In the past six quarters, Birmingham, Ala.-based Colonial Properties Trust has bought 10 assets for $298 million and sold another six properties for $105.8 million under its capital recycling program. But the REIT isn’t just focused on buying and selling. It’s also funneling some of that capital into development. Colonial's president and CFO, C. Reynolds Thompson III, took some time to talk with Multifamily Executive senior editor Les Shaver about these moves and the company’s strategy.

MFE: When did Colonial begin focusing on acquisitions?
Late last year, we began looking for acquisitions because of the improving fundamentals we saw in the marketplace. We believed that there were opportunities in our markets to buy properties before the rents began to recover. Our plan was to take advantage of that growth, improve the returns on those acquisitions, while at the same time reducing the average age of our portfolio by focusing on younger assets.

MFE: What prompted your move to restart development?
On the development side, in Tampa, Fla., we started our first development project in some time in 2010. We saw tight supply and rents in Tampa improve enough for the development to work. For those same reasons, we have started a project in Austin and a project in Orlando. We have additional projects that we intend to start late this quarter and into 2012. Rents on an absolute basis have improved enough for these developments to make sense.

This is all on land that the company owned during the downturn, so it was inventory that was sitting on our balance sheet. As with acquisitions, we saw market growth and felt like the timing was right to put that land in production and have it become income producing. As we look forward, our growth will ultimately be driven by the development that we are doing today. It will start to be meaningful in 2013 and 2014 as the projects that we are working on are completed and go through lease up.

MFE: What are you doing on the disposition front?
In late summer, we announced a program where we were selling older multifamily properties and reinvesting those proceeds in newer multifamily properties. All of those acquisitions are younger properties—properties that have been developed within the last few years. At the same time, we sold properties that were 20-plus years old. As you drill down, the strategy is to improve the quality of the portfolio. We are improving our average rents, lowering our average age, which also helps us improve our margins. Additionally, these newer properties require less capital expenses.

MFE: Are you selling your commercial inventory as well?
Thompson: Yes. As we finish our transition from a diversified company to a multifamily company, we have been selling commercial properties. Our strategy is to reshape our portfolio through commercial sales and acquire new multifamily properties where 90 percent of our NOI comes from multifamily and 10 percent from commercial activity.

MFE: How do these dispositions play into your goal of improving your credit rating?
We have done a lot of work on our balance sheet over the past three years, and we expect to earn our investment grade rating back in 2012. We will use commercial asset sales to make sure we keep our balance sheet in check. Some of that capital will end up in the multifamily development we have underway; the remainder will be used to manage our leverage.

MFE: Are you looking at buying land?
At this point, we are working through existing inventory. We have had opportunities to buy small amounts of land where we it makes sense to add an additional phase or where we had the ability to expand an existing property.

MFE: What prompted you to sell the older assets?
While the company was making its transition from commercial to multifamily, we spent most of our disposition capacity focusing on the commercial business. Because of the demand for multifamily acquisitions, we felt like the pricing of older assets was attractive relative to its growth potential.