement is reflected in capital transactions in the Statement of Changes in Net Assets as a contribution from affiliate and the effect of this contribution is presented in Note 7, “Financial Highlights.”

Shares purchased by Colony Capital
 
Pursuant to a capital investment agreement (“Capital Investment Agreement”) between Colony Capital FV and RE Income Fund executed in May 2017, Colony Capital FV purchased $20 million of Class A Shares of the RE Income Fund. The Class A Shares were issued at the NAV per share on the date of each installment subscription, with selling commissions and dealer manager fees waived. As of December 31, 2018, Colony Capital FV has purchased 2,230,673 Class A shares for $20 million pursuant to the Capital Investment Agreement.
 
Share Repurchase Program
 
To provide shareholders with limited liquidity, the RE Income Fund conducts quarterly repurchases of shares. Each repurchase offer will generally be conducted in parallel with similar repurchase offers made by the Master Fund with respect to the Master Fund shares.

14

CC REAL ESTATE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018

In months in which the RE Income Fund repurchases shares, the RE Income Fund will conduct repurchases no later than the 15th day of the month, or the next business day if the 15th day is not a business day. Any offer to repurchase shares will be conducted solely through written tender offer materials mailed to each shareholder (and not through the prospectus) in accordance with the requirements under Rule 13e-4 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
 
The RE Income Fund’s quarterly repurchases will be conducted on such terms as may be determined by the Board in its complete and absolute discretion unless, in the judgment of the independent trustees, such repurchases would not be in the best interests of shareholders or would violate applicable law. The Board also will consider the following factors, among others, in making its determination regarding whether to cause the RE Income Fund to offer to repurchase shares and under what terms:

 
the effect of such repurchases on the RE Income Fund’s and/or the Master Fund’s qualification as a RIC (including the consequences of any necessary asset sales);
 
the liquidity of the RE Income Fund’s assets (including fees and costs associated with disposing of assets);
 
the Master Fund’s investment plans;
 
the RE Income Fund’s and the Master Fund’s working capital requirements;
 
the RE Income Fund’s history in repurchasing shares or portions thereof;
 
the condition of the securities markets.
 
The RE Income Fund currently intends to limit the number of shares to be repurchased on each date of repurchase to the number of shares the RE Income Fund can repurchase with, in the Board’s sole discretion, (i) the aggregate proceeds it has received from the issuance of shares pursuant to its DRP for the previous calendar quarter, and/or (ii) the aggregate proceeds it has received from the sale of shares other than such shares issued pursuant to the DRP for the previous calendar month, immediately prior to the date upon which the notification to repurchase shares was provided to shareholders. The Board may, in its sole discretion, determine to limit the number of shares to be repurchased to an amount that is greater than or less than the amounts described above. The RE Income Fund will further limit the number of shares to be repurchased in any calendar quarter to 5.0% of the weighted average number of shares outstanding in the previous full calendar quarter prior to the date upon which the notification to repurchase shares was provided to shareholders. In addition, beginning with the RE Income Fund’s second full calendar year of operations, the RE Income Fund will limit the number of shares to be repurchased in any calendar year to 20.0% of the weighted average number of shares outstanding in the prior calendar year. The RE Income Fund will offer to repurchase such shares at a price equal to the NAV per share in effect on each date of repurchase.
 
The RE Income Fund’s assets consist primarily of an interest in the Master Fund shares. Therefore, in order to finance the repurchase of its common shares pursuant to the repurchase offers, the RE Income Fund may find it necessary to liquidate all or a portion of its interest in the Master Fund shares. As a result, the RE Income Fund will not conduct a repurchase offer for common shares unless the Master Fund simultaneously conducts a repurchase offer for the Master Fund shares. The members of the Board also serve on the Master Fund’s board of trustees, and the Master Fund’s board of trustees expects that the Master Fund will conduct repurchase offers for Master Fund shares as necessary to permit the RE Income Fund to meet its intentions under its share repurchase program. However, there can be no assurance that the Master Fund’s board of trustees will, in fact, decide to undertake any repurchase offers.
 
On January 5, 2018, the RE Income Fund repurchased 83,520 shares of its issued and outstanding common shares at a price equal to $9.07 per share (the NAV on the date of repurchase) for $757,523 pursuant to a tender offer that was made upon and subject to the terms and conditions of the Offer to Repurchase, dated November 20, 2017.

On April 5, 2018, the RE Income Fund repurchased 17,980 shares of its issued and outstanding shares at a price equal to $8.95 per share (the NAV on the date of repurchase) for $160,917 pursuant to a tender offer that was made upon and subject to the terms and conditions of the Offer to Repurchase dated February 20, 2018.

On June 1, 2018, the RE Income Fund paid $5,075 to shareholders due to the reprocessing of certain repurchases.

On July 5, 2018, the RE Income Fund repurchased 27,076 shares of its issued and outstanding common shares at a price equal to $9.07 per share (the NAV on the date of repurchase) for an aggregate purchase price of approximately $245,585 pursuant to a tender offer that was made upon and subject to the terms and conditions of the Offer to Repurchase, dated May 21, 2018.

On October 4, 2018, the RE Income Fund repurchased 12,056 shares of its issued and outstanding shares at a price equal to $9.28 per share (the NAV on the date of repurchase) for $111,880 pursuant to a tender offer that was made upon and subject to the terms and conditions of the Offer to Repurchase dated August 20 2018.

15

CC REAL ESTATE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018


Refer to Note 11, “Subsequent Events” for repurchase activity occurring after December 31, 2018.

4.
Related Party Transactions

Management and Incentive Fees
 
The RE Income Fund will not incur a separate management fee or incentive fee under the Trust Advisory Agreement for so long as the RE Income Fund has a policy to invest all or substantially all of its net assets in the Master Fund, but the RE Income Fund and shareholders will be indirectly subject to the management fee and incentive fee. Pursuant to the Master Fund’s Advisory Agreement, and in consideration of the advisory services provided by the Advisor to the Master Fund, the Advisor will be entitled to a fee consisting of two components - the management fee (“Management Fee”) and the incentive fee (“Incentive Fee”). The Management Fee was to be calculated and payable quarterly in arrears at the annual rate of 2.0% of the Master Fund’s average gross assets, excluding cash and cash equivalents, at the end of the two most recently completed calendar quarters (and, in the case of the Master Fund’s first quarter, the gross assets excluding cash and cash equivalents as of such quarter-end). The Incentive Fee was to be calculated and payable quarterly in arrears based upon the Master Fund’s “pre-incentive fee net investment income” for the immediately preceding quarter, and is subject to a hurdle rate, measured quarterly and expressed as a rate of return on the Master Fund’s “adjusted capital” at the beginning of the most recently completed quarter, equal to 1.75% per quarter, subject to a “catch-up” feature. Refer to Note 4, “Related Party Transactions” to the financial statements of the Master Fund attached hereto for a detailed description of the incentive fees payable by the Master Fund to the Advisor.

On February 23, 2017, the Board approved an amendment to the Master Fund’s Advisory Agreement for the calculation of the Management Fee. The Management Fee is calculated and payable quarterly in arrears at an annual rate of 1.25% of the Master Fund’s average daily net assets during such period.
 
On February 23, 2017, an amendment to the Master Fund’s Advisory Agreement for the calculation of the Incentive Fee became effective following approval by the Board. The Incentive Fee is calculated and payable quarterly in arrears based upon the Master Fund’s “pre-incentive fee net investment income” for the immediately preceding quarter. The Incentive Fee will be subject to a quarterly fixed preferred return to investors, expressed as a rate of return on the Master Fund’s adjusted capital, at the beginning of the most recently completed calendar quarter, of 1.50%, subject to a “catch-up” feature.

Reimbursement of Operating Expenses
 
The Advisor will be reimbursed by the RE Income Fund, as applicable, for actual costs incurred in connection with providing administrative services to the RE Income Fund. Allocation of the cost of such services to the RE Income Fund is primarily based on time allocations, but may also be based on objective factors such as total assets and/or revenues. The RE Income Fund will also indirectly incur an allocation of administrative costs through its investment in the Master Fund.
 
 Distributor
 
On January 9, 2017, RE Income Fund entered into a distribution agreement (the “Distribution Agreement) with ALPS Distributors, Inc. (the “Distributor”), pursuant to which ALPS has agreed to serve as the RE Income Fund’s principal underwriter and the distributor of the RE Income Fund’s shares. Pursuant to the Distribution Agreement, an investor will pay to the Distributor selling commissions and dealer manager fees of up to 8.0%. For the year ended December 31, 2018, approximately $25,000 was paid to ALPS for selling commissions and dealer manager fees.
 
S2K Financial LLC has entered into a wholesale marketing agreement with the Distributor in connection with the marketing of the RE Income Fund’s shares.

On April 30, 2018, Class D Shares were removed from the Offering. No Class D Shares were sold from the commencement of the RE Income Fund through the year ended as of December 31, 2018.

Support Agreements

On July 13, 2017, the Board approved separate expense support and conditional reimbursement agreements, each dated July 13, 2017, between Colony Capital FV and each of the RE Income Fund and the Master Fund (each an “Expense Support Agreement”), whereby Colony Capital FV agreed to reimburse the RE Income Fund and the Master Fund for expenses. On September 28, 2017 and May 10, 2018, the Board approved separate amended and restated expense support and conditional reimbursement agreements (the “Amended

16

CC REAL ESTATE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018

and Restated Expense Support Agreement”). The purpose of these agreements is to seek to minimize the extent to which any portion of Trusts’ distributions or Master Fund’s distributions, as applicable, will be characterized as a return of capital for U.S. GAAP purposes and to reduce operating expenses until the Trusts are generating net income to absorb such expenses. However, such distributions may still be characterized as a return of capital for U.S. federal income tax purposes.

Pursuant to the Amended and Restated Expense Support Agreements, Colony Capital FV will reimburse, on a quarterly basis the RE Income Fund and the Master Fund for expenses (excluding offering expenses) and/or provide additional support payments in an amount equal to the difference between the cumulative distributions paid to the Trust’s or the Master Fund’s Shareholders, as applicable, less the RE Income Fund’s or the Master Fund’s Available Operating Funds during such quarter. “Available Operating Funds” means the net investment income of the RE Income Fund’s or the Master Fund, as applicable, plus offering expenses, minus any reimbursement payments payable to Colony Capital FV pursuant to this arrangement. Colony Capital FV’s obligation to make an expense payment shall automatically become a liability of Colony Capital FV and the right to such expense payment shall be an asset of the RE Income Fund or the Master Fund, as applicable, on each day that the RE Income Fund’s or the Master Fund’s, as applicable, net asset value is calculated.

