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, 1996

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 (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    
---     ---

AMERICAN REAL ESTATE PARTNERS, L.P. - FORM 10-Q - MARCH 31, 1996

INDEX

PART I.  FINANCIAL INFORMATION                                 PAGE NO.

Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995...............     1-2

Consolidated Statements of Earnings -
Three Months Ended March 31, 1996 and 1995.........     3

Consolidated Statement of Changes In
Partners' Equity
Three Months Ended March 31, 1996..................     4

Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1996, and 1995........     5-6

Notes to Consolidated Financial Statements.........     7

Management's Discussion and Analysis
of Financial Condition and Results of
Operations.........................................     12

PART II.  OTHER INFORMATION........................     18

AMERICAN REAL ESTATE PARTNERS, L.P. - FORM 10-Q - MARCH 31, 1996

PART I. FINANCIAL INFORMATION

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

MARCH 31,      DECEMBER 31,
1996             1995
-----------     ------------
(UNAUDITED)

ASSETS

Real estate leased to others:
Accounted for under the financing
method                              $279,466,316    $281,532,529
Accounted for under the operating
method, net of accumulated
depreciation                         132,543,997     130,542,549
Cash and cash equivalents                     176,411,272     166,261,635
Mortgages and note receivable                  14,881,179      15,056,367
Hotel operating properties,
net of accumulated depreciation           13,190,110      13,362,375
Receivables and other assets                    4,933,123       4,587,765
Construction in progress                        3,671,991       5,622,156
Debt placement costs,
net of accumulated amortization            1,892,570       1,931,472
Property held for sale                          2,744,759       1,983,033
------------    ------------

Total                                   $629,735,317    $620,879,881
============    ============ 

Continued.....

AMERICAN REAL ESTATE PARTNERS, L.P. - FORM 10-Q - MARCH 31, 1996

CONSOLIDATED BALANCE SHEETS- CONTINUED

MARCH 31,       DECEMBER 31,
1996             1995
------------     ------------
(UNAUDITED)

LIABILITIES

Mortgages payable                                 $159,391,110      $163,967,561
Senior indebtedness                                 33,923,329        33,923,329
Construction loan payable                            9,397,082         7,834,175
Accounts payable, accrued
expenses and other liabilities                  6,676,189         5,770,443
Deferred income                                      3,523,439         3,524,349
Distributions payable                                1,633,932         1,671,069
------------      ------------            -------------
Total liabilities                             214,545,081       216,690,926
------------      ------------

Commitments and Contingencies
(Notes 2 and 3)

PARTNERS' EQUITY

Limited partners:
Preferred units, $10 liquidation
preference, 5% cumulative pay-
in-kind redeemable; 4,200,000
authorized, 1,975,640 issued
and outstanding                              20,744,220        20,497,265

Depositary units; 26,850,000
authorized; 25,666,640
outstanding                                 397,145,032       386,609,631

General partner                                      8,484,849         8,265,924

Treasury units at cost:
1,037,200 depositary units                  (11,183,865)      (11,183,865)
-------------     -------------

Total partners' equity (Note 8)               415,190,236       404,188,955
------------      ------------

Total                                      $629,735,317      $620,879,881
============      ============

See notes to consolidated financial statements

2

AMERICAN REAL ESTATE PARTNERS, L.P. - FORM 10-Q - MARCH 31, 1996

CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)

THREE MONTHS ENDED MARCH 31,
----------------------------
1996                1995
----                -----

Revenues:
Interest income:
Financing leases                          $  6,916,06         $ 7,735,873
Other                                               2,617,231            598,909
Rental income                                  5,015,230          4,680,581
Hotel operating income                         3,254,788          3,183,552
Other income                                   2,788,213                -
-----------        -----------

20,591,524         16,198,915
-----------        -----------
Expenses:
Interest expense                               4,479,786          5,256,353
Depreciation and amortization                  1,453,514          1,251,968
General and administrative
expenses                                       676,629            655,178
Property expenses                              1,025,873            950,975
Hotel operating expenses                       2,006,916          1,930,107
-----------        -----------

