Melco Resorts & Entertainment Stock

Melco Resorts & Entertainment Limited is a developer, owner and operator of integrated resort facilities in Asia and Europe. The company is a subsidiary of Melco International Development Limited.

The company has three major casino-based operations in Macau, namely, City of Dreams, Altira Macau and Studio City, and non-casino based operations in Macau at the company’s Mocha Clubs. In Macau, as of March 30, 2023, the company was finalizing the licensing procedures of the Phase 2 project for the land of Studio City. The company also has a casino-based operation in the Philippines, City of Dreams Manila. In 2019, the company expanded its footprint outside of Asia and into Europe following the company’s acquisition of a 75% equity interest in ICR Cyprus, which owns the City of Dreams Mediterranean development and operates other casinos in Cyprus.

The company’s operations are designed to cater to a broad spectrum of gaming patrons, from high-stakes rolling chip gaming patrons to gaming patrons seeking a broader entertainment experience. The company owns and operates five Forbes Travel Guide Five-Star hotels in Asia — Altira Macau, Studio City’s Star Tower, Morpheus and Nüwa in both Macau and Manila — and received 17 Forbes Travel Guide Five-Star and three Forbes Travel Guide Four-Star recognitions across the company’s properties in 2023. The company seeks to attract patrons throughout Asia, Europe and, in particular, from Greater China.

In the Philippines, Melco Resorts Leisure, a subsidiary of MRP, operates and manages City of Dreams Manila, an integrated resort in the Entertainment City complex in Manila.

In Cyprus, Integrated Casino Resorts, a wholly-owned subsidiary of ICR Cyprus, operates and manages the company’s Cyprus casinos.

Major Existing Operations

City of Dreams

City of Dreams is an integrated resort in Cotai, Macau, which opened in June 2009. City of Dreams is a premium-focused property, targeting high-end customers and rolling chip players from regional markets across Asia. Excluding gaming tables and gaming machines that were not in operation due to government-mandated closures or social distancing measures in relation to COVID-19 outbreaks, City of Dreams had an average of approximately 447 gaming tables and approximately 677 gaming machines in 2022, compared to an average of approximately 511 gaming tables and approximately 572 gaming machines in 2021 and an average of approximately 496 gaming tables and approximately 487 gaming machines in 2020.

The resort brings together a collection of brands to create an experience that appeals to a broad spectrum of visitors from around Asia. Morpheus offers approximately 780 rooms, suites and villas. Nüwa, which was under renovation since early 2020 and re-opened at the end of March 2021 offers approximately 290 guest rooms and the Grand Hyatt Macau hotel offers approximately 760 guest rooms. In addition, City of Dreams includes approximately 40 restaurants and bars, approximately 170 retail outlets, a wet stage performance theater, recreation and leisure facilities, including health and fitness clubs, swimming pools, spas and salons and banquet and meeting facilities. The Para nightclub which replaced Club Cubic offers approximately 2,232 square meters (equivalent to approximately 24,025 square feet) of live entertainment space. SOHO, a lifestyle entertainment and dining precinct located on the second floor of City of Dreams, offers customers a wide selection of food and beverage and other non-gaming offerings. The wet stage performance theater with approximately 2,000 seats features The House of Dancing Water (temporarily closed since June 2020) is expected to re-open in 2024. The Countdown will undergo renovations as part of its rebranding.

The Dancing Water Theater, a wet stage performance theater with approximately 2,000 seats, features the internationally acclaimed and award-winning water-based extravaganza, The House of Dancing Water. The House of Dancing Water is the live entertainment centerpiece of the overall leisure and entertainment offering at City of Dreams and highlights City of Dreams as an innovative entertainment-focused destination, strengthening the overall diversity of Macau as a multi-day stay market and one of Asia’s premier leisure and entertainment destinations. The House of Dancing Water incorporates costumes, sets and audio-visual special effects and showcases an international cast of performance artists. The House of Dancing Water has been temporarily closed since June 2020 and is expected to re-open in 2024.