The RE Income Fund and the Master Fund have a conditional obligation to reimburse Colony Capital FV for any amounts funded under the Amended and Restated Expense Support Agreements in any calendar quarter occurring within three years of the date on which Colony Capital FV funded such amounts provided that (a) the annualized rate of regular distributions declared by the Trusts and the Master Fund at the time of such reimbursement is not less than the annualized rate of regular cash distributions declared by the Trusts and Master Fund at the time the expense payment was made to which such reimbursements relates and (b) the Operating Expense Ratio (as defined below) as of such Reimbursement Date (as defined in the Amended and Restated Expense Support Agreement) is not greater than the Operating Expense Ratio as of the expense payment date attributable to such specified expense payment. “Operating Expense Ratio” means Net Operating Expenses (as defined in the Amended and Restated Expense Support Agreement) as of the applicable period, expressed as a percentage of the average net assets of the Fund as of the relevant measurement date. If such conditions do not occur within three years of such expense payment, Colony Capital FV is no longer entitled to reimbursement.

The Amended and Restated Expense Support Agreements may be terminated at any time by the RE Income Fund or Colony Capital FV or shall automatically terminate in the event of (i) the termination by the RE Income Fund of the Trust Advisory Agreement, (ii) an assignment (as that term is defined under the 1940 Act) of the Trust Advisory Agreement, or (iii) the Board’s determination to dissolve or liquidate the RE Income Fund.

The following table reflects the expense reimbursement accrued from the Advisor to the RE Income Fund for the year ended December 31, 2018 and the year ended December 31, 2017 that may be subject to reimbursement to the Advisor:

Quarter Ended(1)
 
Amount of Expense Reimbursements
 
Annualized Rate of Distributions Per Common Share(2)
 
Operating Expense Ratio(3)
 
Reimbursement Eligibility Expiration
September 30, 2017
 
$30,424
 
6.68%
 
0.18%
 
September 30, 2020
December 31, 2017
 
$34,541
 
6.67%
 
0.23%
 
December 31, 2020
March 31, 2018
 
$34,972
 
6.66%
 
0.09%
 
March 31, 2021
June 30, 2018
 
$32,404
 
6.62%
 
0.14%
 
June 30, 2021
September 30, 2018
 
 
6.49%
 
0.08%
 
September 30, 2021
December 31, 2018
 
 
6.95%
 
0.09%
 
December 31, 2021
______________________
(1)
The Expense Support Agreement was implemented in July 2017 effective for the calendar quarter ended March 31, 2017, and on a quarterly basis thereafter.
(2)
The annualized rate of distributions per common share is expressed as a percentage equal to the annualized distribution amount as of the end of the applicable quarter (which is calculated by annualizing the regular daily cash distribution per common share as of such date without compounding), divided by the RE Income Fund’s NAV per common share as of such date.
(3)
The Operating Expense Ratio is calculated as follows: Net Operating Expenses (as defined in the Amended and Restated Expense Support Agreement) as of the applicable period, expressed as a percentage of the average net assets of the RE Income Fund as of the relevant measurement date.

Notwithstanding Colony Capital FV’s obligations pursuant to the Amended and Restated Expense Support Agreements, the Master Fund will not be required to pay distributions to the Master Fund shareholders, including the RE Income Fund. For the year ended December 31, 2018, expense support provided to the RE Income Fund by Colony Capital FV was $66,298. As of December 31, 2018, expense support due to Colony Capital by the RE Income Fund was $1,078.

17

CC REAL ESTATE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018


Pursuant to a distribution support agreement (the “Distribution Support Agreement”) between the Master Fund and Colony Capital FV, Colony Capital FV previously agreed to purchase up to an aggregate of $10.0 million in Master Fund shares, at the current NAV per Master Fund share, of which $2.0 million was contributed by Colony Capital FV to the Master Fund as a seed capital investment (the “Seed Capital Investment”). On May 10, 2018, the Distribution Support Agreement was terminated. Other than the Seed Capital Investment, no amounts were purchased by Colony Capital FV pursuant to the Distribution Support Agreement.

Capital Contribution by Colony Capital FV
 
Prior to commencement of operations, Colony Capital FV contributed $100,000 to purchase 11,001 of Class A Shares of the RE Income Fund at a price of $9.09 per share. The related dealer manager fees and selling commissions were waived.

For the year ended December 31, 2017, Colony Capital FV contributed capital of $59,993 to the RE Income Fund. The purpose of the contribution was to reimburse the RE Income Fund for certain of its operating expenses.
 
For the year ended December 31, 2018, the Advisor contributed capital of $5,075 to the RE Income Fund. The purpose of the contribution was to reimburse the RE Income Fund for losses resulting from the reprocessing of certain shareholder repurchases. This reimbursement is reflected in capital transactions in the Statement of Changes in Net Assets as a contribution from affiliate and the effect of this contribution is presented in Note 7, “Financial Highlights.”
 
Shares purchased by Colony Capital FV
 
Pursuant to the Capital Investment Agreement between Colony Capital FV and the RE Income Fund executed in May 2017, Colony Capital FV purchased $20 million of Class A Shares of the RE Income Fund at the net asset value per share on the date of each installment subscription, with selling commissions and dealer manager fees waived, resulting in the issuance of 2,230,673 Class A Shares.

Service Providers

MUFG Union Bank, N.A., serves as the Fund’s custodian. DST Systems, Inc. serves as the Fund’s transfer agent.

On January 9, 2017, the Master Fund and the Trusts entered into an administration agreement (the “Administration Agreement”) with ALPS Fund Services, Inc. (“ALPS” or the “Administrator”). ALPS, and/or its affiliates are responsible for, but not limited to, (i) maintaining financial books and records of the Master Fund and the Trusts, (ii) providing administration services, and (iii) performing other accounting and clerical services as necessary in connection with the administration of the Master Fund and the Trusts. On June 1, 2018, the Administration Agreement was amended to include additional services related to the preparation of the financial statements.

5.
Distributions

The following table reflects the distributions declared by the Board for common shares outstanding for the years ended December 31, 2018 and 2017:
 
 
Distributions Per Share(1)
 
Amount
Period
 
For the year ended December 31, 2018
 
$
0.5994

(1) 
$
1,949,609

For the year ended December 31, 2017
 
$
0.3516

(2) 
$
684,876

_____________________
(1)
Based on the weighted average shares outstanding from January 1, 2018 to December 31, 2018.
(2)
Based on the weighted average shares outstanding during the distribution period from June 1, 2017 to December 31, 2017.

The timing and amount of any future distributions to shareholders are subject to applicable legal restrictions and the sole discretion of the Board.

On November 9, 2017, the Board declared daily distributions at an annualized rate of $0.60 per common share from January 1, 2018 through March 31, 2018.


18

CC REAL ESTATE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018

On February 22, 2018, the Board declared daily distributions at an annualized rate of $0.60 per common share from April 1, 2018 through June 30, 2018.
 
On May 10, 2018, the Board declared daily distributions at an annualized rate of $0.60 per common share from July 1, 2018 through September 30, 2018.

On August 16, 2018, the Board declared daily distributions at an annualized rate of $0.60 per common share from October 1, 2018 through December 31, 2018.

Distributions are accrued daily and paid monthly. Distributions are payable on the first business day of the following month. Such ordinary cash distributions are expected to be paid using ordinary cash distributions received from the Master Fund, net of any operating expenses. From time to time, the RE Income Fund intends to authorize and declare special cash distributions of net long-term capital gains, if any, and any other income, gains and dividends and other distributions not previously distributed. Such special cash distributions are expected to be paid using special cash distributions received from the Master Fund.

The character of distributions to shareholders made during the period may differ from their ultimate characterization for federal income tax purposes.
 
RE Income Fund expects that for a period of time, which time period may be significant, substantial portions of distributions may be funded through the reimbursement of certain expenses and additional support payments by Colony Capital FV that may be subject to repayment by RE Income Fund within three years. The purpose of this arrangement is to minimize the extent to which any portion of the RE Income Fund’s distributions to shareholders will be paid from offering proceeds. Any such distributions funded through support payments or waivers of advisory fees are not based on the RE Income Fund’s investment performance and distributions can only be sustained if the RE Income Fund achieves positive investment performance in future periods and/or Colony Capital FV continues to make such payments. RE Income Fund’s future repayments of amounts reimbursed by Colony Capital FV will reduce the distributions that shareholders would otherwise receive in the future. There can be no assurance that RE Income Fund will achieve the performance necessary to sustain its distributions or that RE Income Fund will be able to pay distributions at a specific rate or at all.

6.
Income Taxes

The RE Income Fund intends to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Code beginning with the taxable year ending December 31, 2018. If so qualified, the RE Income Fund will not be subject to federal income tax to the extent it distributes substantially all of its taxable net investment income and capital gains, if applicable, to shareholders. Accordingly no provision for Federal income tax is necessary.

Tax Basis of Distributions to Shareholders

Net investment income (loss) and net realized gain (loss) may differ for financial statement and tax purposes. The character of distributions made during the year from net investment income or net realized gains may differ from its ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which the income or realized gain was recorded by the Fund.

The tax character of the distributions paid by the RE Income Fund during the fiscal year ended December 31, 2018 was as follows:
Year
 
Ordinary Income
 
Long-Term Capital Gain
 
Return of Capital
2018
 
$1,949,609
 
$—
 
$—

At December 31, 2018, the cost and aggregate gross unrealized appreciation (depreciation) for federal income tax purposes were as follows:
Gross Appreciation (excess of value over tax cost)
 
Gross Depreciation (excess of tax cost over value)
 
Net Unrealized Depreciation
 
Cost of Investments for Income Tax Purposes
$—
 
$(1,119,676)
 
$(1,119,676)
 
$30,585,665

The tax components of distributable earnings are determined in accordance with income tax regulations which may differ from the composition of net assets reported under GAAP. Accordingly, for the year ended December 31 2018, certain differences were

19

CC REAL ESTATE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018

reclassified. These differences were primarily attributed to non-deductible offering costs and adjustments due to conversion to a regulated investment company. The amounts reclassified did not affect net assets.

The reclassifications were as follows:
Paid-in Capital
 
Total Distributable Earnings
$(22,248)
 
$22,248

At December 31, 2018, the components of accumulated earnings on a tax basis were as follows:
Current Distributable Ordinary Income
 
Current Distributable Long Term Capital Gains or Tax Basis Capital Loss Carryforwards
 
Unrealized Appreciation (Depreciation)
Other Temporary Differences
$65,677
 
$(31,028)
 
$(1,119,676)
$(173,790)

The cumulative timing differences primarily consist of distributions payable.