9,642,718         10,044,581
-----------        -----------

Earnings before property transactions              10,948,806          6,154,334
Gain on sales and disposition
of real estate                                    52,475          4,321,293
-----------        -----------

NET EARNINGS                                      $11,001,281        $10,475,627
===========        ===========

Net earnings attributable to:
Limited partners                             $10,782,356        $10,267,162
General partner                                       218,925            208,465
-----------        -----------
$11,001,281        $10,475,627

Net earnings per limited
partnership unit (Note 9)                    $       .39        $       .49
===========        ===========

Weighted average limited partnership
units and equivalent partnership
units outstanding and subscribed              27,947,275         25,099,540
===========         ==========

See notes to consolidated financial statements

3

AMERICAN REAL ESTATE PARTNERS, L.P. - FORM 10-Q - MARCH 31, 1996

CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)

GENERAL           LIMITED            HELD                                  TOTAL
PARTNER'S         PARTNERS'            IN              PREFERRED           PARTNERS'                 
EQUITY            EQUITY          DEPOSITARY          TREASURY             EQUITY    
----------        ------------      -----------        ------------       ------------

Balance
Dec. 31, 1995                 $8,265,924        $386,609,631      $20,497,265        $(11,183,865)      $404,188,955

Net earnings                     218,925          10,782,356           -                   -              11,001,281

Pay-in-kind
distribution                      -                 (246,955)         246,955              -                 -
----------        ------------      -----------        ------------       ------------

Balance -
March 31, 1996                $8,484,849        $397,145,032      $20,744,220        $(11,183,865)      $415,190,236
==========        ============      ===========        ============       ============

See notes to consolidated financial statements

4

AMERICAN REAL ESTATE PARTNERS, L.P. - FORM 10-Q - MARCH 31, 1996

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

THREE MONTHS ENDED MARCH 31,
----------------------------
1996              1995
----              ----

CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings                                          $ 11,001,281        $10,475,627
Adjustments to reconcile earnings to net cash
provided by operating activities:
Depreciation and amortization                                 1,453,514          1,251,968
Amortization of deferred income                          (6,554)            (6,554)
Gain on sales and disposition of
real estate                                           (52,475)        (4,321,293)
Changes in:
Decrease in deferred income                              (910)              (910)
Increase in receivables and other assets             (324,721)          (462,496)
Increase in accounts payable and
accrued expenses                                     855,292          2,365,965
------------        -----------
Net cash provided by operating activities          12,925,427          9,302,307
------------        -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from the sale and
disposition of real estate                               289,760          8,123,505
Principal payments received on leases
accounted for under the financing method               1,842,643          1,795,290
Construction in progress                                (1,723,710)        (3,159,409)
Principal receipts on mortgages receivable                  79,631             72,807
Capitalized expenditures for real estate                  (419,841)          (311,844)
Decrease in mortgages and note receivable                  102,112              -
------------        -----------
Net cash provided by investing activities             170,595          6,520,349
------------        -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partners' equity:
Expenses of the Rights Offering                          (6,407)               -
Distributions to partners                               (37,136)           (22,297)
Debt:
(Decrease) increase in mortgages payable               (313,156)         9,800,000
Periodic principal payments                          (2,231,300)        (2,315,517)
Balloon payments                                     (1,859,486)        (2,935,835)
Increase in construction loan payable                 1,562,907          2,866,184
Debt placement costs                                    (61,807)            (7,425)
-------------        -----------
Net cash (used in)provided by
financing activities                             (2,946,385)         7,385,110
------------        -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS                                        10,149,637         23,207,766
CASH AND CASH EQUIVALENTS, beginning of
period                                                 166,261,635         18,615,572
------------        -----------
CASH AND CASH EQUIVALENTS, end of period                   $176,411,272        $41,823,338
============        ===========