Altira Macau

Since the third quarter of 2021, Altira Macau has strategically repositioned to cater to the premium mass segment and has shut down VIP rolling chip operations. Prior to that, Altira Macau was designed to provide a casino and hotel experience that catered to Asian rolling chip customers. Excluding gaming tables and gaming machines that were not in operation due to government-mandated closures or social distancing measures in relation to COVID-19 outbreaks, Altira Macau had an average of approximately 93 gaming tables and 146 gaming machines operated under the brand Mocha Club at Altira Macau in 2022, compared to an average of approximately 101 gaming tables and 121 gaming machines operated under the brand Mocha Club at Altira Macau in 2021 and an average of approximately 97 gaming tables and 110 gaming machines operated under the brand Mocha Club at Altira Macau in 2020. Altira Macau has a multi-floor layout comprising various gaming areas. The company’s multi-floor layout allows the company the flexibility to reconfigure Altira Macau’s gaming areas to meet the changing demands of the company’s patrons and target specific customer segments.

The company considers Altira hotel, located within the 38-story Altira Macau, to be one of the leading hotels in Macau as evidenced by its long-standing Forbes Travel Guide Five-Star recognition. The top floor of the Altira hotel serves as the hotel lobby and reception area, providing guests with views of the surrounding area. The Altira hotel comprised approximately 220 guest rooms, including suites and villas, as of December 31, 2022. A number of restaurants and dining facilities are available at Altira Macau, including a leading Italian restaurant, Aurora, several Chinese and international restaurants and several bars. Altira hotel also offers several non-gaming amenities, including a spa, gymnasium, outdoor garden podium and sky terrace lounge. In 2020, Altira Macau achieved the Sharecare Health Security VERIFIED with Forbes Travel Guide certification.

Altira Macau offers a luxurious hotel experience with its internationally acclaimed accommodation and guest services.

Studio City

Studio City is a large-scale cinematically-themed integrated resort which opened in October 2015. The gaming operations of Studio City are focused on the mass market and target all ranges of mass market patrons. The mass market focus of Studio City Casino is complemented with VIP rolling chip operations. Melco Resorts Macau has 250 gaming tables, including 15 tables for VIP rolling chip operations, and 552 gaming machines available for operation at the Studio City Casino pursuant to the Studio City Casino Agreement. Excluding gaming tables and gaming machines that were not in operation due to government-mandated closures or social distancing measures in relation to COVID-19 outbreaks, Studio City Casino had an average of approximately 277 gaming tables and 700 gaming machines in operation in 2022, compared to an average of approximately 290 gaming tables and 645 gaming machines in operation in 2021 and an average of approximately 282 gaming tables and 586 gaming machines in operation in 2020.

Studio City also includes luxury hotel offerings and various entertainment, retail and food and beverage outlets to attract a diverse range of customers. Designed to focus on the mass market segment, Studio City offers cinematically-themed, unique and innovative interactive attractions, including the world’s first figure-8 Ferris wheel, a deluxe night club and karaoke, a 5,000-seat multi-purpose live performance arena and an outdoor water park, as well as approximately 1,600 luxury hotel rooms, various food and beverage outlets and approximately 34,400 square meters of themed and complementary retail space.

In addition to its diverse range of gaming and non-gaming offerings, Studio City is strategically located in the Cotai region of Macau.

As of March 30, 2023, the company was finalizing the licensing procedures of the Phase 2 project for Studio City. The company’s subsidiary Melco Resorts Macau operates the gaming areas of Studio City pursuant to the Studio City Casino Agreement. Melco Resorts Macau is reimbursed for the costs incurred in connection with its operation of Studio City’s gaming areas.

Mocha Clubs

Mocha Clubs comprise the largest non-casino based operations of electronic gaming machines in Macau. Excluding gaming machines that were not in operation due to government-mandated closures or social distancing measures in relation to COVID-19 outbreaks, Mocha Clubs had an average of approximately 935 gaming machines in operation (excluding approximately 146 gaming machines at Altira Macau) in 2022. According to the DICJ, there was a total of 10,775 slot machines in the Macau market as of December 31, 2022. Mocha Clubs focus on general mass market players, including day trip customers, outside the conventional casino setting. The company operates Mocha Clubs at leased or sub-leased premises or under right-to-use agreements.

The Mocha Club gaming facilities offer both electronic gaming machines, including stand-alone machines, stand-alone progressive jackpot machines and linked progressive jackpot machines with a variety of games, and electronic table games which feature fully-automated multi-player machines with roulette, baccarat and sic-bo, a traditional Chinese dice game.

In addition to the Mocha Clubs, the company operates the Grand Dragon Casino, which focuses on mass market table games. The company operates Grand Dragon Casino under a right-to-use agreement. Excluding gaming tables that were not in operation due to government-mandated closures or social distancing measures in relation to COVID-19 outbreaks, Grand Dragon Casino had an average of approximately 25 gaming tables in 2022.