As of December 31, 2018, for federal income tax purposes, the RE Income Fund had capital loss carryforwards available to offset future capital gains, if any, to the extent provided by the US Treasury regulations.
Short Term
 
Long Term
$26,133
 
$4,895




20

CC REAL ESTATE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018

7.
Financial Highlights
The following is a schedule of financial highlights:
 
 
 
 
 
 
For the period from
 
 
 
For the
 
For the
 
May 6, 2016(1)
 
 
 
Year Ended
 
Year Ended
 
through
 
 
 
December 31, 2018
 
December 31, 2017
 
December 31, 2016
 
Per share data(2):
 
 
 
 
 
 
 
Net asset value, beginning of period
 
$
9.00

 
$
9.07

 
$
9.09

 
Results of operations
 
 
 
 
 
 
 
Net investment income (loss)(3)
 
0.58

 
0.54

 
(1.22
)
 
Net realized and unrealized (loss) on investments
 
(0.37
)
 
(0.26
)
 

 
Net increase (decrease) in net assets resulting from operations
 
0.21

 
0.28

 
(1.22
)
 
 
 
 
 
 
 
 
 
Shareholder distributions
 
 
 
 
 
 
 
Distributions from net investment income(3)
 
(0.60
)
 
(0.35
)
(4) 

 
Net decrease in net assets resulting from shareholder distributions
 
(0.60
)
 
(0.35
)
 

 
 
 
 
 
 
 
 
 
Capital Transactions
 
 
 
 
 
 
 
Contribution from an affiliate(3)
 
0.00

(5)
0.05

(5)
1.20

 
Offering Costs(3)
 
0.02

 
(0.05
)
 

 
Net increase in net assets resulting from capital transactions
 
0.02

 

 
1.20

 
Net asset value, end of period
 
$
8.63

 
$
9.00

 
$
9.07

 
 
 
 
 
 
 
 
 
Shares outstanding, end of period(6)
 
3,415,778

 
2,971,626

 
11,560

 
 
 
 
 
 
 
 
 
Total return(7)(8)
 
2.4
 %
 
3.2
 %
 
(0.2
)%
(9) 
 
 
 
 
 
 
 
 
Ratios/Supplemental Data:
 
 
 
 
 
 
 
Net assets, end of period
 
$
29,475,502

 
$
26,738,841

 
$
104,882

 
 
 
 
 
 
 
 
 
Ratio of net investment income (loss) to average net assets(10)(11)
 
6.4
 %
 
6.0
 %
 
(21.4
)%
 
 
 
 
 
 
 
 
 
Ratio of total operating expenses to average net assets(10)(11)
 
0.7
 %
 
1.0
 %
 
21.4
 %
 
Ratio of expense reimbursement from Advisor to average net assets(10)(11)
 
(0.2
)%
 
(0.6
)%
 
0.0
 %
 
Ratio of net operating expenses to average net assets(10)(11)
 
0.5
 %
 
0.4
 %
 
21.4
 %
 
 
 
 
 
 
 
 
 
Portfolio turnover rate of CC Real Estate Income Master Fund
 
1.0
 %
 
0.0
 %
 
Not applicable

 
(1)
Commencement of operations
(2)
Per share data may be rounded in order to compute the ending net asset value per share.
(3)
The per share data was derived by using the average number of common shares outstanding during the applicable period.
(4)
The per share data was derived by using the average number of common shares outstanding during the applicable distribution period from June 30, 2017 to December 31, 2017.
(5)
Represents additional capital contributions from the Advisor. Refer to Note 4 for further details.
(6)
Shares outstanding includes 2,464,198 Class A shares and 951,580 Class I shares at December 31, 2018; 2,419,353 Class A shares and 552,273 Class I shares at December 31, 2017 and 11,560 Class A shares at December 31, 2016. The share classes differs only in the minimum initial investment required and the sales load investors must pay. This does not affect the financial highlights. Each class has the same NAV per share.
(7)
Total return is calculated by determining the percentage change in net asset value, assuming the reinvestment of all distributions in additional common shares of the RE Income Fund at the RE Income Fund's net asset value per share as of the share closing date occurring on or immediately following the distribution payment date. The total return includes the effect of the expense reimbursement from the Advisor which causes an increase in net asset value per share. There were no distributions for the period ended December 31, 2016.
(8)
For the year ended December 31, 2018, the Advisor made a capital contribution of $5,075 to reimburse the RE Income Fund for losses resulting from the reprocessing of certain shareholder repurchases. Total return without the contribution from affiliate remained unchanged at 2.4%. Total return without contributions from affiliate would have been 2.6% and (13.4)% for the year ended December 31, 2017 and for the period from May 6, 2016 (commencement of operations) through December 31, 2016, respectively.
(9)
Not annualized.
(10)
Average daily net assets for the applicable period are used for this calculation.
(11)
Annualized.

21

CC REAL ESTATE INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018


8.
Commitments and Contingencies 

In the normal course of business, the RE Income Fund may enter into contracts that contain a variety of representations which provide general indemnifications. The RE Income Fund’s maximum exposure under the arrangements cannot be known; however, the RE Income Fund expects any risk of loss to be remote.

9. SEC Regulations

On October 4, 2018, the SEC amended Regulation S-X to require certain financial statement disclosure requirements to conform them to US Generally Accepted Accounting Principles for investment companies. Effective November 4, 2018, the RE Income Fund adopted disclosure requirement changes for Regulation S-X and these changes are reflected throughout this report. The Funds’ adoption of those amendments, effective with the financial statements prepared as of December 31, 2018, had no effect on the Funds’ net assets or results of operations.

10. Recent Accounting Pronouncement    

In August 2018, the FASB issued ASU 2018-13, which changes the fair value measurement disclosure requirements of FASB ASC Topic 820, Fair Value Measurement. The update to ASC Topic 820 includes new, eliminated, and modified disclosure requirements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods. Early adoption is permitted for any eliminated or modified disclosures. The impact of this ASU on the RE Income Fund Financial Statements is currently been evaluated.

11.
Subsequent Events

Common Stock from Primary Offering

For the period from January 1, 2019 through February 28, 2019, the Company issued 1,018 Class A Shares and 19,569 Class I
Shares, representing gross proceeds of $9,009, and $170,350, respectively.

Repurchases

On January 3, 2019, the RE Income Fund repurchased 85,231 shares of its issued and outstanding common shares at a price equal to $8.58 per share (the NAV on the date of purchase) for an aggregate purchase price of approximately $731,279 pursuant to a tender offer that was made upon and subject to the terms and conditions of the Offer to Repurchase, dated November 20, 2018.

Investment Transactions

For the period from January 1, 2019 through February 28, 2019, the Company purchased 17,123 shares in the Master Fund for $100,000 or $5.84 per share.

Plan of Dissolution, Liquidation and Termination

On February 21, 2019, the Board of Trustees, at the recommendation of the Advisor, approved a Plan of Dissolution, Liquidation and Termination (the “Plan”) that provided for the dissolution, complete liquidation and termination of assets of the Master Fund, CC RE Income and CC RE Income-T (the “Funds”) and the distribution of the net proceeds of such liquidation to the Shareholders, respectively, on a pro rata basis. Following the approval of the Plan, the Funds were closed to new investors, the offering has been suspended and the Advisor began the process of liquidating the Master Fund’s portfolio. As the Funds have adopted the Plan, the Board has determined that the Funds will no longer make any repurchase offers. Distributions have been declared through March 31, 2019. In addition, in preparation for a liquidation of the Funds, the Board has approved the termination of the Distribution Reinvestment Plan, effective as of the date of approval of the Plan, and as a result the monthly distributions for February and March will be paid in cash to Shareholders.

Other

Other than noted above, the management of the RE Income Fund has evaluated events and transactions through February 28, 2019, the date of financial statement issuance, and has determined that there are no material events that would require adjustments to or disclosure in the RE Income Fund’s financial statements.

22

CC REAL ESTATE INCOME FUND
SUPPLEMENTAL INFORMATION (UNAUDITED)
DECEMBER 31, 2018

Board of Trustees
Information regarding the members of the Board is set forth below. The trustees have been divided into two groups - Interested Trustees and Independent Trustees. The address for each trustee is c/o CC Real Estate Income Fund, 590 Madison Avenue, 34th Floor, New York, New York 10022. As set forth in each of the Fund’s and Master Fund’s declaration of trust and bylaws, a trustee’s term of office shall continue until his or her death, resignation or removal.
Name (Age)
 
Position Held
 
Trustee
Since
 
Principal Occupation
Past 5 Years
 
Number of Portfolios in Fund Complex Overseen by Trustee
 
Trusteeships Held By
Trustees During
Past 5 Years
Interested Trustee
 
 
 
 
 
 
 
 
 
 
Kevin P. Traenkle (48)
 
Chairman of the Board, CEO, and President
 
2017
 
Chairman, CEO and President of the Master Fund and CC Real Estate Income Fund, CC Real Estate Income Fund-T, CC Real Estate Income Fund-ADV and CC Real Estate Income Fund-C (collectively, the “Feeder Funds”) and Colony Credit Real Estate, Inc., (“Colony Credit”); Executive Vice President and Chief Investment Officer of Colony Capital, Inc.; Executive Vice President and Chief Investment Officer of Colony Capital, Inc. (2009-2017); Executive Director of Colony Capital, Inc. (2015-2017); Principal of Colony Capital, LLC (“CCLLC”) (2005-2017); Vice President of Acquisitions of CCLLC (2002-2005).

 
5
 
Chairman of the Master Fund, the Feeder Funds, Core Property Corp. (“Core Property”) and Colony Credit.


Independent Trustees
 
 
 
 
 
 
 
 
 
 
Daniel J. Altobello
(77)
 
Trustee
 
2016
 
CEO and President of Caterair International Corporation (1989 - 1995); Executive Vice President of Marriott Corporation (1979 - 1989); President of Marriott Airport Operations Group (1979 - 1989).

 
5
 
Trustee of the Master Fund and the Feeder Funds; Director of NorthStar Healthcare Income, Inc. (“NorthStar Healthcare”); Chairman of Altobello Family LP; Director of Arlington Asset Investment Corp.; Director of DiamondRock Hospitality Co.; Director of Mesa Air Group, Inc.; Trustee of Loyola Foundation, Inc.
 
 
 
 
 
 
 
 
 
 
 
Dianne P. Hurley
(56)
 
Lead Independent Trustee
 
2016
 
CAO of A&E Real Estate; Startup consultant to asset management firms, including Stonecourt Capital, Imperial Companies and RedBird Capital Partners (2015-2017); Managing Director of SG Partners (2011 - 2014); COO, Global Distribution of Credit Suisse Asset Management (2009 - 2011); Chief Administrative Officer, TPG- Axon (2004 - 2009).
 
5
 
Trustee of the Master Fund and the Feeder Funds; Director of Griffin-American Healthcare REIT IV, Inc; Director of NorthStar Realty Europe Corp. (“NorthStar Realty Europe”).


Gregory A. Samay
(60)
 
Trustee
 
2016
 
Previously Chief Investment Officer (previously an Investment Officer) of Fairfax County Retirement Systems (2011 - 2016); Executive Director and Chief Investment Officer of Arlington County Employees’ Retirement System (2005 - 2010).
 