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

5

AMERICAN REAL ESTATE PARTNERS, L.P. - FORM 10-Q - MARCH 31, 1996

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

THREE MONTHS ENDED MARCH 31,
----------------------------
1996              1995
----              ----

SUPPLEMENTAL INFORMATION:
Cash payments for interest                 $ 3,690,147         $4,170,806
===========         ==========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:

Reclassification of real estate:           $                   $
To property held for sale                      761,741                -     
From construction in progress               (3,984,819)               -  
To operating lease                           3,984,819                -
From operating lease                          (761,741)               -
-----------         -----------
$       -           $      -
===========         ===========

See notes to consolidated financial statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. GENERAL

The accompanying consolidated financial statements, footnotes and discussions
should be read in conjunction with the consolidated financial statements,
related footnotes and discussions contained in the Company's annual report on
Form 10-K for the year ended December 31, 1995.

The results of operations for the three months ended March 31, 1996 are not
necessarily indicative of the results to be expected for the full year.

2. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES

a. From the commencement of the Exchange through March 31, 1996, the Company (i)
sold or disposed of an aggregate of 141 properties of the Predecessor
Partnerships for an aggregate amount of approximately $69,361,000 net of
associated indebtedness which encumbered such properties at the consummation of
the Exchange and (ii) refinanced 25 Predecessor Partnerships' properties with an
aggregate appraised value, net of the amount of the refinanced debt, of
approximately $44,431,000 for a sum total of approximately $113,792,000.
Aggregate appraised values attributable to such properties for purposes of the
Exchange were approximately $105,261,000. Sixteen acquisitions have been made
since the commencement of the Exchange, including two joint ventures entered
into in 1994 to develop two apartment complexes, for an aggregate investment of
approximately $58,000,000. Reinvestment incentive fees of approximately $411,000
have previously been paid to the General Partner, and approximately $70,000 is
payable to the General Partner for the North Carolina joint venture investment
entered into in 1994 upon completion of the project (see note 6). There were no
properties acquired in the three months ended March 31, 1996.

6

AMERICAN REAL ESTATE PARTNERS, L.P. - FORM 10-Q - MARCH 31, 1996

b. The Company and certain affiliates of its General Partner entered into an
agreement with the third-party landlord of its leased executive office space. In
accordance with the agreement, the Company entered into a lease, expiring in
2001, for 7,920 square feet of office space, at an annual rental of
approximately $153,000. The Company has sublet to certain affiliates 3,205
square feet at an annual rental of approximately $62,000, resulting in a net
annual rental of approximately $91,000. During the three months ended March 31,
1996, the affiliates paid the Company approximately $15,000 for rent of the
sublet space. Such payments have been approved by the Audit Committee of the
Board of Directors of the General Partner.

c. The Company will be reimbursed by an affiliate of the General Partner for
payroll and certain overhead expenses related to certain employees of the
Company who provided services to such affiliate on a part-time basis in the
amount of approximately $15,000 for the three months ended March 31, 1996. In
addition, an affiliate of the General Partner provided certain administrative
services in the amount of $750 in the three months ended March 31, 1996. Such
reimbursements are subject to approval by the Audit Committee of the Board of
Directors of the General Partner.

3. COMMITMENTS AND CONTINGENCIES

a. On March 31, 1996, the Company held a mortgage note receivable in the
principal amount of approximately $97,000 which is in default. The mortgage
encumbers one property together with a collateral assignment of the ground lease
and rent. The property is tenanted by Gino's. The mortgage had been taken back
by a Predecessor Partnership in connection with the sale of this property. The
tenant remains current in its lease obligations. The Company has commenced a
foreclosure action on this property located in Pennsylvania. No gain or loss is
anticipated upon foreclosure because the estimated fair value of the property
exceeds its carrying value.

b. Lockheed Missile & Space Company, Inc. ("Lockheed"), a tenant of the
Company's leasehold property in Palo Alto, California, has entered into a
consent decree with the California Department of Toxic Substances Control
("CDTS") to undertake certain environmental remediation at this property.
Lockheed has estimated that the environmental remediation costs may be up to
approximately $14,000,000. In a non-binding determination by the CDTS, Lockheed
was found responsible for approximately 75% of such costs and the balance was
allocated to other parties. The Company was allocated no responsibility for any 
such costs.

