CBRE: Galaxy lifts dividend as Melco delays debt paydown

Galaxy Entertainment Group raised its interim dividend by 12.5% to HKD 0.90 per share, signaling confidence in cash-flow sustainability despite a softer second quarter, while Melco Resorts & Entertainment pushed back its debt-reduction timetable by a year amid elevated operating costs.

CBRE Equity Research analysts John DeCree and Max Marsh said the 12.5% increase came against a backdrop of a challenging Macau market, geopolitical uncertainty and Galaxy’s push into the final stages of its current development program.

“The dividend hike […] signals confidence in the overall business outlook and sustainability of cash flow,” the analysts wrote. “The best dividend is a growing dividend,” CBRE said, describing Galaxy’s balance sheet as a “fortress.”

For the second quarter, Galaxy reported adjusted EBITDA of HKD 3.38 billion (USD433 million), down 5% year over year, largely due to an unfavorable comparison with the prior year’s gaming hold.

CBRE estimated that, after normalizing for hold, adjusted EBITDA would have risen 8%. The brokerage said mass-market gaming and non-gaming businesses remained resilient, even as disruption from the FIFA World Cup weighed more heavily on the VIP segment.

CBRE also forecasts that Galaxy’s adjusted EBITDA will reach HKD 14.32 billion in 2026 before increasing to HKD 15.01 billion in 2027.

The company’s net cash position of approximately HKD 36 billion ($4.6 billion) underpins shareholder returns and development commitments.

Moreover, Galaxy is completing Galaxy Macau Phase 4 and renovating StarWorld Macau.

Phase 4 remains on track to open in 2027, adding 1,350 hotel rooms and suites, a 5,000-seat theater, retail and dining facilities, and a casino.

And around 40% of StarWorld’s rooms were unavailable during the second quarter, reducing the property’s EBITDA by an estimated HKD 14 million ($1.8 million), according to CBRE. The renovation at StarWorld, which includes combining some rooms to create larger premium suites, is expected to be completed by the first quarter of 2027.

Melco costs stay high; deleveraging slips to 2027

According to CBRE, Melco Resorts & Entertainment is unlikely to achieve meaningful cost reductions in Macau despite reviewing its post-pandemic spending, with daily operating expenses expected to remain at about $3.4 million.

The brokerage said increased competition in Macau had a material impact on expenses, prompting Melco to seek greater flexibility in its cost base.

Melco invested heavily in service standards and the guest experience after the pandemic. However, volatile business volumes have led the operator to reassess the returns generated by those investments.

The company expects to maintain daily operating expenses of approximately $3.4 million in Macau, even with the opening of the REM Hotel at City of Dreams Macau.

While management is seeking greater cost efficiency, CBRE expects the outcome to be “more moderate cost increases rather than meaningful cost cuts.”

CBRE estimated Melco’s adjusted EBITDA at $281 million for the second quarter, down 20% year over year and below the market consensus of $299 million. Reduced visitation during the FIFA World Cup affected Melco and other Macau operators during the quarter. However, CBRE attributed the scale of Melco’s earnings miss to higher operating expenses and promotional reinvestment, which it expects to remain elevated.

Melco reported adjusted property EBITDA of $303.8 million for the period, down from $377.6 million a year earlier. City of Dreams Macau was the main friction point, with adjusted EBITDA falling 34.5% year over year to $147.8 million.

CBRE also expects Melco’s debt-reduction timetable to take a year longer than previously forecast. The company’s net debt was equivalent to 4.8 times adjusted EBITDA in the second quarter, compared with 4.3 times in the previous quarter. Melco added $360 million in debt during the period, of which $121 million was used to repurchase approximately 22.4 million American depositary shares.

CBRE previously expected the ratio to decline to 4.0 times by the end of 2026. It now forecasts that level will be reached by the end of 2027, while Melco management has indicated that dividend payments are likely to resume sometime next year. Studio City’s recent refinancing should partly offset the pressure. Two transactions completed in May and July are expected to generate combined annual interest savings of about $9 million.

CBRE expects an improvement in Macau-wide gross gaming revenue in the third quarter to help stabilize Melco’s margins. The brokerage described the company’s deleveraging path as “delayed, not derailed.”