5
 
Trustee of the Master Fund and the Feeder Funds; Director of NorthStar Healthcare.

23

CC REAL ESTATE INCOME FUND
SUPPLEMENTAL INFORMATION (UNAUDITED)
DECEMBER 31, 2018


Executive Officers
 
Executive Officers who are not Trustees are as follows:
Name (Age)
 
Position Held
 
Officer Since
 
Principal Occupation Past 5 Years
Executive Officers
 
 
 
 
 
 
Frank V. Saracino (52)
 
Chief Financial Officer and Treasurer
 
2015
 
Managing Director of Colony Capital (and its predecessor) since August 2015 and as the Chief Financial Officer and Treasurer of the Master Fund and the Feeder Funds since each fund’s inception. Director of Core Property since 2017. Chief Accounting Officer of Colony Credit since 2018. Chief Financial Officer and Treasurer of NorthStar Healthcare since August 2015. Chief Financial Officer, Chief Compliance Officer, Treasurer and Secretary of each of Priority Income Fund, Inc. and Pathway Energy Infrastructure Fund, Inc., and their respective investment advisers, and served as a Managing Director of Prospect Administration, LLC from July 2012 to December 2014. Managing Director at Macquarie Group, and Head of Finance from August 2008 to June 2012 for its Americas non-traded businesses, which included private equity, asset management, lease financing, private wealth, and investment banking.
 
 
 
 
 
 
 
William Hughes III (45)
 
Chief Operating Officer
 
2018
 
Managing Director, Investment Management of Colony Capital since 2017. Chief Operating Officer of the Master Fund and the Feeder Funds since November 2018. Director of Core Property since January 2019, Investment Committee of the Advisor since August 2018. Mr. Hughes is responsible for liquid investment strategies. He is the Portfolio Manager of the Colony Capital Focus Fund and the firm’s Commercial Real Estate Securities portfolio. Prior to joining Colony Capital in 2017, Mr. Hughes managed the Focus Fund within Kayne Anderson. Prior to that, Mr. Hughes was a portfolio manager for the Condorcet Opportunity Fund, an event driven hedge fund controlled by Societe Generale.
 
 
 
 
 
 
 
Sandra M. Forman (52)
 
General Counsel, Chief Compliance Officer and Secretary
 
2015
 
Senior Vice President and Deputy General Counsel of Colony Capital (and its predecessor) since October 2015. Currently the General Counsel, Chief Compliance Officer and Secretary of the Master Fund and the Feeder Funds. Chief Compliance Officer of the Advisor of the Master Fund and Feeder Funds since February 2017. Senior Counsel at Proskauer Rose LLP from July 2014 to October 2015. General Counsel, Chief Compliance Officer, Secretary of Harris & Harris Group, Inc. from August 2004 to June 2014.


24

CC REAL ESTATE INCOME FUND
SUPPLEMENTAL INFORMATION (UNAUDITED) (CONTINUED)
DECEMBER 31, 2018

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

The Fund has not had any changes in or disagreements with its independent registered public accounting firm on accounting or financial disclosure matters since its inception.

Form N-Q Filings

The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at http://www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room located at 100 F Street, NE, Washington, DC 20549. Shareholders may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330.
Proxy Voting Policies and Procedures

The Master Fund has delegated its proxy voting responsibility to the Advisor. Shareholders may obtain a copy of the Advisor’s proxy voting policies and procedures upon request and without charge by calling the Fund at 877-940-8777 or on the SEC’s website at http://www.sec.gov.
Proxy Voting Record

Information regarding how the Advisor voted proxies with respect to the Master Fund’s portfolio securities during the most recent 12-month period will be available without charge by making a written request to the Master Fund’s Chief Compliance Officer, c/o Colony Capital, Inc., at 590 Madison Avenue, New York, New York 10022, by calling the Master Fund at (212) 547-2600, or on the SEC’s website at http://www.sec.gov.




25


Report of Independent Registered Public Accounting Firm


To the Board of Trustees and Shareholders of CC Real Estate Income Master Fund

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of CC Real Estate Income Master Fund (the "Master Fund") as of December 31, 2018, the related statement of operations for the year ended December 31, 2018, and the statement of changes in net assets for each of the two years in the period ended December 31, 2018, including the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Master Fund as of December 31, 2018, the results of its operations for the year then ended, and the changes in its net assets for each of the two years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Master Fund’s management. Our responsibility is to express an opinion on the Master Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Master Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018 by correspondence with the custodian, loan servicer, and broker; when replies were not received, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

Subsequent Event

As discussed in Note 14 to the financial statements, the Board of Trustees approved on February 21, 2019, a plan of dissolution, liquidation, and termination for the Master Fund.

/s/ PricewaterhouseCoopers LLP
New York, New York
February 28, 2019

We have served as the auditor of one or more investment companies in the CC Real Estate Income Funds group since 2016.



26


CC Real Estate Income Master Fund
Schedule of Investments
As of December 31, 2018
Security
 
Rate
 
Maturity
Date
 
Face
Amount
 
Amortized
Cost
(a)
 
Amortized
Cost as a%
of Face
Amount
 
Fair Value
 
Commercial Mortgage-Backed Securities (“CMBS”) — 94.1%(b)
 
 
 
 
 
 
 
 
 
 
 
 
 
Bank of America Commercial Mortgage Trust Series 2015-UBS, Class D
 
3.17
%
 
09/15/2048
 
$
2,645,000

 
$
2,210,497

 
83.6
%
 
$
2,188,142

 
Bank of America Commercial Mortgage Trust, Series 2016-UB10, Class D
 
3.00
%
 
07/15/2049
 
80,000

 
60,820

 
76.0
%
 
62,024

 
Bank of America Commercial Mortgage Trust, Series 2017-BNK3, Class D
 
3.25
%
 
02/15/2050
 
40,000

 
33,036

 
82.6
%
 
32,601

 
Bank of America Commercial Mortgage Trust, Series 2018-BN13, Class D
 
3.00
%
 
08/15/2061
 
1,500,000

 
1,172,069

 
78.1
%
 
1,164,907

 
Bank of America Commercial Mortgage Trust, Series 2018-BN11, Class D
 
3.00
%
 
03/15/2061
 
1,900,000

 
1,488,177

 
78.3
%
 
1,483,761

 
Bank of America Commercial Mortgage Trust, Series 2017-BNK7, Class D
 
2.71
%
 
09/15/2060
 
4,000,000

 
3,125,614

 
78.1
%
 
3,183,891

(c) 
Bank of America Commercial Mortgage Trust, Series 2017-C34, Class D
 
2.70
%
 
11/15/2026
 
3,500,000

 
2,617,452

 
74.8
%
 
2,607,054

 
CD Commercial Mortgage Trust, Series 2017-CD3, Class D
 
3.25
%
 
02/10/2050
 
6,030,000

 
5,162,437

 
85.6
%
 
4,839,779

(c) 
Citigroup Commercial Mortgage Trust, Series 2017-B1, Class D
 
3.00
%
 
08/15/2027
 
2,000,000

 
1,615,368

 
80.8
%
 
1,558,815

(c) 
COMM Mortgage Trust, Series 2014-UBS5, Class D
 
3.50
%
 
09/10/2047
 
3,000,000

 
2,357,713

 
78.6
%
 
2,454,886

 
COMM Mortgage Trust, Series 2014-UBS5, Class E
 
3.50
%
 
09/10/2047
 
1,500,000

 
953,607

 
63.6
%
 
982,638

 
DBGS Mortgage Trust Series 2018-C1, Class E
 
3.04
%
 
10/15/2051
 
2,000,000

 
1,513,818

 
75.7
%
 
1,498,576

 
Deutsche Bank Commercial Mortgage Trust, Series M 2016-C1, Class D
 
3.50
%
 
05/10/2049
 
116,000

 
97,576

 
84.1
%
 
96,180

 
Deutsche Bank Commercial Mortgage Trust, Series M 2016-C1, Class E
 
3.25
%
 
05/10/2049
 
180,000

 
118,265

 
65.7
%
 
124,224

 
GS Commercial Mortgage Trust, Series 2017-GS7, Class E
 
3.00
%
 
08/10/2050
 
2,000,000

 
1,669,618

 
83.5
%
 
1,605,477

(c) 
GS Mortgage Securities Trust, Series 2017-GS5, Class D
 
3.51
%
 
03/10/2050
 
4,500,000

 
3,888,245

 
86.4
%
 
3,754,957

 
JP Morgan Bank, Series 2016-C2, Class D
 
3.40
%
 
06/15/2049
 
1,800,000

 
1,500,448

 
83.4
%
 
1,476,974

(c) 
JP Morgan Bank, Series 2016-C4, Class D
 
3.22
%
 
12/15/2049
 
1,900,000

 
1,526,794

 
80.4
%
 
1,545,874

(c) 
Wells Fargo Commercial Mortgage Trust, Series 2017-RB1, Class D
 
3.40
%
 
03/15/2050
 
150,000

 
128,392

 
85.6
%
 
120,643

 
Wells Fargo Commercial Mortgage Trust, Series 2018-C43, Class D
 
3.00
%
 
03/15/2051
 
1,900,000

 
1,492,612

 
78.6
%
 
1,465,411

(c) 
Total Commercial Mortgage-Backed Securities (Amortized Cost $32,732,558)
 
 
 
 
 
 
 
 
 
32,246,814

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Affiliated Investments - 17.7%
 
 
 
 
 
 
 
 
 
 
 
 
 
Core Property Corp. - Equity Investment (606,800 shares)(d)(e)(f)
 
 
 
 
 
 
 
606,800

 
100.0
%
 
606,700

 
Core Property Corp. - Mezzanine Loan(d)(e)
 
8.00
%
 
11/19/2028
 
5,460,299

 
5,460,299

 
100.0
%
 
5,460,299

 
Total Affiliated Investments (Cost $6,067,099)
 
 
 
 
 
 
 
 
 
 
 
6,066,999

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term Loan -1.3%
 
 
 
 
 
 
 
 
 
 
 
 
 
Kentucky Fried Chicken Term Loan
 
11.00
%
(g) 
10/17/2019
 
458,955

 
458,955

 
100
%
 
458,955

 
Total Term Loan (Cost $458,955)
 
 
 
 
 
 
 
 
 
 
 
458,955

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock - 5.6%
 
 
 
 
 
 
 
 
 
 
 
 
 
Spirit MTA Equity REIT (75,140 shares)
 
 
 
 
 
 
 
 
 
 
 
535,748

 
TriplePoint Venture Growth BDC Corp. (102,906 shares)
 
 
 
 
 
 
 
 
 
 
 
1,120,647

 
Zayo Group Holdings, Inc. (11,750 shares)(f)
 
 
 
 
 
 
 
 
 
 
 
268,370

 
Total Common Stock (Cost $2,624,164)(a)
 
 
 
 
 
 
 
 
 
 
 
1,924,765

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short Term Investment - 7.3%
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury Bill
 
2.31
%
 
01/29/2019
 
2,500,000

 
2,495,500

 
99.8
%
 
2,495,396

 
Total Short Term Investment (Amortized Cost $2,495,500)
 
 
 
 
 
 
 
 
 
 
 
2,495,396

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL INVESTMENTS (Cost $44,378,276)(a) - 126.0%
 
 
 
 
 
 
 
 
 
 
 
43,192,929

 
OTHER ASSETS AND LIABILITIES-NET - (26.0)%(h)(i)
 
 
 
 
 
 
 
 
 
 
 
(8,911,728
)
 
NET ASSETS - 100.0%
 
 
 
 
 
 
 
 
 
 
 
$
34,281,201

 


Refer to notes to accompanying financial statements.

