AIRC Apartment Income REIT Corp

Notes to Financial Statements

December 31, 2022

Note 1 — Description of the Plan

General

The following description of the AIR 401(k) Retirement Plan (the “Plan”) provides only general information. Participants should refer to the Plan document and Summary Plan Description for a more complete description of the Plan’s provisions.

The Plan is a multiple employer plan sponsored by Apartment Income REIT Corp. (“AIR”). The Plan is a defined contribution plan covering all employees of AIR, Apartment Investment and Management Company (“Aimco”), and their subsidiaries who have completed 30 days of service and are age 18 or older, except certain employees covered by collective bargaining agreements who are not eligible to participate in the Plan, unless such collective bargaining agreement provides for the inclusion of such employees as participants in the Plan. On December 30, 2022, Aimco employees were transferred out of the Plan. Fidelity Management Trust Company (“Fidelity”) serves as the Plan’s trustee and provides certain administrative services to the Plan. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

Contributions

Each year, participants may contribute to the Plan, on a pretax basis, up to 50% of their eligible compensation, or $20,500 for 2022, whichever is less. Participants who have attained age 50 before the end of the Plan year are eligible to make additional catch-up contributions up to $6,500 for 2022. Participants may also contribute amounts representing distributions from other qualified defined benefit, defined contribution plans and individual retirement accounts (rollovers).

Each participating employer may make matching contributions to the Plan at its discretion. For 2022, AIR’s matching contribution equaled 25% of participant contributions to the extent of the first 4% of the participant’s eligible compensation and Aimco’s matching contribution equaled 100% of participant contributions to the extent of the first 3% of the participant’s eligible compensation, and 50% of participant contributions to the extent of the next 2% of the participant’s eligible compensation. Each participating employer may also make an additional discretionary lump sum contribution to all eligible employees following the Plan’s year-end based on the employer’s achievement of its corporate goals. Employer cash contributions totaled $1,672,665 for the Plan year ended December 31, 2022, which consisted of matching contributions. Of these contributions, $1,630,463 had been received by the Plan on December 31, 2022, and $42,202 were included in contributions receivable as of December 31, 2022. All contributions are subject to certain limitations of the Internal Revenue Code (the “Code”). See Note 5 for the discretionary lump sum contribution made subsequent to year end.

Participants direct their contributions and any allocated employer matching or other discretionary employer contributions into the various investment options offered by the Plan and may change their investment options on a daily basis. As of December 31, 2022, the Plan provided various mutual funds, a common collective fund, and Company stock funds in which participants were able to choose to invest. During 2022, participants had the ability to choose to invest in AIR and Aimco common shares. Effective December 30, 2022, the Plan froze the ability to direct future contributions or money movement into Aimco stock. The Plan intends to liquidate all Aimco stock investments no later than December 31, 2023. Participants are able to liquidate Aimco stock held in their Plan accounts at any time before Plan liquidation, subject to applicable securities law.

Participant Accounts

Each participant’s account is credited with the participant’s contributions, and the employer matching and discretionary contributions, and allocations of plan earnings, and is charged with an allocation of administrative expenses. Plan earnings are allocated based on the participant’s share of net earnings or losses of their respective elected investment options. Allocations of administrative expenses are a fixed dollar amount per participant or per transaction type. The benefit to which a participant is entitled is the participant’s vested account balance at the time of distribution. Participants may direct the investment of their contributions and any discretionary contributions into various investment options offered by the Plan and may change investments and transfer amounts between funds daily.

Vesting

Participants are immediately vested in their voluntary contributions plus actual earnings and losses thereon. Employer contributions are fully vested for those employees who have attained three years of service or will vest after an employee completes three years of service. Employer contributions also fully vest in the event that a participant reaches normal retirement age, or age 65, during their employment with a participating employer, regardless of whether the participant has attained three years of service.

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Notes Receivable from Participants

Participants may borrow funds from their own account. Loans are permitted in amounts not to exceed the lesser of $50,000, reduced by the highest outstanding loan balance for the preceding year, or 50% of the value of the vested interest in the participant’s account. Two loans may be outstanding at any time.

