1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(Mark One)

(X)      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended               March 31, 2000

OR

( )      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to __________

Commission file number 1-9516

AMERICAN REAL ESTATE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)

Delaware                                 13-3398766                                                         
(State or other jurisdiction of                (I.R.S. Employer
incorporation or organization)               Identification No.)

100 SOUTH BEDFORD ROAD, MT. KISCO, NY                 10549
(Address of principal executive offices)            (Zip Code)

(Registrant's telephone number,
including area code)                            (914) 242-7700

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months 

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AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.                                                 Yes   /X/   No / /

INDEX

PART I.  FINANCIAL INFORMATION

ITEM 1.           FINANCIAL STATEMENTS                                                 PAGE NO.

Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 ..........................................           1-2

Consolidated Statements of Earnings -                                                    
Three Months Ended March 31, 2000 and 1999.....................................           3-4

Consolidated Statement of Changes In                                                     
Partners' Equity and Comprehensive Income                                                
Three Months Ended March 31, 2000..............................................             5

Consolidated Statements of Cash Flows -                                                  
Three Months Ended March 31, 2000 and 1999.....................................           6-7

Notes to Consolidated Financial Statements.....................................             8

ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS                                   
OF FINANCIAL CONDITION AND RESULTS OF                                  
OPERATIONS...................................................            15

ITEM 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT                          
MARKET RISKS.................................................            22                     

PART II.  OTHER INFORMATION.............................................................            22

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AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

The financial information contained herein is unaudited; however, in the opinion
of management, all adjustments necessary for a fair presentation of such
financial information have been included. All such adjustments are of a normal
recurring nature.

CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in $000'S)

MARCH 31,       DECEMBER 31,
2000              1999
----------       ----------
(Restated)

ASSETS

Real estate leased to others:
Accounted for under the financing
method                                         $  214,706       $  223,391
Accounted for under the operating
method, net of accumulated
depreciation                                       186,032          152,086
Investment in treasury bills                            439,212          468,529
Mortgages and notes receivable:
Held for investment                                   43,757           45,005
Available for sale                                    32,976           33,347
Cash and cash equivalents                               118,718          142,697
Land and construction-in-progress                        96,280           99,043
Hotel, casino and resort operating properties,
net of accumulated depreciation:
Stratosphere Hotel and Casino                      108,411          111,151
Hotel and resort                                    30,639           30,678
Receivables and other assets                             52,673           58,934
----------       ----------

Total                                             $1,323,404       $1,364,861
==========       ==========

Continued.....

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AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

CONSOLIDATED BALANCE SHEETS - CONTINUED
(Unaudited)
(in $000'S)

MARCH 31,         DECEMBER 31,
2000               1999       
-----------        -----------
(Restated)
LIABILITIES

Mortgages payable                              $   176,460        $   179,387
Due to affiliates                                   40,546             32,876
Accounts payable, accrued
expenses and other liabilities                   60,150             56,983
-----------        -----------

Total liabilities                               277,156            269,246
-----------        -----------

Minority interest in Stratosphere Hotel 
and Casino                                       64,058             66,307
-----------        -----------

Commitments and Contingencies
(Notes 3 and 4)

PARTNERS' EQUITY

Limited partners:
Preferred units, $10 liquidation
preference, 5% cumulative pay-
in-kind redeemable; 9,400,000
authorized; 8,463,459 and 8,060,437
issued and outstanding as of
March 31, 2000 and Dec. 31, 1999               84,635             83,627

Depositary units; 47,850,000
authorized; 47,235,484
outstanding                                   888,183            876,760

General partner                                     21,293             80,842

Treasury units at cost:
1,137,200 depositary units                      (11,921)           (11,921)
-----------        -----------

Total partners' equity                        982,190          1,029,308
-----------        -----------

Total                                   $ 1,323,404        $ 1,364,861
===========        ===========

See notes to consolidated financial statements

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AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in $000'S except per unit data)

THREE MONTHS ENDED MARCH 31, 
2000            1999
--------        --------
(Restated)

Revenues:
Stratosphere Hotel and
Casino operating income                         $ 34,004        $ 33,915
Land, house and condominium sales                  18,809          13,141
Hotel and resort operating income                   3,764           2,558
Interest income on financing leases                 5,272           5,793
Interest income on treasury
bills and other investments                        7,907           5,039
Rental income                                       5,257           4,994
Dividend and other income                             354           4,084
--------        --------
75,367          69,524
--------        --------
Expenses:
Stratosphere Hotel and
Casino operating expenses                         30,024          29,571
Cost of land, house and condominium sales          14,161          10,015
Hotel and resort operating expenses                 4,460           2,738
Interest expense                                    3,933           5,111
Depreciation and amortization                       3,637           3,728
General and administrative expenses                 2,024           2,018
Rental property expenses                              804             728
Bayswater acquisition costs                         1,650              -- 
--------        --------
60,693          53,909
--------        --------
Earnings before property transactions
and minority interest in subsidiary                14,674          15,615
Provision for loss on real estate                        --            (227)
Gain on sales and disposition of real estate            997           1,889
Minority interest in net earnings of
Stratosphere Hotel and Casino                        (973)         (1,091)
--------        --------

NET EARNINGS                                       $ 14,698        $ 16,186
========        ========

Continued...........

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AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000
Continued.....

CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in $000'S except per unit data)

THREE MONTHS ENDED MARCH 31, 
2000              1999
-----------       -----------
(Restated)

Net earnings attributable to: (Note 7)
Limited partners                                   $    12,976       $    14,516
General partner                                          1,722             1,670
-----------       -----------
$    14,698       $    16,186
===========       ===========
Net earnings per limited partnership unit:
Basic earnings                                     $       .26       $       .29
===========       ===========
Weighted average limited partnership
units outstanding                                   46,098,284        46,098,284
===========       ===========

Diluted earnings                                   $       .23       $       .26
===========       ===========
Weighted average limited partnership units
and equivalent partnership units outstanding        57,064,012        54,886,567
===========       ===========

See notes to consolidated financial statements

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AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' EQUITY
AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
(in $000'S)

General        Limited Partners' Equity                          Total
------------------------- 
Partner's       Depositary      Preferred       Held in         Partners'
Equity           Units           Units        Treasury           Equity   
---------       ----------      ---------      --------        -----------

Balance Dec. 31, 1999
as previously reported       $ 19,500        $ 876,760        $83,627       $(11,921)       $   967,966
Bayswater acquisition
(Note 7)                       61,342               --             --             --             61,342
--------        ---------        -------       --------        -----------
Balance Dec. 31, 1999          
as restated                  $ 80,842        $ 876,760        $83,627       $(11,921)       $ 1,029,308
Comprehensive income:
Net earnings                    1,722           12,976             --             --             14,698

Unrealized losses on
securities available
for sale                        (11)            (545)            --             --               (556)
--------        ---------        -------       --------        -----------
Comprehensive income              1,711           12,431             --             --             14,142

Net adjustment for
Bayswater acquisition               
(Note 7)                      (62,801)              --             --             --            (62,801)

Capital contribution
(Note 7)                       1,541               --             --             --              1,541

Pay-in-kind
distribution                         --           (1,008)         1,008             --                 -- 
--------        ---------        -------       --------        -----------

Balance
March 31, 2000                 $ 21,293        $ 888,183        $84,635       $(11,921)       $   982,190
========        =========        =======       ========        ===========

Accumulated other comprehensive loss at March 31, 2000 was $7,631.

See notes to consolidated financial statements

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AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in $000'S)

THREE MONTHS ENDED MARCH 31, 
2000            1999
--------        --------
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:

Net earnings                                                        $ 14,698        $ 16,186
Adjustments to reconcile earnings to net
cash provided by operating activities:
Depreciation and amortization                                       3,637           3,728
Gain on sales and disposition of real estate                         (997)         (1,889)
Minority interest in net earnings of Stratosphere Hotel               
and Casino                                                          973           1,091
Provision for loss on real estate                                      --             227
Changes in:
Decrease (increase) in land and
construction-in-progress                                          2,937            (916)
(Increase) decrease in receivables
and other assets                                                   (828)            799
Increase in accounts payable,
accrued expenses and other liabilities                            3,090           1,260
--------        --------

Net cash provided by operating activities                       23,510          20,486
--------        --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in mortgages and notes receivable                  1,419          (3,929)
Net proceeds from the sale and disposition
of real estate                                                       2,039           3,150
Principal payments received on leases
accounted for under the financing method                             1,971           1,977
Acquisition of Bayswater's net assets                                (84,350)             --
Acquisition of rental real estate                                    (27,537)             --
Additions to rental real estate                                       (1,621)           (616)
Additions to hotel casino and resort operating
properties                                                          (1,511)           (253)
Decrease (increase) in investment in treasury bills                   29,316          (9,076)
Investment in Stratosphere Hotel and Casino                           (1,970)             --
Acquisition of marketable equity securities                               --            (611)
Increase in due to affiliate                                          40,974           1,820
Other                                                                    441             130
--------        --------

Net cash used in investing activities                          (40,829)         (7,408)
--------        --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Partners' equity:
Distributions to partners                                              (10)             --
Distributions to
General Partner (Note 7)                                           (4,100)         (1,450)
Debt:
Decrease in mortgages payable                                           --             (87)
Periodic principal payments                                         (2,550)         (2,316)
--------        --------

Net cash used in financing
activities                                                    (6,660)         (3,853)
--------        --------

Continued..............

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AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in $000'S)

THREE MONTHS ENDED MARCH 31, 
2000            1999
---------        --------
(Restated)

NET (DECREASE) INCREASE
IN CASH AND CASH EQUIVALENTS                        (23,979)          9,225

CASH AND CASH EQUIVALENTS,
beginning of period                             142,697          34,014
---------        --------

CASH AND CASH EQUIVALENTS,
end of period                                 $ 118,718        $ 43,239
=========        ========

SUPPLEMENTAL INFORMATION:
Cash payments for interest-net of amount
capitalized                                    $   4,345        $  4,721
=========        ========

SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:

Reclassifications:
From financing lease                           $  (6,730)       $     --
To operating lease                                 6,730              --
From receivables and other assets                     --          (2,169)
To hotel and resort operating properties              --             180
To due to affiliate                                   --           3,221
From accounts payable, accrued expenses
and other liabilities                                --          (1,232)
From hotel and resort operating property              --            (763)
To development property                               --             763
---------        --------

$      --        $     --
=========        ========

See notes to consolidated financial statements

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AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL

The accompanying consolidated financial statements and related footnotes should
be read in conjunction with the consolidated financial statements and related
footnotes contained in the Company's annual report on Form 10-K for the year
ended December 31, 1999. The Company's prior period. Consolidated financial
statements have been restated as described in Note 2b below.