27


Futures Contracts

Issue
 
Expiration Date
 
Contracts Purchased (Sold)
 
Notional Value
 
Unrealized Depreciation
10 Year USD Deliverable Swap Futures
 
03/18/2019
 
(190)
 
$
(19,000,000
)
 
$
(392,935
)

USDU.S. Dollar.

Centrally Cleared Credit Default Swap On Credit Indices—Sell Protection(j) 

Reference Entity
 
Counterparty
 
Periodic Payment Receive Rate(k)
 
Termination Date
 
Notional Value(l)
 
Fair Value(m)
 
Upfront Premium Received/(Paid)
 
Unrealized Depreciation
CMBX.NA.A.11
 
Morgan Stanley
 
2.00
%
 
11/18/2054
 
$
(5,000,000
)
 
$
(243,131
)
 
$
3

 
$
(243,128
)
 
 
 
 
 
 
 
 
 
 
$
(243,131
)
 
$
3

 
$
(243,128
)

Reverse Repurchase Agreements

Counterparty
 
Interest Rate(k)
 
Trade Date
 
Termination Date
 
Amount
Barclays Capital Inc.
 
3.52
%
 
12/13/2018
 
01/14/2019
 
$
5,088,637

Barclays Capital Inc.
 
3.48
%
 
12/06/2018
 
01/14/2019
 
$
3,110,450

 
 
 
 
 
 
 
 
$
8,199,087


All agreements can be terminated by either party on demand at value plus accrued interest.

 
(a)
Also represents cost for federal income tax purposes.
 
(b)
Security is exempt from registration pursuant to Rule 144A of the Securities Act of 1933, as amended. Security may only be sold to qualified institutional buyers unless registered under the Securities Act of 1933, as amended, or otherwise exempt from registration.
 
(c)
Position, or a portion thereof, has been pledged as collateral for a reverse repurchase agreement.
 
(d)
Affiliated investment.
 
(e)
At December 31, 2018, the Fund owned more than 25% of the voting securities of Core Property Corp., thereby making this controlled affiliate, as defined by the 1940 Act, of the Fund.
 
(f)
Non-Income Producing Security.
 
(g)
Rate shown is net of 0.05% issuance fee.
 
(h)
Includes the effect of futures contracts, centrally cleared credit default swaps on credit indices and reverse repurchase agreements.
 
(i)
Includes cash which is being held as collateral for futures contracts and credit default swap contracts.
 
(j)
If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index.
 
(k)
Percentage shown is an annual percentage.
 
(l)
The maximum potential amount the Fund could be required to pay as a seller of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.
 
(m)
The quoted market prices and resulting values for credit default swap agreements on asset-backed securities and credit indices serve as an indicator of the current status of the payment/performance risk and represent the likelihood of an expected liability (or profit) for the credit derivative had the notional amount of the swap agreement been closed/sold as of the period end. Decreasing market values (sell protection) or increasing market values (buy protection) when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

Refer to notes to accompanying financial statements.


28


CC Real Estate Income Master Fund
Statement of Assets and Liabilities

 
 
As of
 
 
December 31, 2018
Assets
 
 
Investments, at fair value (Cost $38,311,177)
 
$
37,125,930

Affiliated investments, at fair value (Cost $6,067,099)
 
6,066,999

Cash
 
1,628,713

Futures collateral held at broker
 
577,130

Expense reimbursement due from Advisor
 
575,429

Credit default swap collateral held at broker
 
260,000

Interest receivable
 
110,262

Dividend receivable
 
99,936

Deferred offering costs
 
19,132

Total assets
 
46,463,531

 
 
 
Liabilities
 
 
Payable for reverse repurchase agreements
 
8,199,087

Payable for securities purchased not yet settled
 
2,495,500

Unrealized depreciation on futures contracts
 
392,935

Unrealized depreciation on credit default swap contracts
 
243,131

Shareholder distributions payable
 
212,678

Administrative services expenses payable
 
200,377

Professional fees payable
 
192,643

Management fee payable
 
111,793

Trustees’ fees payable
 
60,250

Accounting and administrative fee payable
 
37,525

Interest payable on reverse repurchase agreements
 
16,990

Offering cost payable
 
6,618

Other liabilities and accrued expenses
 
12,803

Total liabilities
 
12,182,330

Net assets
 
$
34,281,201

 
 
 
Commitments and contingencies (Note 11)
 
 
 
 
 
Composition of net assets
 
 
Common shares, $0.001 par value per share, unlimited shares  authorized, 5,974,420 shares issued and outstanding
 
$
5,974

Paid-in-capital in excess of par value
 
35,923,813

Total distributable earnings
 
(1,648,586
)
Net assets
 
$
34,281,201

 
 
 
Net Asset Value per common share
 
$
5.74



Refer to notes to accompanying financial statements.

29


CC Real Estate Income Master Fund
Statement of Operations

 
 
For the
 
 
Year Ended
 
 
December 31, 2018
Investment income
 
 
Interest income
 
$
1,871,603

Dividend income
 
206,584

  Total investment income
 
2,078,187

 
 
 
Operating expenses
 
 
Administrative services expenses
 
784,915

Management fees
 
423,572

Accounting and administrative fees
 
399,098

Professional fees
 
346,500

Trustees’ fees
 
253,000

Offering costs
 
108,200

Interest on investments and reverse repurchase agreements
 
58,042

Custodian fees
 
28,000

Other expenses
 
23,542

  Total expenses
 
2,424,869

  Less: Expense reimbursement from Advisor (Note 4)
 
(2,630,866
)
  Net investment income before tax expense
 
2,284,184

  Income tax (benefit)
 
(6,766
)
  Net investment income
 
2,290,950

 
 
 
 
 
 
Net Realized Gain/(Loss) and Unrealized Depreciation on Investments
 
 
      Net realized loss on investments
 
(173,676
)
      Net realized gain on futures contracts
 
498,757

      Net realized gain on credit default swap contracts
 
29,166

      Net change in unrealized depreciation on investments
 
(1,274,641
)
      Net change in unrealized depreciation on futures contracts
 
(350,693
)
      Net change in unrealized depreciation on credit default swap contracts
 
(243,128
)
Total net realized gain/(loss) and unrealized depreciation on investments and futures contracts
 
(1,514,215
)
Net increase in net assets resulting from operations
 
$
776,735



Refer to notes to accompanying financial statements.

30


CC Real Estate Income Master Fund
Statements of Changes in Net Assets

 
 
For the
 
For the
 
 
 
Year Ended
 
Year Ended
 
 
 
December 31, 2018
 
December 31, 2017
 
Operations:
 
 
 
 
 
Net investment income
 
$
2,290,950

 
$
467,583

 
Net realized gain on investments, futures contracts and credit default swap contracts
 
354,247

 
148,006

 
Net change in unrealized (depreciation)/appreciation on investments, future contracts and credit default swap contracts
 
(1,868,462
)
 
47,152

 
Net increase in net assets resulting from operations
 
776,735

 
662,741

 
 
 
 
 
 
 
Shareholder Distributions
 
 
 
 
 
From distributable earnings
 
(2,362,756
)
 
(802,477
)
 
Net decrease in net assets resulting from shareholder distributions
 
(2,362,756
)
 
(802,477
)
 
 
 
 
 
 
 
Capital transactions
 
 
 
 
 
Issuance of common shares (Note 3)
 
7,203,005

 
28,071,080

 
Repurchase of common shares (Note 3)
 
(921,079
)
 

 
Offering costs (Note 2)
 
63,341

 
(63,341
)
 
Net increase in net assets resulting from capital transactions
 
6,345,267

 
28,007,739

 
 
 
 
 
 
 
Total increase in net assets
 
4,759,246

 
27,868,003

 
Net assets at beginning of period
 
29,521,955

 
1,653,952

 
Net assets at end of period
 
$
34,281,201

 
$
29,521,955

(a) 

(a)
For the year ended December 31, 2017, net assets included accumulated net investment income of $121,535. This amount is not disclosed for the year ended December 31, 2018 pursuant to amended Regulation S-X. Refer to Note, 12, “SEC Regulations.”


Refer to notes to accompanying financial statements.


31


CC REAL ESTATE INCOME MASTER FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2018
1.
Business and Organization

CC Real Estate Income Master Fund (the “Master Fund”), formerly NorthStar Real Estate Capital Income Master Fund, was organized as a Delaware statutory trust on October 2, 2015. The Master Fund’s primary investment objectives are to generate attractive and consistent income and preserve and protect shareholders’ capital, with a secondary objective of capital appreciation.

The Master Fund commenced operations on May 6, 2016, when the registration statements of CC Real Estate Income Fund (the “RE Income Fund”), formerly NorthStar Real Estate Capital Income Fund, and CC Real Estate Income Fund-T (“RE Income Fund-T”), formerly NorthStar Real Estate Capital Income Fund-T, and collectively with RE Income Fund, the “Trusts”, whose principal investment strategy is identical to the Master Fund, were declared effective by the Securities and Exchange Commission (the “SEC”).

Two additional feeder funds of the Master Fund, CC Real Estate Income Fund-ADV (“RE Income Fund-ADV”), formerly NorthStar Real Estate Capital Income Fund-ADV, and CC Real Estate Fund-C (“RE Income Fund-C”), formerly NorthStar Real Estate Capital Income Fund-C, and collectively, together with the Trusts and RE Income Fund-ADV, the “Feeder Funds” were formed on May 5, 2017 and September 20, 2017, respectively. RE Income Fund-ADV and RE Income Fund-C commenced operations on November 8, 2017 and on January 30, 2018, respectively, the date when their respective registration statements were declared effective by the SEC.

As of December 31, 2018, approximately 85.9%, 9.7%, 0.3% and 0.4% of the Master Fund’s outstanding common shares of beneficial interest, par value $0.001 per share, or its common shares, were held by RE Income Fund, RE Income Fund-T, RE Income Fund-ADV and RE Income Fund-C, respectively. The remaining 3.7% was held by Colony Capital FV Holdings, LLC (“Colony Capital FV”) an affiliate of Colony Capital (defined below).

