Melco Weighs City of Dreams Manila Sale to Cut Leverage
Texas Capital Securities analyst David Bain has initiated coverage of Melco Resorts & Entertainment Ltd’s US-listed shares, suggesting that a potential sale of the company’s stake in City of Dreams Manila could generate proceeds of nearly US$600 million. Bain estimates such a transaction would reduce Melco’s net leverage to around 3.5x by the end of 2026, providing immediate balance-sheet relief while the Manila casino market continues to adjust to heightened competition.
According to Bain, divesting the Philippine asset could cut roughly half a turn of leverage straight away, allowing Melco to redirect capital toward markets offering stronger long-term returns. Discussions with potential buyers are ongoing, and the analyst believes City of Dreams Manila’s consistent operating performance supports a valuation near the projected level, even as Entertainment City becomes more competitive.
Manila Market Shows Signs of Stabilisation
Despite intensifying rivalry among operators in Manila, Bain points to early indications that the market is finding equilibrium. City of Dreams Manila remains competitive due to its balanced exposure to both VIP and mass-market segments, with revenues holding up as nearby resorts expand. The estimated US$600 million valuation reflects prevailing EBITDA and asset multiples and would enable Melco to exit the Philippine market while strengthening its financial flexibility. A leverage ratio near 3.5x could be well received by investors, particularly as Macau continues to underpin group earnings.
Cyprus and Sri Lanka Highlight Growth Potential
Bain also highlights Melco’s newer international projects, pointing to improving EBITDA contributions from City of Dreams Mediterranean in Cyprus and the recent opening of City of Dreams Sri Lanka in August. The Cyprus resort is attracting European visitors through lean operations, while Sri Lanka targets demand from South Asia, especially India. Both assets are viewed as lower-capital-intensity projects that broaden Melco’s geographic footprint without adding significant balance-sheet strain.
Macau Outlook Improving
In Macau, Bain expects current elevated reinvestment levels to normalise over time, shifting competition toward product quality and service, areas where Melco has traditionally performed well. Strong visitor arrivals in 2025 and an uneven economic recovery in China are favouring premium mass segments, aligning with Melco’s strategy. Gross gaming revenue continues to trend closer to pre-pandemic levels, with double-digit growth projected through mid-2026. The near-elimination of junket play has also reduced volatility and operational risk while improving margin visibility.
Non-Gaming Spend to Support Earnings
Bain anticipates increased spending on non-gaming attractions and events will boost visitation and support EBITDA growth, even as gaming mix evolves. While higher operating costs and margin pressure in premium segments have drawn concern from some analysts, Bain views these pressures as temporary. As promotional intensity eases, Melco’s service quality and diversified offerings are expected to support sustained performance.
Deleveraging Seen as Strategic Catalyst
Proceeds from a potential Manila divestment would materially accelerate deleveraging, positioning Melco with greater financial flexibility amid strengthening conditions in Macau and steady contributions from Cyprus and Sri Lanka. Bain’s coverage underscores confidence in Melco’s asset mix and long-term strategy, combining balance-sheet improvement with selective exposure to higher-growth markets as regional gaming dynamics continue to evolve.