The results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the results to be expected for the full year.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. The consolidated financial statements include the accounts of the Company and
its wholly-owned and majority owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.

b. In March 2000, the Company acquired from affiliates of the General Partner
the assets of Bayswater Realty & Capital Corp. and the ownership interests of
its affiliated entities ("Bayswater"). In accordance with generally accepted
accounting principles, assets and liabilities transferred between entities under
common control are accounted for at historical costs similar to a pooling of
interests, and the financial statements of previously separate companies for
periods prior to the acquisition are restated on a combined basis. Therefore,
the accounts of Bayswater are included in these consolidated financial
statements for the first quarter of 2000 and prior period financial statements
have been restated to include Bayswater.

c. Also in March 2000, the Company purchased an additional 50,000 shares of the
Stratosphere Corp. ("Stratosphere") from an affiliate of the General Partner.
The Company now owns approximately 51% of Stratosphere and has included its
accounts on a consolidated basis for the first quarter of 2000. Prior period
financial statements have been restated to include Stratosphere on a
consolidated basis. 

d. Revenue recognition - Revenue from real estate sales and related costs are
recognized at the time of closing, when title passes to the buyer. The Company
follows the guidelines for profit recognition set forth by Financial Accounting
Standards Board (FASB) Statement No. 66, "Accounting for Sales of Real Estate."

e. Land and construction in progress - These costs are stated at the lower of
cost or net realizable value. Interest is capitalized on expenditures for
long-term projects until a salable condition is reached. The capitalization
rate is based on the interest rate on specific borrowings to fund the projects.

f. Stratosphere Hotel and Casino:

1. The first quarter ended on March 26, 2000. There were no intercompany
transactions during the period from March 27 through March 31, 2000.

2. Casino revenues and promotional allowances - The Company recognizes
revenues in accordance with industry practice. Casino revenue is the net
win from gaming activities (the difference between gaming wins and losses).
Casino revenues are net of accruals for anticipated pay-outs of progressive
and certain other slot machine jackpots. Revenues include the retail value
of rooms, food and beverage and other items that are provided to customers
on a complimentary basis. A corresponding amount is deducted as promotional
allowances.

3. Sales, advertising and promotion - these costs are expensed as incurred.

3.  CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES

a. The Company entered into a license agreement with an affiliate of the General
Partner for a portion of office space at an annual rental of approximately
$205,000, plus its share of certain additional rent. Such agreement was 

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AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

approved by the Audit Committee of the Board of Directors of the General Partner
(the "Audit Committee"). For the three months ended March 31, 2000, the Company
paid rent of approximately $52,000, in accordance with the agreement.

b.  Stratosphere billed affiliates of the General Partner approximately $60,000
for services performed during the first quarter of 2000, which were reimbursed
in April, 2000.

Stratosphere also received hotel revenue of approximately $200,000 in
connection with a tour and travel agreement entered into with an affiliate of
the General Partner.

c.  As of May 11, 2000, affiliates of Carl C. Icahn ("Icahn"), the Chairman of
the Board of the General Partner, own 7,322,873 Preferred Units and 39,359,836
Depositary Units.

4.  COMMITMENTS AND CONTINGENCIES

a.  On April 7, 2000, Skyway Freight Systems ("Skyway"), a tenant in a
multi-tenanted industrial complex located in Hebron, Kentucky owned by the
Company, filed a voluntary petition for reorganization under Chapter 11 of the
Federal Bankruptcy Code. Skyways annual rental is approximately $774,000. The
tenant is current under the terms of the lease and has not yet exercised its
right to affirm or reject the lease.

b.  Stratosphere Corp. is involved in litigation regarding rental of its retail
space which is presently leased at approximately $1 million per annum. The
plaintiff is seeking to offset damages against the rent.

5.  HOTEL, CASINO AND RESORT OPERATING PROPERTIES

a.  Stratosphere Hotel and Casino 

Stratosphere Corp. ("Stratosphere") owns and operates the Stratosphere Tower
Casino & Hotel, a resort complex located in Las Vegas, Nevada.

On March 24, 2000, the Company purchased from an affiliate of the General
Partner an additional 50,000 shares of the common stock of Stratosphere for
approximately $2 million. The Company now owns approximately 51% of the issued
and outstanding shares of the common stock of Stratosphere. The Company and an
affiliate of the General Partner, which own approximately 90% of Stratosphere,
submitted an offer to the Board of Directors of Stratosphere to acquire the
minority interests. The offer has not been accepted, however, further
discussions are scheduled.

For accounting purposes, the Company has consolidated Stratosphere in the
accompanying financial statements and prior period financial statements have
been restated to include Stratosphere on a consolidated basis.

Stratosphere's operations for the three months ended March 31, 2000 and 1999
have been included in "Stratosphere Hotel and Casino operating income and
expenses" in the Consolidated Statements of Earnings. Stratosphere Hotel and
Casino operating expenses include all expenses except for approximately
$2,090,000 and $2,225,000 of depreciation and amortization for the three months
ended March 31, 2000 and March 31, 1999, respectively. Such amounts have been
included in "Depreciation and amortization expense" in the Consolidated
Statements of Earnings.

b.  Hotel, Casino and Resort Operating Properties

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AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

On August 1, 1998, the Company acquired the New Seabury resort located in Cape
Cod, Massachusetts.