The Master Fund is externally managed by CNI RECF Advisors, LLC (the “Advisor”), a Delaware limited liability company, which is a registered investment adviser under the Investment Advisers Act of 1940, as amended, (the “Advisers Act”). Prior to January 11, 2017, the Master Fund was externally managed by an affiliate of NorthStar Asset Management Group Inc. (NYSE: NSAM) (“NSAM”). Effective January 10, 2017, NSAM completed its previously announced merger (the “Merger”) with Colony Capital, Inc. and NorthStar Realty Finance Group (“NorthStar Realty”) to create Colony NorthStar, Inc., an internally-managed equity real estate investment trust (“REIT”), with a diversified real estate and investment management platform and publicly-traded on the NYSE. In addition, following the Merger, the Advisor (formerly NSAM B-RECF Ltd., an affiliate of NSAM), became a subsidiary of Colony NorthStar, Inc. Effective June 25, 2018, Colony NorthStar, Inc. changed its name to Colony Capital, Inc. (“Colony Capital”) and now trades on the NYSE under the ticker symbol “CLNY.” Colony Capital manages capital on behalf of its stockholders, as well as institutional and retail investors in private funds, non-traded and traded REITS and registered investment companies.

Pursuant to an advisory agreement (the “Master Fund Advisory Agreement”), the Advisor oversees the management of the Master Fund’s activities, including investment strategies, investment goals, asset allocation, asset management, leverage limitations, reporting requirements and other guidelines in addition to the general monitoring of the Master Fund’s portfolios, subject to the oversight of the Master Fund’s Board of Trustees (the “Board”). The Advisor also provides certain other administrative services, including marketing, investor relations and certain accounting services and maintenance of certain books and records on behalf of the Master Fund, furnishes the Master Fund with office facilities and equipment, provides clerical services to the Master Fund, performs the calculation and publication of the Master Fund’s net asset value (“NAV”), oversees the preparation and filing of the Master Fund’s tax returns, the payment of the Master Fund’s expenses and the performance oversight of various third party service providers.

The Master Fund is registered under the Investment Company Act of 1940, as amended, (the “1940 Act”), as a non-diversified, closed-end management investment company that intends to elect to be treated, and intends to qualify annually thereafter, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”) beginning with the taxable year ending December 31, 2018. Refer to Note 2, “Summary of Significant Accounting Policies - Income Taxes” for further details.


32

CC REAL ESTATE INCOME MASTER FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018


2.
Summary of Significant Accounting Policies

Basis of Presentation

The accompanying audited financial statements of the Master Fund have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The Master Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 946 Financial Services - Investment Companies.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current presentation.
 
Use of Estimates

The preparation of the Master Fund’s audited financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that could affect the amounts reported in the financial statements and the accompanying notes. Actual results may differ from those estimates and those differences may be material.

Cash

As of December 31, 2018, cash represents cash held in custody at MUFG Union Bank, N.A. in a bank deposit account that, at times, may exceed federally insured limits.

Valuation of Portfolio Investments

The Master Fund determines the fair value of its investment portfolio as of the close of each regular trading session of the NYSE. The Master Fund will calculate the NAV of its common shares, by subtracting total liabilities (including accrued expenses or distributions) from the total assets of the Master Fund (the value of securities, plus cash or other assets, including interest and distributions accrued but not yet received) and dividing the result by the total number of outstanding common shares of the Master Fund. The Master Fund’s assets and liabilities are valued in accordance with the principles set forth below.

The Board has approved the Master Fund’s Valuation Policies and Procedures (the “Valuation Policies and Procedures”) as amended from time to time, and the formation of a valuation committee (the “Valuation Committee”) that consists of personnel from the Advisor whose membership on the Valuation Committee was approved by the Board. The Valuation Committee values the Master Fund’s assets in good faith pursuant to the Valuation Policies and Procedures and applies a consistent valuation process, which was developed and approved by the Board. Portfolio securities and other assets for which market quotes are readily available will be valued at market value as provided by an independent pricing source. In circumstances where market quotes are not readily available, the Board has adopted the Valuation Policies and Procedures for determining the fair value of such securities and other assets, and has delegated the responsibility for applying the valuation methods to the Valuation Committee. On a quarterly basis, the audit committee of the Board reviews the valuation determination made with respect to the Master Fund’s investments during the preceding quarter and evaluates whether such determinations were made in a manner consistent with the Master Fund’s Valuation Policies and Procedures. The Board reviews and ratifies such value determinations.

ASC Topic 820, Fair Value Measurements and Disclosure, (“ASC Topic 820”), issued by the FASB clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. Refer to Note 5, “Investment Portfolio” for further discussion on fair value measurement. In accordance with ASC Topic 820, when determining the fair value of an asset or liability, the Valuation Committee seeks to determine the price that would be received from the sale of the asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value determinations are based upon all available inputs that the Valuation Committee deems relevant, which may include indicative dealer quotes, independent third party pricing vendors, values of like securities, recent portfolio company financial statements and forecasts, and valuations prepared by third party valuation services. However, determination of fair value involves subjective judgments and estimates. Accordingly, the notes to the Master Fund’s financial statements refer to the uncertainty with respect to the possible effect of such valuations and any change in such valuations on the Master Fund’s financial statements.
 

33


CC REAL ESTATE INCOME MASTER FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018


As the Master Fund raises and invests additional capital, it expects that the portfolio will continue to consist of investments that are not actively traded in the market and for which quotation may not be available. For purposes of calculating NAV, the Valuation Committee will use the following valuation methods:

Investments where a market price is readily available:

Generally, the value of any equity interests in public companies for which market quotations are readily available will be based upon the most recent closing public market price. Securities that carry certain restrictions on sale will typically be valued at a discount from the market value of the security. Loans or investments traded over the counter and not listed on an exchange are valued at a price obtained from third-party pricing services, including, where appropriate, multiple broker dealers, as determined by the Valuation Committee.

Investments where a market price is not readily available:

For investments for which no active secondary market exists and, therefore, no bid and ask prices can be readily obtained, the Master Fund will value such investments at fair value as determined in good faith by the Board, with assistance from the Valuation Committee, in accordance with the Master Fund’s Valuation Policies and Procedures.

In making its determination of fair value, the Valuation Committee may retain and rely upon valuations obtained from independent valuation firms; provided that the Valuation Committee shall not be required to determine fair value in accordance with the valuation provided by any single source, and the Valuation Committee shall retain the discretion to use any relevant data, including information obtained from any independent third-party valuation or pricing service, that the Valuation Committee deems to be reliable in determining fair value under the circumstances.

Investments in reverse repurchase agreements are generally valued at par each business day. For more information please see Note 6.

Security Transactions and Revenue Recognition

Security transactions are accounted for on their trade date. For commercial real estate (“CRE”) related debt investments, including first mortgage loans, subordinate mortgage and mezzanine loans, participations in such loans and interest income on such investments is recognized on an accrual basis and any related premium, discount, origination costs and fees are amortized over the life of the investment using the effective interest method. The amortization is reflected as an adjustment to interest income in the statement of operations. For CRE related securities which include commercial mortgage-back securities (“CMBS”) and unsecured debt of publicly-traded REITs, interest income on such investments is recognized using the effective interest method with any premium or discount amortized or accreted through earnings based on expected cash flow through the maturity date of the security. Changes to expected cash flow may result in a change to the yield which is then applied retrospectively for high-credit quality securities that cannot be prepaid or otherwise settled in such a way that the holder would not recover substantially all of the investment or prospectively for all other securities to recognize interest income. The Master Fund will record dividend income on the ex-dividend date. Shares received in lieu of cash dividends are recorded as dividend income. The Master Fund will not accrue interest or dividends on loans and securities as a receivable if there is reason to doubt the collectability of such income.

Loan origination fees, original issue discount, and market discount (premium) will be capitalized and such amounts will be accreted (amortized) as interest income (expense) over the respective term of the loan or security. Upon the prepayment of a loan or security, any unamortized loan origination fees and original issuance discount will be recorded as interest income. The Master Fund will record prepayment premiums on loans and securities as interest income when it receives such amounts.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

Gains or losses on the sale of investments will be calculated by using the specific identification method. The Master Fund will measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment including any unamortized upfront fees. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period.

Organization and Offering Costs

Organization costs include, among other things, the cost of formation, including the cost of legal services and other fees pertaining to the Master Fund’s organization. Offering costs include, among other things, legal, accounting, printing and other

34


CC REAL ESTATE INCOME MASTER FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018


costs pertaining to the preparation of the Master Fund’s Registration Statement on Form N-2 related to the offering of its common shares. Historically, the Master Fund charged offering costs against capital in excess of par value on its financial statements in error. In the current period, the Master Fund corrected its accounting treatment for offering costs to record such costs as a deferred charge and thereafter amortize to expense over 12 months on a straight-line basis. Also, during the current year, the Master Fund reclassified $63,341 of offering costs to a deferred charge, which had been recorded as a reduction to capital in 2017. Management concluded that the impact of the error and its correction is not material to the current or previously presented financial statements. Organization costs incurred directly by the Master Fund are expensed as incurred.

Pursuant to the Master Fund’s Advisory Agreement, the Advisor and its affiliates are entitled to receive reimbursement for costs each has paid on behalf of the Master Fund in connection with the offering. The Master Fund will be obligated to reimburse the Advisor and its affiliates, as applicable, for organization and offering costs (“O&O Costs”) to a limit of 1.0% of the aggregate proceeds from the offering. The Master Fund estimates that the O&O Costs of the Master Fund will be de minimis as Master Fund shares are not being offered to the public. The Master Fund records O&O Costs each period based upon an allocation determined by the expectation of total O&O Costs to be reimbursed. For allocated O&O, organization costs are recorded as an expense in the statement of operations. Offering costs are recorded as a deferred charge and are thereafter amortized to expense over 12 months on a straight-line basis.

As of December 31, 2018, the Advisor incurred approximately $0.8 million of O&O Costs on behalf of the Master Fund. As of December 31, 2018 and December 31, 2017, approximately $64,000 and $63,000, respectively of offering costs were allocated to the Master Fund. As of December 31, 2018, offering costs payable by the Master Fund to the Advisor was $6,618. For the year ended December 31, 2017, approximately $23,000 of organization costs were incurred by the Master Fund and reimbursed to the Advisor. There were no organization costs incurred by the Master Fund for the year ended December 31, 2018. Since inception of the Master Fund, all O&O Costs have been incurred by the Advisor.