Payment of Benefits

On termination of service or upon death, disability, or retirement, a participant (or the participant’s beneficiary) may elect to receive a distribution equal to the vested value of their account, which will be paid out as soon as administratively possible. In-service withdrawals are available in certain limited circumstances, as defined by the Plan.

Forfeited Accounts

Upon termination of employment, participants forfeit their non-vested balances. As of December 31, 2022 and 2021, forfeited accounts totaled $121,976 and $99,174, respectively. These accounts will be used to pay Plan administrative expenses and reduce future employer contributions. In 2022, employer contributions were funded with $51,545 from forfeited accounts.

Plan Termination

Although AIR has not expressed any intent to do so, it has the right under the Plan to terminate the Plan subject to the provisions of ERISA. In the event of termination of the Plan, each participant will become fully vested and will receive a total distribution of their account.

Note 2 — Summary of Significant Accounting Policies

Basis of Accounting

The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).

Investments and Investment Income

The Plan’s investments are measured at fair value. Fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. See Note 3 for further discussion and disclosures related to fair value measurements.

Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net appreciation or depreciation in fair value of investments includes the Plan’s realized gains and losses on investments that were both bought and sold during the year as well as unrealized appreciation or depreciation of the investments held at year end.

Excess Contribution Payable

Plan is required to return contributions received during the Plan year in excess of the IRC limits. Excess contributions due to participants as of December 31, 2022 and 2021 were $1,099 and $4,375, respectively.

Payment of Benefits

Benefit payments to participants are recorded upon distribution. There were no participants, who elected to withdraw from the Plan, but had not yet been paid as of December 31, 2022.

Notes Receivable from Participants

Notes receivable from participants represent participant loans, all of which are secured by vested account balances of borrowing participants and are recorded at their outstanding principal balances plus accrued but unpaid interest. Interest income on notes receivable from participants is recorded when it is earned and is included in interest income on notes receivable from participants on the statement of changes in net assets available for benefits. Related fees are recorded as administrative expenses and are expensed when they are incurred. No allowance for credit losses has been recorded as of December 31, 2022 or 2021. If a participant ceases to make loan repayments and the plan administrator deems the participant loan to be a distribution, the participant loan balance is reduced, and a taxable deemed distribution is recorded. As of December 31, 2022, participant loans have maturities through 2035 at interest rates ranging from 5.25% to 10.25%.

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Risks and Uncertainties

The Plan invests in various investment securities. Investment securities are exposed to various risks such as: interest rate, market, and credit risks. The Plan’s exposure to credit loss in the event of nonperformance of investments is limited to the carrying value of such instruments. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the statements of net assets available for benefits.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates that affect the amounts reported in the financial statements, accompanying notes, and supplemental schedule. Actual results could differ from those estimates.

Income Tax Status

The underlying volume submitter plan has received an advisory letter from the Internal Revenue Service (“IRS”) dated June 30, 2020, stating that the form of the plan is qualified under Section 401 of the Internal Revenue Code (“the Code”) and, therefore, the related trust is tax-exempt. The plan administrator has determined that it is eligible to, and has chosen to, rely on the current IRS volume submitter advisory letter. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualified status. The plan administrator believes the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes the Plan is qualified and the related trust is tax-exempt.

GAAP requires plan management to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. Plan management has analyzed the tax positions taken by the Plan, and has concluded that there are no uncertain positions taken or expected to be taken. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.

Plan Expenses

The Plan’s administrative expenses are paid by either the Plan or the participating employers, as provided by the Plan’s provisions. Administrative expenses paid by the Plan include recordkeeping and trustee fees. The Plan may fund administrative expenses with forfeited balances of terminated participants’ accounts. Any administrative expenses not paid by the Plan will be paid by the participating employers and are excluded from these financial statements. During the year ended December 31, 2022, forfeited balances of terminated participants’ accounts totaling $61,336 were used to pay administrative expenses. Expenses relating to purchases, sales, or transfers of the Plan’s investments are charged to the particular investment fund to which the expenses relate and are included in net depreciation in fair value of investments on the statement of changes in net assets available for benefits.