Since August 1992, the Company has operated a Holiday Inn located in Miami,
Florida, subject to a ground lease. In April 1999, the Company acquired the
underlying land for approximately $1.9 million.

Hotel and resort operations for the three months ended March 31, 2000 have been
included in "Hotel and resort operating income and expenses" in the Consolidated
Statements of Earnings. Hotel and resort operating expenses include all expenses
except for approximately $455,000 and $333,000 of depreciation and amortization
for the three months ended March 31, 2000 and March 31, 1999, respectively. Such
amounts have been included in "Depreciation and amortization expense" in the
Consolidated Statements of Earnings.

Hotel, casino and resort operations are highly seasonal in nature and are not
necessarily indicative of results expected for the full year.

6.  MORTGAGES AND NOTES RECEIVABLE

a. In March 2000, in accordance with a prior agreement, the Company transferred
its First Mortgage Notes in the Sands Hotel and Casino ("Sands") and the
Claridge Hotel and Casino ("Claridge")to an affiliate of the General Partner in
order to facilitate the bankruptcy reorganizations of the two Atlantic City
casinos. The Company was paid approximately $40.5 million, its cost for such
notes. However, the affiliate of the General Partner is obligated to sell back
to the Company and the Company is obligated to repurchase its interest in the
Sands and/or Claridge, as the case may be, at the same price (together with a
commercially reasonable interest factor) when the appropriate licenses are
obtained by the Company.

For accounting purposes, the Company continues to reflect its interests in the
Sands and Claridge notes as available for sale and has recorded its
corresponding liability to repurchase such interests from the affiliate of the
General Partner.

These investments are carried at fair market value on the Balance Sheet. At
March 31, 2000, unrealized holding losses of $7,631,000 have been recorded in
Partners' Equity and the carrying value of the investments was $32,976,000.

b. In 1998 and 1999, the Company purchased approximately $88 million of senior
debt of Philips Services Corp. and Philip Services (Delaware), Inc.
(collectively "Philips") for approximately $39.6 million and received
approximately $5.6 million as a return of capital.

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AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

In June 1999, Philips filed a voluntary application to reorganize under the
Companies Creditors Arrangement Act with the Ontario Superior Court of Justice
in Toronto, Canada and voluntary petitions under Chapter 11 of the U.S.
Bankruptcy Code in the District of Delaware.

On April 7, 2000, Philip Services Corporation ("New Philips"), the newly
restructured company incorporated in Delaware, emerged from Chapter 11 of the
U.S. Bankruptcy Code and the Companies Creditors' Arrangement Act in Canada.

The reorganization provides for the Company to receive approximately 1.8 million
common shares of New Philips, approximately $29 million in secured and
convertible debt and approximately $1.3 million in cash.

7.  BAYSWATER ACQUISITION

On March 23, 2000, the Company purchased from affiliates of the General Partner,
the net assets of Bayswater Realty & Capital Corp. and the ownership interests
of its affiliated entities ("Bayswater") for approximately $84.35 million.
Bayswater, a real estate investment, management and development company has
focused primarily on the construction and sale of single family homes. The
assets acquired included interests in ten residential subdivisions in New York
and Florida.

The accounts of Bayswater are included in these Consolidated Financial
Statements for the first quarter of 2000 and prior period financial statements
have been restated to include Bayswater. For accounting purposes, earnings and
distributions/dividends prior to the acquisition have been allocated to the
General Partner.

The Bayswater assets acquired and the liabilities assumed have been accounted
for at historical cost. The excess of the historical cost of the net assets over
the amount of cash disbursed, which amounted to $1,541,000, has been accounted
for as a capital contribution by the General Partner. The Company's costs of
$1.65 million related to the Bayswater transaction have been included as
"Bayswater acquisition costs" in the Consolidated Statements of Earnings in the
three months ended March 31, 2000. A reduction of $62,801,000 has been made to
the General Partner's equity as an adjustment for the restatement at December
31, 1999. See Consolidated Statement of Changes in Partners' Equity and
Comprehensive Income. 

8.  SIGNIFICANT PROPERTY TRANSACTIONS

a. On March 30, 2000, the Company acquired a five story multi-tenant office
building located in Alexandria, VA for approximately $27.5 million cash. The
building, which was recently renovated, has approximately 140,000 square feet of
rentable space and is 96% occupied. Lease terms range from 5-12 years with lease
expirations ranging 

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AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

from December 2004 to March 2011. Annual net operating income is anticipated to
be approximately $2.7 million.

b. On March 31, 2000, the Company entered into a lease cancellation and
termination agreement with the Grand Union Company, a tenant in a Mt. Kisco,
N.Y. distribution center owned by the Company. In accordance with the agreement,
the Company paid $1.15 million to the tenant to cancel the lease (which had an
annual rental of approximately $900,000) to obtain control of the property. The
lease cancellation payment has been capitalized in "Real Estate leases accounted
for under the operating method" in the Consolidated Balance Sheet.