Income Taxes

The Master Fund intends to elect to be treated for federal income tax purposes as a RIC under Subchapter M of the Code beginning with the taxable year ending December 31, 2018. To maintain qualification as a RIC, the Master Fund must, among other things, meet certain source-of-income and asset diversification requirements and distribute to their respective shareholders, for each taxable year, at least 90% of its “investment company taxable income” and its net tax-exempt interest income. In general, a RIC’s “investment company taxable income” for any taxable year is its taxable income, determined without regard to net capital gains and with certain other adjustments. As a RIC, the Master Fund will not have to pay corporate-level federal income taxes on any income that it distributes to its shareholders. The Master Fund intends to distribute all or substantially all of their “investment company taxable income,” net tax-exempt interest income, if any, and net capital gains, if any, on an annual basis in order to maintain their RIC status each year and to avoid any federal income taxes on income. The Master Fund will also be subject to nondeductible federal excise taxes if it does not distribute at least 98.0% of net ordinary income, if any, and 98.2% of any capital gain net income, if any.

Management has analyzed the Fund’s tax positions taken on income tax returns for all open tax years and has concluded that as of December 31, 2018, no provision for income tax is required in the Fund’s financial statements. The Fund’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.

Uncertainty in Income Taxes

The Master Fund evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax benefits or liabilities in the financial statements. Recognition of a tax benefit or liability with respect to an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Master Fund recognizes interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in the Statement of Operations. For the year ended December 31, 2018, the Master Fund did not incur any interest or penalties.

Distributions

Distributions to the Master Fund’s shareholders are recorded as of the record date.


35


CC REAL ESTATE INCOME MASTER FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018


3.
Share Transactions

Common shares of the Master Fund are issued solely to the Feeder Funds in private placement transactions that do not involve any “public offering” within the meaning of Section 4(a)(2) of, and/or Regulation D under, the Securities Act of 1933, as amended. The following table summarizes the common shares issued by the Master Fund to the Feeder Funds during the year ended December 31, 2017 and December 31, 2018, respectively:
 
 
Year Ended December 31, 2018
 
Year Ended December 31, 2017
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
CC Real Estate Income Fund
 
877,009

 
$
5,287,005

 
4,381,944

 
$
26,086,080

CC Real Estate Income Fund-T
 
297,195

 
1,791,000

 
306,946

 
1,860,000

CC Real Estate Income Fund-ADV
 

 

 
20,764

 
125,000

CC Real Estate Income Fund-C
 
20,938

 
125,000

 

 

Total Gross Proceeds from Issuance of Common Shares
 
1,195,142

 
7,203,005

 
4,709,654

 
28,071,080

Aggregate Consideration for Repurchased Shares
 
(152,610
)
 
(921,079
)
 

 

Net Proceeds from Share Transactions
 
1,042,532

 
$
6,281,926

 
4,709,654

 
$
28,071,080


Capital Transactions

Prior to commencement of operations, an affiliate of Colony Capital contributed $2,000,100, including the Seed Capital Investment to purchase 222,233 common shares of the Master Fund at $9.00 per share. These shares are now held by Colony Capital FV.

The Master Fund will repurchase common shares held by the RE Income Fund, RE Income Fund-T, RE Income Fund-ADV and RE Income Fund-C to the extent necessary to accommodate repurchase requests under each Trust’s share repurchase program.

Refer to Note 14, “Subsequent Events” for repurchase activity occurring after December 31, 2018.

4.
Related Party Transactions

Management Fee

Pursuant to the Master Fund Advisory Agreement, and in consideration of the advisory services provided by the Advisor to the Master Fund, the Advisor is entitled to a fee consisting of two components - the management fee (“Management Fee”) and the incentive fee (“Incentive Fee”).
 
The Trusts will not incur a separate Management Fee or Incentive Fee under the Trusts’ advisory agreements for so long as the Trusts have a policy to invest all or substantially all of their net assets in the Master Fund, but the Trusts and shareholders will be indirectly subject to the Management Fee and Incentive Fee incurred by the Master Fund.
 
On February 23, 2017, the Board approved an amendment to the Master Fund’s Advisory Agreement for the calculation of the Management Fee. The Management Fee is calculated and payable quarterly in arrears at an annual rate of 1.25% of the Master Fund’s average daily net assets during such period.
 
The Management Fee may or may not be taken in whole or in part at the discretion of the Advisor. All or any part of the Management Fee not taken as to any quarter will be deferred without interest and may be taken in any such other quarter as the Advisor may determine. The Management Fee for any partial quarter will be appropriately prorated. For the year ended and as of December 31, 2018, management fee expenses incurred and payable were $423,572 and $111,793, respectively.

Incentive Fee

The Incentive Fee is calculated and payable quarterly in arrears based upon the Master Fund’s “pre-incentive fee net investment income” for the immediately preceding quarter. The Incentive Fee will be subject to a quarterly fixed preferred return to investors,

36

CC REAL ESTATE INCOME MASTER FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018


expressed as a rate of return on the Master Fund’s adjusted capital, at the beginning of the most recently completed calendar quarter, of 1.50%, subject to a “catch-up” feature.

The calculation of the Incentive Fee for each quarter will be as follows:

No Incentive Fee will be payable in any calendar quarter in which the Master Fund’s pre-incentive fee net investment income does not exceed the quarterly hurdle rate of 1.50%;

100.0% of the Master Fund’s pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than or equal to 1.715% in any calendar quarter will be payable to the Advisor. This portion of the Master Fund’s pre-incentive fee net investment income which exceeds the quarterly hurdle rate but is less than or equal to 1.715% is referred to as the “catch-up.” The “catch-up” provision is intended to provide the Advisor with an incentive fee of 12.5% on all of the Master Fund’s pre-incentive fee net investment income when the Master Fund’s pre-incentive fee net investment income reaches 1.715% in any calendar quarter; and

12.5% of the Master Fund’s pre-incentive fee net investment income, if any, that exceeds 1.715% in any calendar quarter is payable to the Advisor once the quarterly hurdle rate is reached and the catch-up is achieved (12.5% of all the Master Fund’s pre-incentive fee net investment income thereafter is allocated to the Advisor).

For this purpose, “pre-incentive fee net investment income” means interest income, dividend income and any other income accrued during the calendar quarter, minus the Master Fund’s operating expenses for the quarter (including the Management Fee, expenses reimbursed to the Advisor under the Master Fund’s Advisory Agreement and any interest expense and distributions paid on any issued and outstanding preferred shares, but excluding the offering and organization expenses and the Incentive Fee). Pre-incentive fee net investment income will include, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind (“PIK”) interest and zero coupon securities), accrued income that the Master Fund has not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.
 
“Adjusted capital” means the cumulative gross proceeds received by the Master Fund from the sale of Master Fund shares (including pursuant to the Master Fund’s distribution reinvestment plan), reduced by distributions to investors that represent a return of capital and amounts paid in connection with repurchases of Master Fund shares pursuant to the Master Fund’s share repurchase program.

For the year ended December 31, 2018, no incentive fee was incurred or payable to the Advisor.

Reimbursement of Operating Expenses

The Advisor is to be reimbursed by the Master Fund, as applicable, for actual costs incurred in connection with providing administrative services to the Master Fund. Allocation of the cost of such services to the Master Fund is primarily based on time allocations, but may also be based on objective factors such as total assets and/or revenues. For the year ended and as of December 31, 2018, the amount of administrative services expenses incurred and payable were $784,915 and $200,377, respectively.

Support Agreements

On July 13, 2017, the Board approved separate expense support and conditional reimbursement agreements, each dated July 13, 2017, between Colony Capital FV and each of the Trusts and the Master Fund (each an “Expense Support Agreement”), whereby Colony Capital FV agreed to reimburse the Trusts and the Master Fund for expenses. On September 28, 2017 and May 10, 2018, the Board approved separate amended and restated expense support and conditional reimbursement agreements (the “Amended and Restated Expense Support Agreement”). The purpose of these agreements is to seek to minimize the extent to which any portion of Trusts’ distributions or Master Fund’s distributions, as applicable, will be characterized as a return of capital for U.S. GAAP purposes and to reduce operating expenses until the Trusts are generating net income to absorb such expenses. However, such distributions may still be characterized as a return of capital for U.S. federal income tax purposes.

Pursuant to the Amended and Restated Expense Support Agreements, Colony Capital FV will reimburse, on a quarterly basis, the Trusts and the Master Fund for expenses (excluding offering expenses) and/or provide additional support payments in an amount equal to the difference between the cumulative distributions paid to the Trust’s or the Master Fund’s Shareholders, as applicable, less the Trusts’ or the Master Fund’s Available Operating Funds during such quarter. “Available Operating Funds” means the net

37

CC REAL ESTATE INCOME MASTER FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018


investment income of the Trusts or the Master Fund, as applicable, plus offering expenses, minus any reimbursement payments payable to Colony Capital FV pursuant to this arrangement. Colony Capital FV’s obligation to make an expense payment shall automatically become a liability of Colony Capital FV and the right to such expense payment shall be an asset of the Trusts or the Master Fund, as applicable, on each day that the Trusts’ or the Master Fund’s, as applicable, net asset value is calculated.

The Trusts and the Master Fund have a conditional obligation to reimburse Colony Capital FV for any amounts funded under the Amended and Restated Expense Support Agreements in any calendar quarter occurring within three years of the date on which Colony Capital FV funded such amounts provided that (a) the annualized rate of regular distributions declared by the Trusts and the Master Fund at the time of such reimbursement is not less than the annualized rate of regular cash distributions declared by the Trusts and Master Fund at the time the expense payment was made to which such reimbursements relates and (b) the Operating Expense Ratio (as defined below) as of such Reimbursement Date (as defined in the Amended and Restated Expense Support Agreements) is not greater than the Operating Expense Ratio as of the expense payment date attributable to such specified expense payment. “Operating Expense Ratio” means Net Operating Expenses (as defined in the Amended and Restated Expense Support Agreements) as of the applicable period, expressed as a percentage of the average net assets of the Fund as of the relevant measurement date. If such conditions do not occur within three years of such expense payment, Colony Capital FV is no longer entitled to reimbursement.

The Amended and Restated Expense Support Agreements may be terminated at any time by the Master Fund or Colony Capital FV or shall automatically terminate in the event of (i) the termination by the Master Fund of the Master Fund Advisory Agreement, (ii) an assignment (as that term is defined under the 1940 Act) of the Master Fund Advisory Agreement, or (iii) the Board’s determination to dissolve or liquidate the Master Fund.