Lockheed has served a notice that it may exercise its statutory right to have
its liability reassessed in a binding arbitration proceeding. In connection with
this notice, Lockheed has stated that it will attempt to have allocated to the
Company and to the Company's ground-lessor (which may claim a right of indemnity
against the Company) approximately 9% and 17%, respectively, of the total
remediation costs. The Company believes that it has no liability for any of such
costs and in any proceeding in which such liability is asserted against it, the
Company will vigorously contest such liability. In the event any of such
liability is allocated to the Company, it will seek indemnification from
Lockheed in accordance with its lease.

c. On June 23, 1995, Bradlees Stores, Inc., a tenant leasing four properties
owned by the Company, filed a voluntary petition for reorganization pursuant to
the provisions of Chapter 11 of the Federal Bankruptcy Code. The annual rentals
for these four properties is approximately $1,320,000. The tenant is current in
its obligations under the leases. The tenant has not yet determined whether it
will exercise its right to reject or affirm the leases which will require an
order of the Bankruptcy Court. There are existing assignors who are still
obligated to fulfill all of the terms and conditions of the leases.

7

AMERICAN REAL ESTATE PARTNERS, L.P. - FORM 10-Q - MARCH 31, 1996

At March 31, 1996, the carrying value of these four properties is approximately
$7,469,000. Two of the properties are encumbered by nonrecourse mortgages
payable of approximately $1,990,000.

d. On September 18, 1995, Caldor Corp., a tenant in a property owned by the
Company, filed a voluntary petition for reorganization pursuant to the
provisions of Chapter 11 of the Federal Bankruptcy Code. The annual rental for
this property is approximately $248,000. The tenant is current in its
obligations under the lease with the exception of approximately $12,000 of
pre-petition rent. The tenant has not yet determined whether it will exercise
its right to reject or affirm the lease which will require an order of the
Bankruptcy Court. At March 31, 1996, the property has a carrying value of
approximately $1,989,000 and is unencumbered by any mortgage.

e. On January 10, 1996, Rickel Home Centers, Inc. ("Rickels") a tenant leasing a
property owned by the Company, filed a voluntary petition for reorganization
pursuant to the provisions of Chapter 11 of the Federal Bankruptcy Code. This
property's annual rental totals approximately $90,000. The tenant has not yet
determined whether it will exercise its right to reject or affirm the lease
which will require an order of the Bankruptcy Court. The tenant is current in
its obligations under the lease. The tenant occupies a portion of a strip
shopping center with two other tenants. The carrying value of the entire
property at March 31, 1996 is approximately $ 550,000 and is unencumbered by any
mortgage.

4. MORTGAGES AND NOTE RECEIVABLE

On August 15, 1995, the Company invested approximately $7.1 million in a note
receivable by purchasing a portion (approximately 1.85%) of an unsecured Senior
Term Facility Agreement ("Facility Agreement"). The borrower is Queens Moat
Houses P.L.C. ("Queens Moat") and certain subsidiaries. Queens Moat is a United
Kingdom based hotel operator with properties in the U.K., Germany, Netherlands,
France and Belgium. The Company purchased its participation portion from Lazard
Freres & Co. LLC, defined as a Priority Lender in the Facility Agreement, at
71.75% of the face amount of the Company's pro rata portion of the Facility
Agreement's outstanding senior advances on the acquisition date. The Facility
Agreement's advances are denominated in Pounds Sterling, Deutsche Marks, Dutch
Guilders, Belgian Francs and French Francs. The discount at acquisition date,
based on the then existing spot rate, was approximately $2.8 million. The
Facility Agreement matures December 31, 2000 and bears interest at LIBOR (London
Interbank Offered Rate) plus 1.75% per annum for the relevant currencies. There
are scheduled repayments of the advances over the term of the loan. In addition,
repayments are required when certain underlying assets are sold. As of March 31,
1996 these repayments totaled approximately $166,000.