At March 31, 2000, the property had a carrying value of approximately $7,880,000
and was encumbered by a mortgage of approximately $4,196,000.

9.  PREFERRED UNITS

Pursuant to the terms of the Preferred Units, on February 23, 2000, the Company
declared its scheduled annual preferred unit distribution payable in additional
Preferred Units at the rate of 5% of the liquidation preference of $10. The
distribution was payable March 31, 2000 to holders of record as of March 15,
2000. A total of 403,022 additional Preferred Units were issued. As of March 31,
2000, 8,463,459 Preferred Units are issued and outstanding.

10. EARNINGS PER SHARE

Basic earnings per share are based on earnings after the preferred pay-in-kind
distribution to Preferred Unitholders. Diluted earnings per share uses net
earnings attributable to limited partner interests as the numerator with the
denominator based on the weighted average number of units and unit equivalents
outstanding. The Preferred Units are considered to be unit equivalents. The
weighted average number of depositary units outstanding for basic earnings per
share purposes for the three months ended March 31, 2000 and 1999 were
46,098,284. The weighted average number of depositary units and equivalent units
assumed outstanding for diluted earnings per share purposes for the three months
ended March 31, 2000 and 1999 were 57,064,012 and 54,886,567 respectively. The
number of limited partnership units used in the calculation of diluted income
per limited partnership unit increased by 10,965,728 and 8,788,283 limited
partnership units for the three months ended March 31, 2000 and 1999,
respectively, to reflect the effects of the conversion of Preferred Units. 

For the three months ended March 31, 2000 and 1999, basic and diluted earnings
per weighted average limited partnership unit are detailed as follows:

Three Months Ended
3/31/00     3/31/99
-------     -------

Basic:
Earnings before property
transactions                 $.24       $.26

Net gain from property
transactions                  .02        .03
----       ----
Net earnings                   $.26       $.29
====       ====
Diluted:
Earnings before property
transactions                 $.21       $.23
Net gain from property
transactions                  .02        .03
----       ----
Net earnings                   $.23       $.26
====       ====

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AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

11.  COMPREHENSIVE INCOME

The Company follows SFAS No. 130 "Reporting Comprehensive Income" which
establishes standards for the reporting and display of comprehensive income and
its components. The components of comprehensive income include net income and
certain amounts previously reported directly in equity.

Comprehensive income for the three months ended March 31, 2000, and 1999 is as
follows (in $000's):

2000            1999
--------        --------

Net income                              $ 14,698        $ 16,186
Unrealized (losses) on securities
available for sale                       (556)        (31,831)
--------        --------
Comprehensive income (loss)             $ 14,142        $(15,645)
========        ========

12. SEGMENT REPORTING

The Company is engaged in five operating segments consisting of the ownership
and operation of (i) rental real estate, (ii) hotel and resort operating
properties, (iii) hotel and casino operating properties, (iv) land sales, house
and condominium development, and (v) investment in securities including
investment in other limited partnerships and marketable equity securities. The
Company's reportable segments offer different services and require different
operating strategies and management expertise.

Non-segment revenue to reconcile to total revenue consists primarily of interest
income on treasury bills and other investments. There have been no material
changes in segment assets since December 31, 1999, after giving effect to the
restatement described in Notes 2b. and c.

The Company assesses and measures segment operating results based on segment
earnings from operations as disclosed below. Segment earnings from operations
are not necessarily indicative of cash available to fund cash requirements nor
synonymous with cash flow from operations.

The revenues and net earnings for each of the reportable segments are summarized
as follows for the three months ended March 31, 2000 and 1999 (in $000's).

13

16
AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

Three Months Ended
3/31/00          3/31/99
--------         --------

Revenues:
Rental real estate                        $10,529          $10,787
Hotel & resort operating properties         3,764            2,558
Hotel & casino operating properties        34,004           33,915
Land, house and condominium sales          18,809           13,141
Other investments                           1,063            4,770
-------          -------

Sub-total                       68,169           65,171

Reconciling items                           7,198(1)         4,353(1)
-------          -------

Total revenues                 $75,367          $69,524
=======          =======

(1) Primarily interest income on T-bills and other short-term investments and
other income.

Three Months Ended
3/31/00         3/31/00
--------        --------

Net earnings:
Segment earnings:
Rental real estate                            $  9,725        $ 10,059
Land, house and condominium development          4,648           3,126
Hotel and resort operating properties             (696)           (180)
Hotel and casino operating properties            3,980           4,344
Other investments                                1,063           4,770
--------        --------
Total segment earnings                        18,720          22,119
Other expenses, net                             (4,022)         (5,933)
General partner's share                         (1,722)         (1,670)
--------        --------
Net earnings-limited partner unitholders    $    12,976     $  14,516
===========     =========

14

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AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature, are
intended to be, and are hereby identified as, "forward looking statements" for
purposes of the safe harbor provided by Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934, as amended by
Public Law 104-67.

Forward-looking statements regarding management's present plans or expectations
involve risks and uncertainties and changing economic or competitive conditions,
as well as the negotiation of agreements with third parties, which could cause
actual results to differ from present plans or expectations, and such
differences could be material. Readers should consider that such statements
speak only as to the date hereof.