City of Dreams Manila

City of Dreams Manila is one of the leading integrated tourism resorts in the Philippines. The property is located on an approximately 6.2-hectare site at the gateway of Entertainment City’s Manila Bay area in the city of Paranaque and is part of the Aseana City township development. It is close to Metro Manila’s international airport terminals and central business districts. City of Dreams Manila opened in December 2014 and represented the company’s first entry into an entertainment and gaming market outside of Macau and an incremental source of earnings and cash flow outside of Macau.

The property’s total gross floor area is approximately 312,000 square meters (equivalent to approximately 3.4 million square feet). The company is authorized by PAGCOR to operate up to approximately 2,300 slot machines, 1,200 electronic gaming tables and 380 gaming tables. Excluding gaming tables and gaming machines that were not in operation due to government-mandated closures or social distancing measures in relation to COVID-19 outbreaks, City of Dreams Manila had an average of approximately 2,266 gaming machines and 274 gaming tables in 2022.

City of Dreams Manila has three hotels: Nüwa Manila, Nobu Hotel and Hyatt Regency Manila, City of Dreams Manila, with 939 rooms in aggregate. Exciting entertainment venues characterize the luxurious integrated resort: DreamPlay, the world’s first DreamWorks-inspired family entertainment center, which officially opened in June 2015; and CenterPlay, a lounge at the center of the main gaming floor which features live band performances from late afternoons. City of Dreams Manila also features The Shops at the Boulevard, a spacious retail strip where luxury retail shops that provide a broad range of choices are juxtaposed with exciting food and beverage outlets. Impressive regional and international specialty restaurants and bars, spas, gyms, and a multi-level car park are also available for guests.

City of Dreams Manila has been recognized for its warm hospitality for its guests, impressive dining options and luxurious spaces.

Melco Resorts Leisure operates the casino business of City of Dreams Manila in accordance with the terms of the Philippine License and the operating agreement between Melco Resorts Leisure and the Philippine Parties dated March 13, 2013. Under the operating agreement, PremiumLeisure and Amusement, Inc. (a member of the Philippine Parties) has the right to receive monthly payments from Melco Resorts Leisure, based on the performance of gaming operations of City of Dreams Manila, and Melco Resorts Leisure has the right to retain all revenues from non-gaming operations of City of Dreams Manila. The operating agreement was amended on March 22, 2021 where the monthly payments paid or payable by Melco Resorts Leisure from 2019 to 2022 have been adjusted to recognize the suspension of operations of City of Dreams Manila in 2020 due to COVID-19 outbreaks and the related disruptions to its operations since COVID-19 outbreaks.

Cyprus Operations

The company operates and manage a temporary casino in Limassol and three satellite casinos in Nicosia, Ayia Napa and Paphos in Cyprus. The company’s satellite casino in Larnaca, which opened in 2018, ceased operations in June 2020. The temporary casino, with a gaming area of approximately 4,600 square meters (equivalent to approximately 49,500 square feet), was the first licensed casino in Cyprus when it opened in June 2018. The company is also developing City of Dreams Mediterranean, an integrated resort project in Cyprus which, upon opening, is expected to be the largest and premier integrated resort in Europe. The company expects to (and are required to, pursuant to the terms of the Cyprus License) cease operations of the temporary casino when the City of Dreams Mediterranean project is launched while the satellite casinos are expected to continue to operate. The company’s operations in Cyprus represent the company’s first entry into an entertainment and gaming market in Europe. Under the terms of the Cyprus License, the company has been granted the right to develop, operate and maintain an integrated casino resort in Limassol, Cyprus (and until the operation of such integrated casino resort, the operation of a temporary casino in Limassol) and up to four satellite casino premises in Cyprus, for a term of 30 years from the date of grant on June 26, 2017 and with the right for exclusivity in Cyprus for the first 15 years of the term. The company’s Cyprus casino operations were closed from January 1, 2021 to May 16, 2021 due to government-imposed COVID-19 restrictions. Excluding gaming tables and gaming machines that were not in operation due to government-mandated closures or social distancing measures in relation to COVID-19 outbreaks, the company’s facilities in Cyprus had an average of approximately 35 gaming tables and 454 gaming machines in 2022.