The discount at acquisition date is being amortized on a straight-line basis
over the term of the Facility Agreement. For the three months ended March 31,
1996, approximately $129,000 of discount was amortized. In accordance with
accounting policy, foreign exchange gains and losses will be recorded each
quarter based on the prevailing exchange rates at each balance sheet date.
Foreign exchange losses of approximately $186,000 have been recognized and are
included in "Other income" during the three month period ended March 31, 1996.

5. PROPERTY HELD FOR SALE

At March 31, 1996, the Company owned eight properties that were being actively
marketed for

8

AMERICAN REAL ESTATE PARTNERS, L.P. - FORM 10-Q - MARCH 31, 1996

sale. At March 31, 1996, these properties have been stated at the lower of their
carrying value or net realizable value. The aggregate net realizable value of
the properties is estimated to be approximately $2,745,000.

6. SIGNIFICANT PROPERTY TRANSACTIONS

a. The Company entered into two joint ventures in June 1994 with unaffiliated
co-venturers for the purpose of developing luxury garden apartment complexes.
Both of these joint ventures have been consolidated in the accompanying
financial statements.

1. The first joint venture, formed as an Alabama Limited Liability Company,
developed a 240 unit multi-family project situated on approximately twenty
acres, currently owned by the joint venture, located in Hoover, Alabama, a
suburb of Birmingham. The Company, owns a seventy percent (70%) majority
interest in the joint venture. As of March 31, 1996 approximately $212,000
representing the minority interest of the co-venturer has been included in
"Accounts payable, accrued expenses, and other liabilities" in the accompanying
financial statements. Distributions will be made in proportion to ownership
interests. The complex was completed in September 1995, and all rental units
were available for occupancy. The total development costs, including the
acquisition of land, were approximately $10,889,000. As of April 19, 1996, 79%
of these units are leased. An affiliate of the Company's co-venturer is managing
the property. Net rental operations in the three months ended March 31, 1996
have resulted in a loss of approximately $27,000 including approximately
$117,000 of depreciation before consideration of the co-venturer's minority
interest in such loss of approximately $8,000.

In connection with this property, a reinvestment incentive fee of approximately
$38,000 was paid to the general partner in the three months ended March 31, 1996
(see note 2).

2. The second joint venture, a Delaware limited partnership, is developing a
288 unit multi-family project situated on approximately thirty-three acres in
Cary, North Carolina (Raleigh-Durham area). The Company, which owns a ninety
percent (90%) majority interest in the partnership, has contributed
approximately $4,022,000 as of March 31, 1996 and is a limited partner. The
Company has fulfilled its contribution obligation. The co-venturer is the
general partner and has a limited partner interest. The Company is entitled to a
cumulative annual preferred return of 12% on its investment before cash
distributions are made in proportion to ownership interests. Construction
financing has been obtained by the joint venture in the amount of $12,205,000
and is guaranteed by the joint venture's general partner and personally by its
principals. The development costs are expected to total approximately
$16,100,000. As of March 31, 1996, approximately $13,848,000 of development
costs have been incurred of which approximately $10,973,000 represents completed
rental units including the acquisition of land valued at $1,600,000.
Construction loan funding at March 31, 1996 is approximately $9,397,000. The
first units were available for occupancy in October 1995 and project completion
is presently scheduled for July 1996. As of March 31, 1996, approximately 31% of
the rental units are leased. An affiliate of the Company's co-venturer will
manage the property. For the three months ended March 31, 1996, net rental
operations resulted in a loss of approximately $65,000 including approximately
$91,000 of depreciation and amortization.

