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

 
FORM N-Q
 
 
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF
REGISTERED MANAGEMENT INVESTMENT COMPANY
 
Investment Company Act file number: 811-23134
 
 
CC Real Estate Income Master Fund
(Exact name of registrant as specified in charter)
 
 
590 Madison Avenue
34th Floor
New York, NY
(Address of principal executive offices)
10022
(Zip code)
 
Kevin P. Traenkle
Chief Executive Officer and President
CC Real Estate Income Master Fund
590 Madison Avenue, 34th Floor
New York, NY 10022
(Name and address of agent for service)
 
Copy to:
Frank V. Saracino
Chief Financial Officer and Treasurer
CC Real Estate Income Master Fund
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
 
Date of reporting period: March 31, 2019

 



Item 1. Schedule of Investments.

The unaudited schedule of investments of CC Real Estate Income Master Fund, formerly NorthStar Real Estate Capital Income Master Fund (the “Fund” or the “Registrant”), a Delaware statutory trust that is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a non-diversified, closed-end management investment company, as of March 31, 2019 is set forth below:


2
CC Real Estate Income Master Fund
Unaudited Schedule of Investments
As of March 31, 2019


Security
 
Rate
 
Maturity
Date
 
Face
Amount/Principal
 
Amortized
Cost(a)
 
Amortized
Cost as a%
of Face
Amount
 
Fair Value
Commercial Mortgage-Backed Securities (“CMBS”) — 58.1%(b)
 
 
 
 
 
 
 
 
 
 
 
 
Bank of America Commercial Mortgage Trust Series 2015-UBS, Class D
 
3.17
%
 
09/15/2048
 
$
2,645,000

 
$
2,223,711

 
84.1
%
 
$
2,276,870

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

 
61,319

 
76.6
%
 
67,653

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

 
33,206

 
83.0
%
 
34,557

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

 
1,178,448

 
78.6
%
 
1,227,921

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

 
1,496,471

 
78.8
%
 
1,562,276

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

 
3,144,983

 
78.6
%
 
3,345,962

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

 
1,624,024

 
81.2
%
 
1,597,749

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

 
2,380,136

 
79.3
%
 
2,544,751

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

 
970,423

 
64.7
%
 
1,030,807

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

 
1,522,922

 
76.1
%
 
1,527,864

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

 
98,086

 
84.6
%
 
100,253

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

 
119,737

 
66.5
%
 
130,835

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

 
1,677,267

 
83.9
%
 
1,697,503

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

 
1,508,524

 
83.8
%
 
1,548,818

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

 
1,500,953

 
79.0
%
 
1,542,756

Total Commercial Mortgage-Backed Securities (Amortized Cost $19,540,210)
 
 
 
 
 
 
 
 
 
20,236,575

 
 
 
 
 
 
 
 
 
 
 
 
 
Affiliated Investments - 17.4%
 
 
 
 
 
 
 
 
 
 
 
 
Core Property Corp. - Equity Investment (606,800 shares)(c)(d)(e)
 
 
 
 
 
 
 
606,800

 
100.0
%
 
606,800

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

 
5,460,299

 
100.0
%
 
5,460,299

Total Affiliated Investments (Cost $6,067,099)(a)
 
 
 
 
 
 
 
 
 
 
 
6,067,099

 
 
 
 
 
 
 
 
 
 
 
 
 
Term Loan -2.6%
 
 
 
 
 
 
 
 
 
 
 
 
Kentucky Fried Chicken Term Loan
 
11.00
%
(f) 
10/17/2019
 
901,993

 
901,993

 
100.0
%
 
901,993

Total Term Loan (Cost $901,993)(a)
 
 
 
 
 
 
 
 
 
 
 
901,993

 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock - 4.1%
 
 
 
 
 
 
 
 
 
 
 
 
TriplePoint Venture Growth BDC Corp. (102,906 shares)
 
 
 
 
 
 
 
 
 
 
 
1,415,987

Total Common Stock (Cost $1,402,000)(a)
 
 
 
 
 
 
 
 
 
 
 
1,415,987

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL INVESTMENTS (Cost $27,911,302)(a) - 82.2%
 
 
 
 
 
 
 
 
 
 
 
28,621,654

OTHER ASSETS AND LIABILITIES-NET - 17.8%(g)(h)
 
 
 
 
 
 
 
 
 
 
 
6,215,951

NET ASSETS - 100.0%
 
 
 
 
 
 
 
 
 
 
 
$
34,837,605

 
 
 
 
 
 
 
 
 
 
 
 
 
Shares Outstanding
 
 
 
 
 
 
 
 
 
 
 
5,860,189

Net Asset Value per Common Share
 
 
 
 
 
 
 
 
 
 
 
$
5.94


Refer to notes to accompanying financial statements.