The company acquired a 75% equity interest in ICR Cyprus from Melco International, the company’s parent company, in July 2019. The remaining 25% equity interest in ICR Cyprus is owned by The Cyprus Phassouri (Zakaki) Limited.

Development Projects

In Macau, construction of the company’s Phase 2 project at Studio City has been completed. This project at Studio City consists of two hotel towers with 895 rooms, suites and villas. It also contains a waterpark with indoor and outdoor areas. Other attractions expected to be part of the project include MICE space, retail and food and beverage outlets and a cineplex.

As of March 30, 2023, the company was finalizing the licensing procedures of the Phase 2 project of Studio City. The company anticipates opening the first stage of the Phase 2 project in the second quarter of 2023 and the second stage in the third quarter of 2023. The first stage of opening is expected to include one of the hotel towers and the indoor water park.

In Cyprus, the company is developing the City of Dreams Mediterranean project. Under the company’s plan, the project is expected to consist of a five-star hotel tower with more than 500 luxury hotel rooms, approximately 10,000 square meters of MICE space, an outdoor amphitheater, a family adventure park and a variety of fine-dining restaurants and luxury retail.

In addition to the development projects noted above, the company continually seeks new opportunities for additional gaming or related businesses in Macau and in other countries and will continue to target the development of a project pipeline in order to expand the company’s footprint in countries which offer legalized casino gaming. In defining and setting the timing, form and structure for any future development, the company focuses on evaluating alternative available financing, market conditions and market demand. In order to pursue these opportunities and such development, the company has incurred and will continue to incur capital expenditures at the company’s properties and for the company’s projects.

Advertising and Marketing

The company seeks to attract customers to its properties and to grow the company’s customer base over time by undertaking several forms of advertising, sales and marketing activities and plans. The company utilizes local and regional media to publicize and promote the company’s projects and operations. The company has built public relations and marketing and branding teams that cultivate media relationships, promote the company’s brands and explores media opportunities in various markets. The company uses a variety of media platforms that include social media, digital, print, television, online, outdoor, on collaterals and direct mail pieces.

Customers

The company seeks to cater to a broad range of customers through the company’s diverse gaming and non-gaming facilities and amenities across the company’s operating properties.

Non-Gaming Patrons

City of Dreams offers visitors to Macau an array of multi-dimensional entertainment amenities, four hotels, as well as a selection of restaurants, bars and retail outlets. Since the third quarter of 2021, Altira Macau has strategically repositioned to cater to the premium mass segment. Mocha Clubs are targeted to deliver a relaxed, cafe-style non-casino based electronic gaming experience. Studio City is designated to primarily target mass market guests through its vast array of non-gaming amenities and entertainment attractions.

City of Dreams Manila features different entertainment venues: DreamPlay, a family entertainment center which features activities catering to children aged four and above, and CenterPlay, a live performance central lounge within the casino. With these diverse entertainment venues and attractions, City of Dreams Manila will be able to leverage on the experiences of City of Dreams in Macau, which has developed world-class attractions, such as The House of Dancing Water.

The company’s Cyprus casinos do not specifically target non-gaming patrons but do offer a selection of food and beverage options at the premises. The company plans to focus on attracting non-gaming patrons at the City of Dreams Mediterranean when it opens.

Gaming Patrons

The company’s gaming patrons include table game rolling chip players, table game mass market players and gaming machine players.

Mass market players are non-rolling chip players who come to the company’s properties for a variety of reasons, including the company’s high-quality hotel brands, the company’s broad dining options and a variety of other non-gaming attractions and activities.

Rolling chip players at the company’s casinos are patrons who participate in the company’s in-house rolling chip programs or, in some cases, in the rolling chip programs of gaming promoters, if any. The company’s rolling chip players or premium direct players play mostly in the company’s VIP rooms or designated gaming areas and can earn a variety of gaming-related rebates, such as cash, rooms, food and beverage and other complimentary products or services.

Gaming Promoters

A portion of the company’s rolling chip play in Macau in past years was brought to the company by gaming promoters, also known as junket operators. In December 2021, the company terminated its arrangements with all gaming promoters in Macau, including at the Studio City Casino. Gaming promoters in Macau are independent third parties that include both individuals and corporate entities, all of which are officially required to be licensed by the DICJ. The company may engage gaming promoters in Macau in the future.

The company continues to work with gaming promoters in Cyprus and the Philippines. In Cyprus, there are two licensed gaming promoters, although only one of them is active.