The Plan has a revenue-sharing agreement whereby certain investments return a portion of the investment fees to participants who hold investments in these funds generating credits. For the year ended December 31, 2022, revenue credits of $87,244 were applied to individual participant accounts that invested in the funds generating the revenue credit.

Related Party Transactions and Party-in-Interest Transactions

Certain Plan investments in mutual funds and a common collective trust are managed by Fidelity Management Trust Company, which also serves as the trustee of the Plan and, therefore, Plan transactions involving these mutual funds and the common collective trust qualify as party-in-interest transactions under ERISA and the Code. Additionally, a portion of the Plan’s assets is invested in funds managed by Vanguard, which is a beneficial owner of both AIR and Aimco common stock and held more than 10% of both AIR and Aimco’s common stock outstanding during the year ended December 31, 2022. Because of its holdings in AIR and Aimco common stock, Plan transactions involving Vanguard-managed funds qualify as party-in-interest transactions. A portion of the Plan’s assets is also invested in AIR and Aimco common stock. Plan transactions involving AIR and Aimco common stock qualify as party-in-interest transactions. All of these transactions are exempt from the prohibited transactions rules under ERISA.

Certain plan investments are shares of AIR and Aimco common stock, as further detailed in Note 3. During the year ended December 31, 2022, purchases of AIR shares by the Plan totaled $2,731, sales of AIR shares by the Plan totaled $90,375, and the Plan recorded dividend income from AIR shares of $124,186. During the year ended December 31, 2022, purchases of Aimco shares by the Plan totaled $0, sales of Aimco shares by the Plan totaled $9,929, and the Plan recorded dividend income from Aimco shares of $1,810.

The Plan also issues loans to participants, which are secured by the vested balances in the participants’ accounts.

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The Fidelity Managed Income Portfolio (“MIP”) Fund is a common collective trust fund designed to deliver safety and stability by preserving principal and accumulating earnings. This fund is primarily invested in guaranteed investment contracts and synthetic investment contracts. Participant-directed redemptions have no restrictions; however, the Plan is required to provide a one-year redemption notice to liquidate its entire share in the fund. Investments in the Fidelity MIP Fund are recorded at fair value, using the NAV practical expedient. The fair value of the Fidelity MIP Fund has been estimated based on the fund’s NAV provided by Fidelity, which is based on the contract value of the underlying investment contracts held by the fund. As of December 31, 2022, there were no unfunded commitments in the MIP Fund.

The AIR Stock Fund and Aimco Stock Fund are separately managed accounts that are a stock fund that operates similarly to a mutual fund, in that it is composed of stock, and a small percentage of cash or another short-term interest-bearing vehicle. The inclusion of cash provides liquid assets to allow for the daily processing of transfers, loans, and withdrawals. The value of the stock fund is based on the value of the underlying common stock, as participants cannot directly invest their account balances in the associated short-term interest-bearing vehicle. The individual assets of a stock fund are considered separately as individual investments for accounting, auditing, and financial statement reporting purposes.

Mutual funds are valued at the daily closing price as reported by the fund. Mutual funds held by the Plan are open-ended mutual funds that are registered with the Securities and Exchange Commission. These funds are required to publish their daily net asset value and to transact at that price. The mutual funds held by the Plan are deemed to be actively traded.

Note 4 — Nonexempt Party-In-Interest Transactions

The Company remitted April 15, 2022 and May 2, 2022 participant contributions and loan repayments of $868 and $712, respectively, to the trustee on April 28, 2022, and July 22, 2022, respectively, which was later than required by Department of Labor (“DOL”) Regulation Section 2510.3-102. The Company will file Form 5330 with the IRS and pay the required excise tax on the transaction. In addition, participant accounts will be credited with the amount of investment income that would have been earned had the participant contributions and loan repayments been remitted on a timely basis.

Note 5 — Subsequent Events

In February 2023, AIR made a discretionary lump sum contribution totaling $870,000, or $1,250 per eligible employee, based on the achievement of AIR’s 2022 corporate goals. All AIR employees eligible for the Plan as of December 31, 2022, received the contribution. This contribution will be reflected in the Plan’s 2023 financial statements.

Subsequent events were evaluated through June 13, 2023, the date the financial statements were issued.

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