3
CC Real Estate Income Master Fund
Unaudited Schedule of Investments (continued)
As of March 31, 2019



Futures Contracts
Issue
 
Expiration Date
 
Contracts Purchased (Sold)
 
Notional Value
 
Unrealized Depreciation
10 Year USD Deliverable Swap Futures
 
06/19/2019
 
(140)
 
$
(14,000,000
)
 
$
(308,344
)

USD—U.S. Dollar.

Centrally Cleared Credit Default Swap On Credit Indices—Sell Protection(i)
Reference Entity
 
Counterparty
 
Periodic Payment Receive Rate(j)
 
Termination Date
 
Notional Value(k)
 
Fair Value(l)
 
Upfront Premium Received/(Paid)
 
Unrealized Depreciation
CMBX.NA.A.11
 
Morgan Stanley
 
2.00
%
 
11/18/2054
 
$
(5,000,000
)
 
$
(56,708
)
 
$
3

 
$
(56,705
)
 
 
 
 
 
 
 
 
 
 
$
(56,708
)
 
$
3

 
$
(56,705
)
 
(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)
Affiliated investment.
 
(d)
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.
 
(e)
Non-Income Producing Security.
 
(f)
Rate shown is inclusive of 0.05% issuance fee.
 
(g)
Includes the effect of futures contracts and centrally cleared credit default swaps on credit indices.
 
(h)
Includes cash which is being held as collateral for futures contracts and credit default swap contracts.
 
(i)
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.
 
(j)
Percentage shown is an annual percentage.
 
(k)
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.
 
(l)
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.


4
CC Real Estate Income Master Fund
Notes to Unaudited Schedule of Investments
As of March 31, 2019


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

On February 21, 2019, the Board of Trustees of the Fund (the “Board”), at the recommendation of CNI RECF Advisors, LLC, the Fund’s investment adviser (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 Fund and feeder funds of the Fund, and the distribution of the net proceeds of such liquidation to the Fund’s and the feeder fund’s shareholders, respectively, on a pro rata basis. Following the approval of the Plan, the Fund and the feeder funds were closed to new investors, the offering has been suspended and the Advisor began the process of liquidating the Fund’s portfolio.

2. Basis of Presentation

The Fund is an investment company that follows the accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standard Codification Topic 946 Financial Services – Investment Companies.

The Fund’s unaudited Schedule of Investments is prepared in accordance with accounting principles generally accepted in the United States of America and is stated in U.S. dollars.
 
3. Investment Portfolio

The information contained in this section should be read in conjunction with the Fund’s audited financial statements contained in its annual report for the fiscal year ended December 31, 2018.
 
The following table summarizes the composition of the Fund’s investment portfolio at cost and fair value as of March 31, 2019:
 
 
 
March 31, 2019(1)
 
 
Cost(2)
 
Fair Value
 
Percentage
of Portfolio
CMBS
 
$
19,540,210

 
$
20,236,575

 
70.7
%
Affiliated Investments
 
6,067,099

 
6,067,099

 
21.2
%
Common Stock
 
1,402,000

 
1,415,987

 
4.9
%
Term Loan
 
901,993

 
901,993

 
3.2
%
 
 
$
27,911,302

 
$
28,621,654

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

Under ASC Topic 820, fair value is defined as the price that the 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 from sources independent of the 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 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.

5
CC Real Estate Income Master Fund
Notes to Unaudited Schedule of Investments
As of March 31, 2019



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 March 31, 2019, 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
 
$
—

 
$
20,236,575

 
$
—

 
$
20,236,575

Affiliated Investments
 
—

 
—

 
6,067,099

 
6,067,099

Term Loan
 
—

 
—

 
901,993

 
901,993

Common Stocks
 
1,415,987

 
—

 
—

 
1,415,987

Total
 
$
1,415,987

 
$
20,236,575

 
$
6,969,092

 
$
28,621,654


Other Financial Instruments(1)
 
Level 1
 
Level 2
 
Level 3
 
Total
Futures Contracts
 
$
(308,344
)
 
$
—

 
$
—

 
$
(308,344
)
Centrally Cleared Credit Default Swap on Sell Protection(2)
 
—

 
(56,705
)
 
—

 
(56,705
)
Total
 
$
(308,344
)
 
$
(56,705
)
 
$
—

 
$
(365,049
)
_________________
(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.
(2)
Value includes the premium received with respect to swap contracts.

