Blackstone Inc. has reached an agreement to sell the Cosmopolitan casino and hotel on the Las Vegas Strip for $5.65 billion, the company said on Monday, and told investors in a private letter that the sale is the company’s most profitable of a single asset ever.

Blackstone acquired the two-tower property for about $1.8 billion seven years ago and spent an additional $500 million on upgrades, including renovating the nearly 3,000 guest rooms, building luxury suites and adding new restaurants and bars.

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Blackstone Inc. has reached an agreement to sell the Cosmopolitan casino and hotel on the Las Vegas Strip for $5.65 billion, the company said on Monday, and told investors in a private letter that the sale is the company’s most profitable of a single asset ever.

Blackstone acquired the two-tower property for about $1.8 billion seven years ago and spent an additional $500 million on upgrades, including renovating the nearly 3,000 guest rooms, building luxury suites and adding new restaurants and bars.

Total profits after the sale would be about $4.1 billion, including cash flow from the property’s operations, according to a Blackstone letter to fund investors reviewed by The Wall Street Journal. The company made back nearly 10 times the amount of equity it invested in the Cosmopolitan, the letter said.

The deal separates ownership of the property from the hotel and casino operations, which are being sold to MGM Resorts International for $1.625 billion, MGM said. A partnership that includes a Blackstone real-estate investment trust is acquiring the property for about $4 billion, according to the Blackstone investor letter.

The buyers’ group also includes Stonepeak Partners, an infrastructure-focused investment company, and the Cherng Family Trust, a Las Vegas-based family office for the founders of the Panda Restaurant Group, Blackstone said.

The deal marks the latest in a flurry of real-estate sales activity on the Las Vegas Strip, as casino operators look to raise cash for growing operations like sports betting and entertainment by selling their real estate.

In August, real estate owner Vici Properties Inc. agreed to buy MGM Growth Properties in a deal that values the casino real-estate owner at $17.2 billion, including debt. MGM Resorts previously spun off MGM Growth Properties and still controls the REIT, whose Las Vegas properties include Mandalay Bay, Luxor and MGM Grand Las Vegas.

Earlier this year, Las Vegas Sands Corp. agreed to sell its Las Vegas properties to Apollo Global Management Inc. and a real-estate investment trust for about $6.25 billion. The first new megacasino on the Strip in more than a decade, the $4.3 billion Resorts World, also opened over the summer.

“Vegas has had a strong recovery coming out of the pandemic and solidified itself as a diversified entertainment destination,” said Tyler Henritze, Blackstone’s head of acquisitions for the Americas.

Pointing to the new professional sports franchises like the Raiders football team and new entertainment venues from MGM, Mr. Henritze added, “it’s not just about gaming anymore.”

Las Vegas tourism has climbed back steadily this year, despite concerns over the Delta variant. In July, more than 3.3 million people visited Las Vegas, about 90% of pre-pandemic visitation for the same month in 2019. Casinos have brought back dining, including buffets, and entertainment, even as state officials restored an indoor mask mandate for areas with high rates of Covid-19 transmission, including Las Vegas.

But worries over the pandemic are still damping the convention business, which drives much of the hospitality economy in Las Vegas. Earlier this month, the National Association of Broadcasters, which brought more than 90,000 attendees to Las Vegas in 2019, canceled its October show, citing the pandemic and the Delta variant. The group delayed the event until April 2022.

The Cosmopolitan was one of the most high-profile real-estate flops during the boom years leading up to the 2008 market crash. Deutsche Bank took ownership after developer Ian Bruce Eichner defaulted. The German bank sunk around $4 billion into the Cosmopolitan, first as a lender and then as an owner after it took over the property.

Blackstone acquired the Cosmopolitan in 2014 from Deutsche Bank and began pumping money into a hotel that was charging some of the highest room rates on the Strip with a casino ranked near the bottom in terms of revenue.

The company converted the unfinished top four floors of the hotel’s 52-story east tower into luxury suites geared toward Asian gamblers and other high rollers. To attract a younger crowd, Blackstone added 18 new bars and restaurants. Blackstone also brought in a new management team, resolved a pending labor dispute with the previous owner, opened up the gaming floor and increased the sports-betting business.

The hotel was nearly 87% occupied for the month of September through Friday, with average daily room rates at $448, according to Blackstone.

The Cosmopolitan was the first major operating casino on the Strip to hit the market in more than a decade, when Blackstone began exploring a sale in 2019. At the time, Blackstone was hoping for about $4 billion for the independently run casino and hotel but with Las Vegas bouncing back was able to exceed the company’s initial expectations.

Blackstone still has holdings in Las Vegas, including ownership stakes in other Strip casinos and industrial portfolio. “We certainly still have a bullish view on Vegas,” Mr. Henritze said.

—Katherine Sayre contributed to this article.

Write to Craig Karmin at craig.karmin@wsj.com