GENERAL

The Company believes that it will benefit from the diversification of its
portfolio of assets. Additionally, in selecting future real estate investments,
the Company intends to focus on assets that it believes are undervalued in the
real estate market, which investments may require substantial liquidity to
maintain a competitive advantage. To further its investment objectives, the
Company may consider the acquisition or seek effective control of land
development companies and other real estate operating companies which may have a
significant inventory of quality assets under development. From time to time the
Company has discussed and in the future may discuss and may make such
acquisitions from Mr. Icahn, the General Partner or their affiliates, provided
the terms thereof are fair and reasonable to the Company. The Company believes
that there are still opportunities available to acquire investments that are
undervalued. These may include commercial properties, residential and commercial
development projects, land, assets in the gaming industry, non-performing loans,
the securities of entities which own, manage or develop significant real estate
assets, including limited partnership units and securities issued by real estate
investment trusts and the acquisition of debt or equity securities of companies
which may be undergoing restructuring and sub-performing properties that may
require active asset management and significant capital improvements. The
Company notes that while there are still opportunities available to acquire
investments that are undervalued, acquisition opportunities in the real estate
market for value-added investors have become more competitive to source and the
increased competition may have some impact on the spreads and the ability to
find quality assets that provide returns that are sought. These investments may
not be readily financeable and may not generate immediate positive cash flow for
the Company. As such, they require the Company to maintain a strong capital base
in order to react quickly to these market opportunities as well as to allow the
Company the financial strength to develop or reposition these assets. While this
may impact cash flow in the near term and there can be no assurance that any
asset acquired by the Company will increase in value or generate positive cash
flow, the Company intends to focus on assets that it believes may provide
opportunities for long-term growth and further its objective to diversify its
portfolio. Historically, substantially all of the Company's real estate assets
have been net leased to single corporate tenants under long-term leases. With
certain exceptions, these tenants are required to pay all expenses relating to
the leased property and therefore the Company is not typically responsible for
payment of expenses, such as maintenance, utilities, taxes and insurance
associated with such properties. 

By the end of the year 2002, net leases representing approximately 22.6% of the
Company's net annual rentals from its portfolio will be due for renewal, and by
the end of the year 2004, net leases representing approximately 35.1% 

15

18
AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

of the Company's net annual rentals will be due for renewal. Since most of the
Company's properties are net-leased to single, corporate tenants, it may be
difficult and time-consuming to re-lease or sell those properties that existing
tenants decline to re-let or purchase and the Company may be required to incur
expenditures to renovate such properties for new tenants. In addition, the
Company may become responsible for the payment of certain operating expenses,
including maintenance, utilities, taxes, insurance and environmental compliance
costs associated with such properties, which are presently the responsibility of
the tenant. As a result, the Company could experience an adverse impact on net
cash flow in the future from such properties.

An amendment to the Partnership Agreement (the "Amendment") became effective in
August, 1996 which permits the Company to invest in securities issued by
companies that are not necessarily engaged as one of their primary activities in
the ownership, development or management of real estate while remaining in the
real estate business and continuing to pursue suitable investments for the
Company in the real estate market.

In September 1997, the Company completed its Rights Offering (the "1997
Offering") to holders of its Depositary Units to increase its assets available
for investment, take advantage of investment opportunities, further diversify
its portfolio of assets and mitigate against the impact of potential lease
expirations. Net proceeds of approximately $267 million were raised for
investment purposes.

Expenses relating to environmental clean-up have not had a material effect on
the earnings, capital expenditures, or competitive position of the Company.
Management believes that substantially all such costs would be the
responsibility of the tenants pursuant to lease terms. While most tenants have
assumed responsibility for the environmental conditions existing on their leased
property, there can be no assurance that the Company will not be deemed to be a
responsible party or that the tenant will bear the costs of remediation. Also,
as the Company acquires more operating properties, its exposure to environmental
clean-up costs may increase. The Company completed Phase I Environmental Site
Assessments on most of its properties by third-party consultants. Based on the
results of these Phase I Environmental Site Assessments, the environmental
consultant has recommended that certain sites may have environmental conditions
that should be further reviewed.

The Company has notified each of the responsible tenants to attempt to ensure
that they cause any required investigation and/or remediation to be performed
and most tenants continue to take appropriate action. However, if the tenants
fail to perform responsibilities under their leases referred to above, based
solely upon the consultant's estimates resulting from its Phase I Environmental
Site Assessments referred to above, it is presently estimated that the Company's
exposure could amount to $2-3 million, however, as no Phase II Environmental
Site Assessments have been conducted by the consultants, there can be no
accurate estimation of the need for or extent of any required remediation, or
the costs thereof. In addition, the Company has notified all tenants of the
Resource Conservation 

16

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AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

and Recovery Act's ("RCRA") December 22, 1998 requirements for regulated
underground storage tanks. The Company may, at its own cost, have to cause
compliance with RCRA's requirements in connection with vacated properties,
bankrupt tenants and new acquisitions. Phase I Environmental Site Assessments
will also be performed in connection with new acquisitions and with such
property refinancings as the Company may deem necessary and appropriate.

