Despite mounting national economic problems, apartment industry REITs continued to survive in the second quarter.

"The key is fewer people are moving out of apartments to buy homes," says Rod Petrik, managing director with Stifel Nicolaus, a regional brokerage and investment banking firm based in St. Louis. "We're seeing that turnover rates are down. On the demand side, the slowdown in job growth, income, and unemployment doesn't help. Traffic in the front door is down somewhat, but you've closed the back door as far as people leaving to buy homes."

Not surprisingly, the top performers in the second quarter were those REITs situated in the stronger housing markets. Not have those markets suffered fewer job losses in many cases, but they also have less competition in the shadow market. Topping that list is Essex Property Trust, which has a foothold in Seattle and San Francisco. The Palo Alto, Calif.-based company's funds from operations (FFO) for the quarter totaled $40.3 million, or $1.46 per diluted share. That's up from FFO of $36.5 million, or $1.32 per diluted share, for same quarter in 2007, according to financial filings.

"Essex seems to be hitting on most cylinders," Petrik says. "Their same-store revenue was up more than 5 percent. That was far and away the best in the sector."

Second on Petrik's list of winners was Highlands Ranch, Colo.-based UDR, which had rent growth in the quarter of 4.4 percent, although its FFO was down due to a portfolio sale earlier this year to Steven D. Bell & Co., a real estate investment and management company headquartered in Greensboro, N.C., according to filings.

Alexander Goldfarb, an analyst with UBS, a global wealth manager and investment banking and securities firm, agreed that Essex was sitting the best spot right now. But Home Properties, based in Rochester, N.Y., also faired well with its portfolio of older infill properties in expensive markets. It posted an FFO of $40.9 million, or $0.90 per share, in the second quarter, according to its financial report.

"They tend to be in infill markets and away from a lot of that competition," Goldfarb says.

The only REIT to post a drop in net operating income on a sequential basis was Atlanta-based Post Properties, which suffered a net loss attributable to common shareholders of $27.0 million, or $0.61 per share, in the second quarter, per filings. The company was up for sale during the first half of the year.

"They were running a strategic process to sell the company from January until June," Goldfarb says. "It's not a surprise that the operations may not have come under expectations."

But both Goldfarb and Petrik say that Post is taking steps to steer the ship in the right direction. For instance, they've cut their development pipeline. "To us, that's a clear demonstration that management is trying to get its footing," he says.