In connection with this property, a reinvestment incentive fee of approximately
$70,000 will be due the Company's general partner upon completion of the project
(see note 2).

b. On May 18, 1995, the Company purchased approximately 248 acres of partially 
improved land

9

AMERICAN REAL ESTATE PARTNERS, L.P. - FORM 10-Q - MARCH 31, 1996

located in Armonk, New York. The purchase price was approximately $3,044,000.
The Company intends to construct approximately 45 to 50 single-family detached
luxury homes subject to subdivision and other required approvals. No material
development costs have yet been incurred.

In connection with this property, a reinvestment incentive fee of approximately
$15,000 was paid the Company's general partner in the three months ended March
31, 1996. (see note 2).

c. On January 11, 1996, Forte Hotels, Inc. ("Forte") a/k/a Travelodge, a tenant
in a property owned by the Company entered into a Lease Termination and Mutual
Release Agreement ("Agreement"). This Agreement terminated the lease, which was
due to expire on June 30, 1996, effective January 17, 1996 and required Forte to
pay the Company $2,800,000 in consideration of the early lease termination and
in payment of certain deferred maintenance items. In addition, this property was
encumbered by two mortgages. The first mortgage with a principal balance of
approximately $84,000 was paid off on January 18, 1996. The second mortgage with
a principal balance of approximately $231,000 was paid off March 1, 1996.

As a result of the above settlement and mortgage payoffs, the Company recognized
"Other income" of approximately $2,700,000, net of related costs, in the quarter
ended March 31, 1996. The Company is actively marketing this property for sale
and therefore has reclassified it to "Property held for sale." The carrying
value of this property at March 31, 1996 is approximately $762,000. The Company
believes that the net realizable value exceeds the carrying value of the asset
at March 31, 1996.

The Company has engaged an unaffiliated third party management company to
operate the property effective January 18, 1996. Net income of approximately
$11,000 was recognized in the three months ended March 31, 1996.

7. DISTRIBUTIONS PAYABLE

Distributions payable represent amounts accrued and unpaid due to non-consenting
investors ("Non-consents"). Non-consents are those investors who have not yet
exchanged their limited partnership interests in the various Predecessor
Partnerships for limited partnership units of American Real Estate Partners,
L.P.

8. RIGHTS OFFERING

A registration statement on Form S-3 relating to the Rights Offering was filed
with the Securities and Exchange Commission and declared effective February 23,
1995.

On March 1, 1995, the Company issued to record holders of its Depositary Units
one transferable subscription right (a "Right"), for each seven Depositary Units
of the Company held on February 24, 1995, the record date. The Rights entitled
the holders thereof (the "Rights Holders") to acquire during the subscription
period at a subscription price of $55, six Depositary Units and one 5%
cumulative pay-in-kind redeemable Preferred Unit representing a limited partner
interest ("Preferred Units"). The subscription period commenced on March 1, 1995
and expired at the close of business on March 30, 1995.

The Preferred Units have certain rights and designations, generally as follows.
Each Preferred Unit will have a liquidation preference of $10.00 and will
entitle the holder thereof to

10

AMERICAN REAL ESTATE PARTNERS, L.P. - FORM 10-Q - MARCH 31, 1996

receive distributions thereon, payable solely in additional Preferred Units, at
the rate of $.50 per Preferred Unit per annum (which is equal to a rate of 5% of
the liquidation preference thereof), payable annually on March 31 of each year
(each, a "Payment Date"), commencing March 31, 1996. On any Payment Date
commencing with the Payment Date on March 31, 2000, the Company, with the
approval of the Audit Committee of the Board of Directors of the General Partner
may opt to redeem all, but not less than all, of the Preferred Units for a
price, payable either in all cash or by issuance of additional Depositary Units,
equal to the liquidation preference of the Preferred Units, plus any accrued but
unpaid distributions thereon. On March 31, 2010, the Company must redeem all,
but not less than all, of the Preferred Units on the same terms as any optional
redemption.