The Company is in the process of updating its Phase I Site Assessments for
certain of its environmentally sensitive properties including properties with
open RCRA requirements. Approximately forty updates are expected to be completed
in 2000 with another forty scheduled for the year 2001.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Gross revenues increased by $5,843,000, or 8.4%, during the three months ended
March 31, 2000 as compared to the same period in 1999. This increase reflects
increases of $5,668,000 in land, house and condominium sales, $2,868,000 in
interest income on treasury bills and other investments, $1,206,000 in hotel and
resort operating income, $263,000 in rental income, and $89,000 in Stratosphere
Corp. hotel and casino operating income partially offset by decreases of
$3,730,000 in dividend and other income and $521,000 in financing lease income.
The increase in land, house and condominium sales is primarily due to
differences in the size and number of transactions. The increase in interest
income on treasury bills and other investments is primarily attributable to an
increase in short-term investments. The increase in hotel and resort operating
income is primarily attributable to the Bayswater and New Seabury resort
operations. The decrease in dividend and other income is primarily due to the
disposition of the RJR common stock in June of 1999.

Expenses increased by $6,784,000, or 12.58%, during the three months ended March
31, 2000 as compared to the same period in 1999. This increase reflects
increases of $4,146,000 in the cost of land, house and condominium sales,
$1,722,000 in hotel and resort operating expenses, $1,650,000 in Bayswater
acquisition costs, $453,000 in Stratosphere Corporation hotel and casino
operating expenses, $76,000 in rental property expenses, and $6,000 in general
and administrative expenses partially offset by decreases of $1,178,000 in
interest expense and $91,000 in depreciation and amortization. The increase in
the cost of land, house and condominium sales is due to the differences in size
and number of transactions. The increase in hotel and resort operating expenses
is primarily attributable to the Bayswater and New Seabury resort operations.
The decrease in interest expense is primarily due to interest incurred in 1999
in connection with the Stratosphere repurchase obligation.

17

20
AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

Earnings before property transactions and minority interest in subsidiary
decreased during the three months ended March 31, 2000 by $941,000 as compared
to the same period in 1999.

Gain on property transactions decreased by $892,000 during the three months
ended March 31, 2000 as compared to the same period in 1999, due to differences
in the size and number of transactions.

During the three months ended March 31, 1999, the Company recorded a provision
for loss on real estate of $227,000. No such provision was recorded in the same
period in 2000.

Minority interest in the net earnings of Stratosphere Corporation decreased by
$118,000 during the three months ended March 31, 2000 as compared to the same
period in 1999.

Net earnings for the three months ended March 31, 2000 decreased by $1,488,000
as compared to the three months ended March 31, 1999 primarily due to decreased
earnings before property tranactions and decreased gain on sales of real 
estate.

Diluted earnings per weighted average limited partnership unit outstanding
before property transactions were $.21 in the three months ended March 31, 2000
compared to $.23 in the comparable period of 1999, and net gain from property
transactions was $.02 in the three months ended March 31, 2000 compared to $.03
in the comparable period of 1999. Diluted net earnings per weighted average
limited partnership unit outstanding totalled $.23 in the three months ended
March 31, 2000 compared to $.26 in the comparable period of 1999.

CAPITAL RESOURCES AND LIQUIDITY

Generally, the cash needs of the Company for day-to-day operations have been
satisfied from cash flow generated from current operations. In recent years, the
Company has applied a significant portion of its operating cash flow to the
repayment of maturing debt obligations. Cash flow from day-to-day operations
represents net cash provided by operating activities (excluding working capital
changes, non-recurring other income and the cash flow from the operations of
Bayswater and Stratosphere retained for their operations) plus principal
payments received on financing leases as well as principal receipts on certain
mortgages receivable reduced by periodic principal payments on mortgage debt.

In 2000, thirty nine leases covering thirty nine properties and representing
approximately $5.7 million in annual rentals are scheduled to expire. Twenty
eight of these leases originally representing approximately $3.7 million in
annual rental income have been or will be re-let or renewed for approximately
$3.7 million in annual rentals. Such renewals are generally for a term of five
years. Seven properties, with an approximate annual rental income of $1.8

18

21
AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

million have not been renewed and will be marketed for sale or lease when the
current lease terms expire. The status of four properties with annual rental
income of $200,000 is unknown at this time.

The Board of Directors of the General Partner announced that no distributions on
its Depositary Units are expected to be made in 2000. The Company believes that
it should continue to hold and invest rather than distribute cash. In making its
announcement, the Company noted it plans to continue to apply available
operating cash flow toward its operations, repayment of maturing indebtedness,
tenant requirements and other capital expenditures and creation of cash reserves
for contingencies including environmental matters and scheduled lease
expirations.

During the three months ended March 31, 2000, the Company generated
approximately $9.6 million in cash flow from day-to-day operations which
excludes approximately $8 million in cash flow from the operations of Bayswater
and Stratosphere which are being retained for their operations and excludes
approximately $2 million in interest earned on the 1997 Offering proceeds which
is being retained for future acquisitions.

Capital expenditures for real estate were approximately $2.4 million during the
three months ended March 31, 2000.

In 2000, the Company has approximately $3.3 million of maturing debt
obligations. The Company may seek to refinance a portion of these maturing
mortgages, although it does not expect to refinance all of them, and may repay
them from cash flow and increase reserves from time to time, thereby reducing
cash flow otherwise available for other uses.

