The Bellagio. Photo by Shutterstock.

LAS VEGAS—Blackstone Real Estate Income Trust has struck a joint venture deal with MGM Resorts International to acquire the Bellagio for $4.25 billion, and lease it back to a subsidiary of MGM Resorts for initial annual rent of $245 million. MGM Resorts will receive a 5% equity interest in the joint venture and $4.2 billion in cash. The transaction is expected to close in the fourth quarter of 2019, subject to certain closing conditions.

Concurrently, MGM also announced it is selling Circus Circus for $825 million to Treasure Island owner Phil Ruffin.

MGM Resorts will use the proceeds from the two transactions "to build a fortress balance sheet and return capital to shareholders," said Jim Murren, chairman and CEO of MGM Resorts International, in prepared remarks. "By the end of 2020 we intend to have domestic net financial leverage at our operating properties of approximately 1x," he added.

This deal is illustrative of a relatively new trend in the casino hotel industry in which owners sell off their real estate and remain as operators. MGM Resorts, for example, says it is evolving its model away from a brick & mortar real estate business towards being a developer, manager and operator of leading gaming, hospitality and entertainment properties. Between the Bellagio transaction and the pending Circus Circus sale, MGM Resorts is expecting to receive gross proceeds of $5 billion and estimated net cash proceeds of $4.3 billion.

It still owns the MGM Grand, MGM Springfield, its 50% stake in CityCenter and its 68% economic ownership in MGM Growth Properties. MGM Resorts "anticipates opportunistically monetizing and/or unlocking value from the abovementioned remaining real estate portfolio in a measured manner that maximizes value creation for its shareholders and broader constituents," it said in a statement.

The iconic Bellagio has more than 3,900 rooms and 155,000 square feet of casino space. Blackstone Real Estate has a deep history in the Las Vegas real estate market across many asset classes including office, hospitality and residential.

Weil, Gotshal & Manges LLP served as legal counsel to MGM Resorts and PJT Advisors and J.P. Morgan served as financial advisors to MGM Resorts. Citigroup Global Markets Inc. and Morgan Stanley & Co served as financial advisors to BREIT. Morgan Stanley & Co, J.P. Morgan, and Citigroup Global Markets Inc. served as BREIT's financing advisors. Simpson Thacher & Bartlett LLP served as legal counsel to BREIT.