High Coast Limited Partnership ("High Coast") a Delaware limited partnership,
acted as guarantor for the Rights Offering and is an affiliate of Carl C. Icahn,
("Icahn"), the Chairman of American Property Investors, Inc., ("API"), the
general partner of the Company. API is also the general partner of the guarantor
and the two limited partners are affiliates of and are controlled by Icahn.
Pursuant to its subscription guaranty, High Coast oversubscribed for a total of
9,343,998 Depositary Units and 1,557,333 Preferred Units. As a result, the
Rights Offering was fully subscribed. The proceeds received by the Company,
after deduction of expenses of approximately $1.1 million incurred by the
Company in connection with the Rights Offering, were approximately $107.6
million.

In addition, in accordance with the terms of the Company's and its subsidiary's
partnership agreements, API was required to contribute $2,206,242 in order to
maintain its aggregate 1.99% general partnership interest.

On April 12, 1995, the Company received $108,660,200, the gross proceeds of the
Rights Offering, from its subscription agent and $2,206,242 from API. The
Company issued 1,975,640 Preferred Units and an additional 11,853,840 Depositary
Units. Trading in the Preferred Units commenced March 31, 1995 on the New York
Stock Exchange ("NYSE") under the symbol "ACP PR". The Depositary Units trade on
the NYSE under the symbol "ACP".

On March 4, 1996, the Company declared its first scheduled annual distribution
on the Preferred Units, payable solely in additional Preferred Units, at the
rate of $.50 per Preferred Unit (which is equal to a rate of 5% of the
liquidation preference thereof). The in-kind Preferred Unit distribution was
payable on April 1, 1996 to holders of record as of the close of business on
March 15, 1996. As a result, 98,782 of additional Preferred Units were issued.
The total outstanding Preferred Units is 2,074,422 as of April 1, 1996.

As of May 3, 1996, High Coast owns 1,741,688 Preferred Units and 12,991,312
Depositary Units.

9. EARNINGS PER SHARE

Net earnings per limited partnership unit and equivalent partnership units are
computed using the weighted average number of units and equivalent units
outstanding during the period. For the three month periods ended March 31, 1996
and 1995, the dilutive effect of preferred units and the pro rata quarterly
portion of the annual pay-in-kind distribution to preferred unitholders have
been included in the earnings per share calculation, as calculated under the
effective yield method, as equivalent depositary units. The earnings per share
calculation for the three months ended March 31, 1995 assumes the Depositary and
Preferred Units subscribed for in the Rights Offering were outstanding at the
beginning of that year. Also with respect

11

AMERICAN REAL ESTATE PARTNERS, L.P. - FORM 10-Q - MARCH 31, 1996

to the three months ended March 31, 1995 calculation, net income has been
increased by approximately $2,000,000 in accordance with the modified treasury
stock method. (See note 8).

10. SUBSEQUENT EVENT

On May 10, 1996, the Company sold a property in Miami, Florida that was tenanted
by the Cordis Corporation. The selling price for the property was $24,310,000.
First and second mortgages with principal balances outstanding of approximately
$14,416,000 were repaid at closing. In addition, prepayment penalties and
closing costs of approximately $750,000 were incurred. As a result, the Company
will recognize a gain on the sale of this property of approximately $4,000,000.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

GENERAL

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. The Company has experienced an increase in its
property expenses in recent years, due principally to tenant bankruptcies and
defaults as well as the acquisition of operating properties.

Economic conditions in recent years led the General Partner to reexamine the
Company's cash needs and investment opportunities. Tenant defaults and lease
expirations caused rental revenues to decrease and property management and
certain operating expenses to increase and led to expenditures to re-let. In
addition, the availability of acceptable financing to refinance maturing debt
obligations including the Company's Senior Unsecured Debt became increasingly
scarce. Consequently the General Partner determined it was necessary to conserve
cash and establish reserves from time to time. As a result, there was
insufficient cash flow from operations to pay distributions to unitholders and
such distributions were reduced and finally suspended. As discussed below, the
Company's investment strategy is to apply its capital transaction proceeds and
Rights Offering proceeds, including interest earned thereon, toward its
investments.