The company has procedures to screen prospective gaming promoters prior to their engagement and conduct periodic checks that are designed to ensure that the gaming promoters with whom the company associates meet suitability standards.

In the Philippines, the company’s gaming promoters are compensated through commission arrangements that are calculated on a monthly or a per trip basis.

The company conducts, and expects to continue to conduct, its table gaming activities at the company’s casinos on a credit basis, as well as a cash basis.

Seasonality

Macau, the company’s principal market of operation, experiences many peaks and seasonal effects. The ‘Golden Week’ and ‘Chinese New Year’ holidays are in general the key periods where business and visitation increase considerably in Macau. In the Philippines, business considerably slows down during the ‘Holy Week,’ as well as during the ‘Chinese New Year’ and the ‘Chinese Ghost Month.’ In Cyprus, summer is generally the key period where business and visitation experience significant increase, while business considerably slows down during winter.

Intellectual Property

The company has applied for and/or registered certain trademarks, including ‘Melco,’ ‘Morpheus,’ ‘Altira,’ ‘Mocha Club,’ ‘City of Dreams,’ ‘Nüwa,’ ‘The Countdown,’ ‘The House of Dancing Water,’ ‘City of Dreams Manila,’ ‘Studio City,’ ‘Melco Resorts Philippines’ and ‘Melco Resorts & Entertainment’ in Macau, the Philippines, Cyprus and/or other jurisdictions. The company has also applied for or registered in Macau, the Philippines, Cyprus and other jurisdictions certain other trademarks and service marks used or to be used in connection with the operations of the company’s hotel casino projects in Macau, Manila and Cyprus.

Regulations

The company has developed a comprehensive anti-money laundering policy and related procedures covering the company’s anti-money laundering responsibilities, which have been approved by the DICJ, and has training programs in place to ensure that all relevant employees understand such anti-money laundering policy and procedures. The company also uses an integrated IT system to track and automatically generate significant cash transaction reports and, as permitted by the DICJ and the Macau Finance Information Bureau, submit those reports electronically.

The company’s subsidiaries incorporated in Macau are subject to local intellectual property regulations. Intellectual property protection in Macau is supervised by the Intellectual Property Department of the Economic and Technological Development Bureau of the Macau government.

Under Article 2 of Administrative Regulation no. 7/2006 (as amended pursuant to Administrative Regulation no. 17/2017) and the DICJ Instruction no. 1/2016 (as amended pursuant to DICJ Instruction no.1/2019), the company is required to track and report transactions and granting of credit that are of MOP500,000 (equivalent to approximately US$62,159) or above.

In conjunction with gaming laws and regulations, the company is required to comply with the laws and regulations relating to anti-money laundering activities in Macau. Law no. 2/2006 (as amended pursuant to Law no. 3/2017), the Administrative Regulation no. 7/2006 (as amended pursuant to Administrative Regulation no. 17/2017) and the DICJ Instruction no. 1/2016 in effect from May 13, 2016 (as amended pursuant to DICJ Instruction no. 1/2019), govern the company’s compliance requirements with respect to identifying, reporting and preventing anti-money laundering and terrorism financing crimes at the company’s casinos in Macau.

Processing of personal data by the company’s subsidiaries in Macau is subject to compliance with the Personal Data Protection Act (Law no. 8/2005), in the case of Melco Resorts Macau, any instructions issued by DICJ from time to time.

The FCPA prohibits the company and its employees and agents from offering or giving money or any other item of value to win or retain business or to influence any act or decision of any foreign official.

Competition

City of Dreams Manila, however, presently faces stronger competition in the Philippine market from hotels and resorts owned by both Philippine nationals and foreigners, including many of the largest gaming, hospitality, leisure and resort companies in the world, such as Travellers International Hotel Group, Inc., Bloomberry Resorts Corporation and Tiger Resorts Leisure and Entertainment Inc. as well as the Philippine Amusement and Gaming Corporation, an entity owned and controlled by the government of the Philippines, which operates certain gaming facilities across the Philippines.

History

The company was founded in 2004. It was incorporated in 2004 as an exempted company with limited liability under the laws of the Cayman Islands and registered as an oversea company under the laws of Hong Kong in 2006. It was formerly known as Melco PBL Entertainment (Macau) Limited and changed its name to Melco Crown Entertainment Limited in 2008. Further, the company changed its name to Melco Resorts & Entertainment Limited in 2017.