There were no transfers between levels during the three months ended March 31, 2019.

The Master Fund’s investments as of March 31, 2019 consisted primarily of CMBS, one equity security in a publicly traded REIT, 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 March 31, 2019.
 
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.


6
CC Real Estate Income Master Fund
Notes to Unaudited Schedule of Investments (continued)
As of March 31, 2019

The following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value:
 
Asset Type
 
Beginning Balance January 1, 2019
 
Accrued Discount/ Premium
 
Realized Gain/ (Loss)
 
Change in Unrealized Appreciation
 
Purchases
 
Sales Proceeds
 
Transfer into Level 3
 
Transfer Out of Level 3
 
Ending Balance March 31, 2019
 
Net change in unrealized appreciation/ (depreciation) attributable to Level 3 investments held at March 31, 2019
 
 
Core Property Corp. Equity
 
$606,700
 
$—
 
$—
 
$100
 
$—
 
$—
 
$—
 
$—
 
$606,800
 
$100
 
Core Property Corp. Mezzanine Loan
 
5,460,299
 
—
 
—
 
—
 
—
 
—
 
—
 
—
 
5,460,299
 
—
 
Term Loan
 
458,955
 
—
 
—
 
—
 
443,038
 
—
 
—
 
—
 
901,993
 
—
 
Total
 
$6,525,954
 
$—
 
$—
 
$100
 
$443,038
 
$—
 
$—
 
$—
 
$6,969,092
 
$100
 
The table below provides additional information about the Level 3 Fair Value Measurements as of March 31, 2019:

Quantitative Information about Level 3 Fair Value Measurements
Asset Class
 
Fair Value as of March 31, 2019
 
Valuation Technique
 
Unobservable Inputs
 
Range
 
Weighted Average
Core Property Corp. Equity
 
$606,800
 
Discounted Cash Flow Analysis
 
Discount Rate
 
11.00%
 
N/A
Core Property Corp. Mezzanine Loan
 
$5,460,299
 
Cash Equivalency Analysis
 
Discount Rate
 
8.00%
 
N/A
Term Loan
 
$901,993
 
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.


7

Item 2. Controls and Procedures.
 
 
(a)
Based on an evaluation of the disclosure controls and procedures (as defined in Rule 30a-3(c) under the 1940 Act) as of a date within 90 days prior to the filing date of this Form N-Q (the “Report”), the Chief Executive Officer (its principal executive officer) and Chief Financial Officer (its principal financial officer) have concluded that the disclosure controls are reasonably designed to ensure that information required to be disclosed by the Registrant in the Report is recorded, processed, summarized and reported by the filing date, including ensuring that information required to be disclosed in the Report is accumulated and communicated to the Registrant’s management, including the Registrant’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
 
(b)
There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the Registrant’s last fiscal quarter that have materially affected or are reasonably likely to materially affect the Registrant’s internal control over financial reporting.

Item 3. Exhibits.
 
Certifications of the principal executive officer and principal financial officer as required by Rule 30a-2(a) under the 1940 Act are attached hereto.


8

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
CC REAL ESTATE INCOME MASTER FUND
 
 
 
 
 
 
By:
/s/ Kevin P. Traenkle
 
 
 
Kevin P. Traenkle
 
 
 
Chief Executive Officer and President
 
 
 
Date: May 16, 2019
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
 
By:
/s/ Kevin P. Traenkle
 
 
 
Kevin P. Traenkle
 
 
 
Chief Executive Officer and President
 
 
 
(Principal Executive Officer)
 
 
 
Date: May 16, 2019
 
 
 
 
 
 
By:
/s/ Frank V. Saracino
 
 
 
Frank V. Saracino
 
 
 
Chief Financial Officer and Treasurer
 
 
 
(Principal Financial Officer)
 
 
 
Date: May 16, 2019