March 7 (Bloomberg) -- MTR Corp., Hong Kong's subway operator, said 2005 net income rose 29 percent, its third year of profit growth, after it made more money from developing real estate and had a gain from revaluing its property holdings.

Net income rose to HK$8.45 billion ($1.09 billion), or HK$1.55 a share, from a restated HK$6.54 billion, or HK$1.23 a share, a year earlier, the company said in a statement today. Sales rose 10 percent to HK$9.15 billion, it said.

A rebound in Hong Kong's real estate market bolstered the value of investments at MTR, which uses income from property projects to subsidize its rail network. The company's 2005 fare revenue increased as economic growth in the city and higher tourist arrivals put more people on its seven rail lines.

``We see MTR as a long-term investment because of its property development earnings,'' said Kitty Chan, a director at Hong Kong-based Rexcapital Asset Management Ltd., which owns MTR shares. ``Income from property may grow about 10 percent this year,'' said Chan, who was speaking before the earnings release.

Excluding the property revaluation gain, MTR's profit rose 37 percent to HK$6.14 billion, the company said. That compared with a median forecast of HK$5.7 billion of seven analysts surveyed by Bloomberg.

MTR, controlled by the Hong Kong government, said property development profit rose 35 percent to HK$6.15 billion last year. The company said it included profits from the Arch, a project in the city's Kowloon area it developed with Sun Hung Kai Properties Ltd.

Fare Revenue

The rail operator gets upfront payments or a share of profits from developers who build apartments, shopping malls or offices near its stations. It also receives rental income from shopping centers and commercial properties that it owns.

MTR said fare revenue rose 6 percent last year to HK$6.28 billion, after passenger numbers increased 3 percent to a record 866 million.

The company, which runs a 91-kilometer network with 52 stations, is one of Hong Kong's two rail operators. It's preparing for a government-mandated merger with Kowloon-Canton Railway Corp., which operates trains to the suburbs and to cities in southern China.

MTR said it will pay a final dividend of 28 Hong Kong cents, unchanged from a year earlier.

The company's shares fell 0.9 percent to close at HK$17.15 in Hong Kong before the earnings announcement. The stock has gained 12.5 percent this year, better than a 4.9 percent increase in the benchmark Hang Seng Index.

To contact the reporter on this story: Vicki Kwong in Hong Kong at vkwong@bloomberg.net

Last Updated: March 7, 2006 04:26 EST