The following table reflects the expense reimbursement accrued from the Advisor to the Master Fund for the year ended December 31, 2018 and the year ended December 31, 2017 that may be subject to reimbursement to the Advisor:
Quarter Ended(1)
 
Amount of Expense Reimbursements
 
Annualized Rate of Distributions Per Common Share(2)
 
Operating Expense Ratio(3)
 
Reimbursement Eligibility Expiration
September 30, 2017
 
$976,543
 
7.08%
 
2.03%
 
September 30, 2020
December 31, 2017
 
$626,648
 
7.01%
 
1.13%
 
December 31, 2020
March 31, 2018
 
$613,334
 
7.02%
 
1.00%
 
March 31, 2021
June 30, 2018
 
$712,078
 
6.98%
 
1.39%
 
June 30, 2021
September 30, 2018
 
$730,025
 
6.83%
 
1.53%
 
September 30, 2021
December 31, 2018
 
$575,429
 
7.32%
 
1.46%
 
December 31, 2021
_________________
(1)
The Expense Support Agreement was implemented in July 2017 effective for the calendar quarter ended March 31, 2017, and on a quarterly basis thereafter.
(2)
The annualized rate of distributions per common share is expressed as a percentage equal to the annualized distribution amount as of the end of the applicable quarter (which is calculated by annualizing the regular daily cash distribution per common share as of such date without compounding), divided by the Master Fund’s NAV per common share as of such date.
(3)
The Operating Expense Ratio is calculated as follows: Net Operating Expenses (as defined in the Amended and Restated Expense Support Agreement) as of the applicable period, expressed as a percentage of the average net assets of the Master Fund as of the relevant measurement date.

Notwithstanding Colony Capital FV’s obligations pursuant to the Amended and Restated Expense Support Agreement, the Master Fund will not be required to pay distributions to the Master Fund shareholders, including the Trusts. For the year ended and as of December 31, 2018, the amount of expense support provided and due to the Master Fund by Colony Capital FV was $2,630,866 and $575,429 respectively.

Pursuant to a distribution support agreement (the “Distribution Support Agreement”) between the Master Fund and Colony Capital FV, Colony Capital FV previously agreed to purchase up to an aggregate of $10.0 million in Master Fund shares, at the current NAV per Master Fund share, of which $2.0 million was contributed by Colony Capital FV to the Master Fund as a seed capital investment (the “Seed Capital Investment”). On May 10, 2018, the Distribution Support Agreement was terminated. Other than the Seed Capital Investment, no amounts were purchased by Colony Capital FV pursuant to the Distribution Support Agreement.


38

CC REAL ESTATE INCOME MASTER FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018


Capital Contribution by Colony Capital

Prior to commencement of operations, an affiliate of Colony Capital contributed $2,000,100, which included the Seed Capital Investment, to purchase 222,233 common shares of the Master Fund at $9.00 per share. These shares are now held by Colony Capital FV.

Service Providers

MUFG Union Bank, N.A., serves as the Fund’s custodian. DST Systems, Inc. serves as the Fund’s transfer agent.

On January 9, 2017, the Master Fund and the Trusts entered into an administration agreement (the “Administration Agreement”) with ALPS Fund Services, Inc. (“ALPS” or the “Administrator”). ALPS, and/or its affiliates are responsible for, but not limited to, (i) maintaining financial books and records of the Master Fund and Trusts, (ii) providing administration services, and (iii) performing other accounting and clerical services as necessary in connection with the administration of the Master Fund and the Trusts. On June 1, 2018, the Administration Agreement was amended to include additional services related to the preparation of the financial statements.

Board of Trustees

Trustees who do not also serve in an executive officer capacity for the Trust, the Feeder Funds, the Master Fund or the Advisor are entitled to receive from the Master Fund an annual fixed fee of $65,000 (to be prorated for a partial term), an additional fee per Board meeting attended of $2,000, an additional fee per committee meeting attended of $1,000 and our audit committee chairperson will receive an additional $10,000 annual retainer (to be prorated for a partial term). These trustees are Daniel J. Altobello, Dianne P. Hurley and Gregory A. Samay. Dianne P. Hurley serves as the lead Independent Trustee/audit committee chairperson. The Master Fund will also reimburse each of the trustees for all reasonable and authorized business expenses in accordance with the Master Fund’s policies as in effect from time to time, including reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each in-person Board meeting and each committee meeting not held concurrently with a Board meeting. The Master Fund does not pay compensation to trustees who also serve in an executive officer capacity for the Trust, the Feeder Funds, the Master Fund or the Advisor.

5.
Investment Portfolio
 
The following table summarizes the composition of the Master Fund’s investment portfolio at cost and fair value as of December 31, 2018:
 
 
December 31, 2018(1)
 
 
Cost(2)
 
Fair Value
 
Percentage
of Portfolio
CMBS
 
$
32,732,558

 
$
32,246,814

 
74.6
%
Affiliated Investments
 
6,067,099

 
6,066,999

 
14.0
%
U.S. Treasury Bill
 
2,495,500

 
2,495,396

 
5.8
%
Common Stock
 
2,624,164

 
1,924,765

 
4.5
%
Term Loan
 
458,955

 
458,955

 
1.1
%
 
 
$
44,378,276

 
$
43,192,929

 
100.0
%
_________________
(1)    Does not include the effect of futures contracts, centrally cleared credit default swaps on credit indices and reverse repurchase agreements.
(2)    Cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.

For the year ended December, 2018, purchases of securities, excluding short term obligations, aggregated to $16,683,309 and the proceeds from sales of securities (excluding short-term securities) were $280,612.

Under ASC Topic 820, fair value is defined as the price that the Master Fund would receive upon selling an asset or pay to transfer a liability in an orderly transaction to a market participant in the principal or most advantageous market for the investment. ASC Topic 820 emphasizes that valuation techniques should maximize the use of observable market inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained

39

CC REAL ESTATE INCOME MASTER FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018


from sources independent of the Master Fund. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances. The Master Fund classifies the inputs used to measure these fair values into the following hierarchy as defined by current accounting guidance:

 
Level 1:
observable inputs such as quoted prices in active markets;
 
Level 2:
includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities where there is little or no activity in the market; and
 
Level 3:
unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

As of December 31, 2018, the Master Fund’s investments were categorized as follows in the fair value hierarchy:
Investments at Fair Value
 
Level 1 - Unadjusted Quoted Prices
 
Level 2 - Other Significant Observable Inputs
 
Level 3 - Significant Unobservable Inputs
 
Total
CMBS
 
$

 
$
32,246,814

 
$

 
$
32,246,814

Affiliated Investments
 

 

 
6,066,999

 
6,066,999

Term Loan
 

 

 
458,955

 
458,955

Common Stocks
 
1,924,765

 

 

 
1,924,765

U.S. Treasury Bill
 
2,495,396

 

 

 
2,495,396

Total
 
$
4,420,161

 
$
32,246,814

 
$
6,525,954

 
$
43,192,929


Other Financial Instruments(1)
 
Level 1
 
Level 2
 
Level 3
 
Total
Futures Contracts
 
$
(392,935
)
 
$

 
$

 
$
(392,935
)
Centrally Cleared Credit Default Swap on Sell Protection(2)
 

 
(243,128
)
 

 
(243,128
)
Reverse Repurchase Agreements
 
 
 
(8,199,087
)
 

 
(8,199,087
)
Total
 
$
(392,935
)
 
$
(8,442,215
)
 
$

 
$
(8,835,150
)
_________________
(1)
The derivatives shown in this table are reported at their unrealized depreciation at measurement date, which represents the change in the contract’s value from trade date. For liabilities arising from reverse repurchase agreements, the carrying amount approximates fair value due to the relatively short-term maturity of these financial instruments.
(2)    Value includes the premium received with respect to swap contracts.

The Master Fund’s investments as of December 31, 2018 consisted primarily of CMBS, three equity securities in publicly traded REITs, a term loan and a direct affiliated investment. The Master Fund valued its performing CMBS investments by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by an independent third-party pricing service and screened for validity by such service. For non-performing or distressed investments, if any, the Master Fund will value such investments by using the bid price. There were no non-performing or distressed investments as of December 31, 2018.
 
The Master Fund periodically benchmarks the bid and ask prices it receives from the third-party pricing service and/or dealers against the actual prices at which the Master Fund purchases and sells its investments. Based on the results of the benchmark analysis and the experience of the Master Fund’s management in purchasing and selling these investments in other investment funds managed by the sponsors, the Master Fund believes that these prices are reliable indicators of fair value. The Master Fund may also use other methods, including the use of an independent third-party valuation service approved by the Board, to determine fair value for securities for which it cannot obtain prevailing bid and ask prices through independent third-party pricing services or independent dealers, or where the Board otherwise determines that the use of such other methods is appropriate. The Master Fund will periodically benchmark the valuations provided by the independent third-party valuation service against the actual prices at which the Master Fund purchases and sells its investments. The Master Fund’s Valuation Committee and Board reviewed the valuation determinations made with respect to these investments and determined that they were made in a manner consistent with the Master Fund’s valuation process.

The following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value:

40

CC REAL ESTATE INCOME MASTER FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018


 
Asset Type
 
Beginning Balance January 1, 2018
 
Accrued Discount/ Premium
 
Realized Gain/ (Loss)
 
Change in Unrealized (Depreciation)
 
Purchases
 
Sales Proceeds
 
Transfer into Level 3
 
Transfer Out of Level 3
 
Ending Balance December 31, 2018
 
Net change in unrealized appreciation/ (depreciation) attributable to Level 3 investments held at December 31, 2018
 
 
Core Property Corp. Equity
 
$—
 
$—
 
$—
 
$(100)
 
$606,800
 
$—
 
$—
 
$—
 
$606,700
 
$—
 
Core Property Corp. Mezzanine Loan
 
 
 
 
 
5,460,299
 
 
 
 
5,460,299
 
 
Term Loan
 
 
 
 
 
458,955
 
 
 
 
458,955
 
 
Total
 
$—
 
$—
 
$—
 
$(100)
 
$6,526,054
 
$—
 
$—
 
$—
 
$6,525,954
 
$—

The table below provides additional information about the Level 3 Fair Value Measurements as of December 31, 2018:

Quantitative Information about Level 3 Fair Value Measurements
Asset Class
 
Fair Value as of December 31, 2018
 
Valuation Technique
 
Unobservable Inputs
 
Range
 
Weighted Average
Core Property Corp. Equity
 
$606,700
 
Discounted Cash Flow Analysis
 
Discount Rate
 
12.00%
 
N/A
Core Property Corp. Mezzanine Loan
 
$5,460,299
 
Cash Equivalency Analysis
 
Discount Rate
 
8.00%
 
N/A
Term Loan
 
$458,955
 
Cash Equivalency Analysis
 
Discount Rate
 
11.00%
 
N/A

All level 3 investments have values determined utilizing third party pricing information without adjustment.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. In the event a Board approved independent pricing service is unable to provide an evaluated price for a security or the Advisor believes the price provided is not reliable, securities of the Funds may be valued at fair value as described above. In these instances the Advisor may seek to find an alternative independent source, such as a broker/dealer to provide a price quote, or by using evaluated pricing models similar to the techniques and models used by the independent pricing service. These fair value measurement techniques may utilize unobservable inputs (Level 3).

On a quarterly basis, the Advisor presents the factors considered in determining the fair value measurements and presents that information to the valuation and audit committee.