During the three months ended March 31, 2000, net cash flow after payment of
maturing debt obligations and capital expenditures was approximately $7.2
million which was added to the Company's operating cash reserves.  This
excludes cash flow from Bayswater and Stratosphere which is being retained
for their operations.  The Company's operating cash reserves are
approximately $116  million at March 31, 2000 (not including the cash from
capital transactions or from the 1997 Offering  which is being retained for
investment), which are being retained to meet  maturing debt obligations,
capital expenditures for real estate and certain contingencies facing the
Company.  The Company from time to time may increase its cash reserves to
meet its maturing debt obligations, tenant requirements and other capital
expenditures and to provide for scheduled lease expirations and other
contingencies including environmental matters.

Sales proceeds from the sale or disposal of portfolio properties totalled
approximately $2 million in the three months ended March 31, 2000. The Company
intends to use asset sales, financing and refinancing proceeds for new
investments.

19

22
AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

In March, 2000 the Company transferred its interests in the Sands and the
Claridge to an affiliate of the General Partner and received approximately $40.5
million therefor, however, as noted above, the transfer is subject to the
Company's right and obligation to repurchase such interests in the event that it
obtains the proper gaming licence in New Jersey.

In March, 2000, the Company acquired the assets of Bayswater and all of the
ownership interests of its affiliated entities for approximately $84.35 million.
In addition the Company purchased a multi-tenant office building for
approximately $27.5 million.

Also in March, 2000, the Company acquired approximately an additional 2%
interest in Stratosphere from affiliates of the General Partner for
approximately $2 million, thereby providing the Company with an aggregate
interest in Stratosphere of approximately 51%. Also, the Company understands
that Stratosphere may seek approximately $70 million for expansion of its hotel
and casino facility, a substantial portion of which may be provided by the
Company. The Company may acquire additional interests in Stratosphere.

The Company anticipates that golf course and clubhouse improvements in New
Seabury, Massachusetts will require the expenditure by the Company of an
aggregate of approximately $10 million in years 2000 and 2001.

To further its investment objectives, the Company may consider the acquisition
or seek effective control of land development companies and other real estate
operating companies which may have a significant inventory of quality assets
under development. This may enhance its ability to further to further diversify
its portfolio of properties and gain access to additional operating and
development capabilities.

Pursuant to the 1997 Offering, which closed in September 1997, the Company
raised approximately $267 million to increase its available liquidity so that it
will be in a better position to take advantage of investment opportunities and
to further diversity its portfolio.

The Company's cash and cash equivalents and investment in treasury bills
decreased by $53.3 million during the first quarter 2000, primarily due to the
acquisition of Bayswater's net assets ($84.4 million), and one property
acquisition ($27.5 million), partially offset by the transfer of the Claridge
and Sands interests ($40.5 million), net cash flow from operations ($7.2
million), net cash flow from Bayswater and Stratosphere operations ($8 million)
and miscellaneous other items ($2.9 million).

The United States Securities and Exchange Commission requires that registrants
include information about primary market risk exposures relating to financial
instruments. Through its operating and investment activities, the Company is
exposed to market, credit and related risks, including those described elsewhere
herein. As the Company may invest in debt or equity securities of companies
undergoing restructuring or undervalued by the market, these 

20

23
AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

securities are subject to inherent risks due to price fluctuations, and risks
relating to the issuer and its industry, and the market for these securities may
be less liquid and more volatile than that of higher rated or more widely
followed securities.

Other related risks include liquidity risks, which arise in the course of the
Company's general funding activities and the management of its balance sheet.
This includes both risks relating to the raising of funding with appropriate
maturity and interest rate characteristics and the risk of being unable to
liquidate an asset in a timely manner at an acceptable price. Real estate
investments by their nature are often difficult or time-consuming to liquidate.
Also, buyers of minority interests may be difficult to secure, while transfers
of large block positions may be subject to legal, contractual or market
restrictions. Other operating risks for the Company include lease terminations,
whether scheduled terminations or due to tenant defaults or bankruptcies,
development risks, and environmental and capital expenditure matters, as
described elsewhere herein.

Whenever practical, the Company employs internal strategies to mitigate exposure
to these and other risks. The Company, on a case by case basis with respect to
new investments, performs internal analyses of risk identification, assessment
and control. The Company reviews credit exposures, and seeks to mitigate counter
party credit exposure through various techniques, including obtaining and
maintaining collateral, and assessing the creditworthiness of counterparties and
issuers. Where appropriate, an analysis is made of political, economic and
financial conditions, including those of foreign countries. Operating risk is
managed through the use of experienced personnel. The Company seeks to achieve
adequate returns commensurate with the risk it assumes. The Company utilizes
qualitative as well as quantitative information in managing risk.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

Response to this item is included in Item 2. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" above.

PART II.  Other information

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)    Financial Data Schedule is attached hereto as Exhibit EX-27

21

24
AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

EXHIBIT INDEX

Exhibit         Description
-------         -----------

EX-27           Financial Data Schedule

(b)    (1) Form 8-K was filed on March 29, 2000 announcing the 1999 fourth
quarter and full year financial results and that no distributions are
expected to be made during 2000.

22

25
AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - MARCH 31, 2000

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

AMERICAN REAL ESTATE PARTNERS, L.P.
By: American Property Investors, Inc.
General Partner

/s/ John P. Saldarelli
-------------------------------------------
John P. Saldarelli
Treasurer
(Principal Financial Officer
and Principal Accounting Officer)

Date:   May 15, 2000

23

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