By the end of the year 2000, net leases representing approximately 26% of the
Company's net annual rentals from its portfolio will be due for renewal, and by
the end of the year 2002, net leases representing approximately 40% 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 is expected
that 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 from such properties.

As a consequence of the foregoing, the Company decided to raise funds through
the Rights Offering to increase its assets available for investment, take
advantage of investment

12

AMERICAN REAL ESTATE PARTNERS, L.P. - FORM 10-Q - MARCH 31, 1996

opportunities, further diversify its portfolio and mitigate against the impact
of potential lease expirations. The Rights Offering was successfully completed
during April 1995 and net proceeds of approximately $107.6 million were raised
for investment purposes. In order to enhance the Company's investment portfolio
(and ultimately its asset values and cash flow prospects), the Company is
seeking to acquire investments in undervalued assets, including commercial
properties, residential development projects, land parcels for the future
development of residential and commercial properties, non-performing loans and
securities of entities which own, manage or develop significant real estate
assets, including limited partnership units and securities issued by real estate
investment trusts. Such assets may not be generating a positive cash flow in the
near term; however, the General Partner believes that the acquisition of
properties requiring some degree of management or development activity have the
greatest potential for growth, both in terms of capital appreciation and the
generation of cash flow. These types of investments may involve debt
restructuring, capital improvements and active asset management and by their
nature as under-performing assets may not be readily financeable. As such, they
require the Company to maintain a strong capital base. The Company notes that
acquisition opportunities in the real estate market for value-added investors
are becoming 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 sought by the Company.

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 of certain of its properties by third-party consultants. Based on
the results of these Phase I Environmental Site Assessments, the environmental
consultant has recommended that limited Phase II Environmental Site
Investigations be conducted.

The Company has notified each of the tenants of the respective sites of the
environmental consultant's findings. If such tenants do not arrange for further
investigations, or remediations, if required, the Company may determine to
undertake the same at its own cost. 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 $3-4 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 is planning Phase I Environmental Site Assessments for
approximately 100 more net leased properties during 1996 and 1997. 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.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Gross revenues increased by approximately $4,393,000, or 27.1%, during the three
months ended March 31, 1996 as compared to the same period in 1995. This
increase reflects approximate

13

AMERICAN REAL ESTATE PARTNERS, L.P. - FORM 10-Q - MARCH 31, 1996

increases of $2,788,000 in other income, $2,019,000, or 337.0%, in other
interest income, $335,000, or 7.1%, in rental income, and $71,000, or 2.2%, in
hotel operating income partially offset by a decrease of approximately $820,000,
or 10.6%, in financing lease income. The increase in other income is primarily
due to the Forte settlement and lease termination. The increase in other
interest income is primarily due to increased interest income earned on the
Rights Offering and sales proceeds and the investment in the Facility Agreement.
The hotel operating revenues were generated by two hotels formerly leased to
Integra, A Hotel and Restaurant Company. The Company has been operating these
hotel properties through a third party management company since August 7, 1992.
The decrease in financing lease income is primarily attributable to normal lease
amortization and property sales. Due to the seasonal nature of the hotel
properties, the hotel revenues for the three months ended March 31, 1996 are
disproportionately higher than those expected for subsequent quarters of 1996.

Expenses decreased by approximately $402,000, or 4.0%, during the three months
ended March 31, 1996 compared to the same period in 1995. This decrease reflects
a decrease of approximately $777,000, or 14.8%, in interest expense partially
offset by increases of approximately $202,000, or 16.1%, in depreciation and
amortization, $77,000, or 4.0%, in hotel operating expenses, $75,000, or 7.9%,
in property expenses and $21,000, or 3.3%, in general and administrative
expenses. The decrease in interest expense is primarily attributable to normal
loan amortization and reductions due to repayments of maturing balloon debt
obligations, including the Senior Unsecured Debt, as well as the sale of
encumbered properties. The hotel expenses were generated from the hotels
mentioned previously.

Earnings before property transactions increased during the three months ended
March 31, 1996 by approximately $4,794,000 as compared to the same period in
1995, primarily due to increased interest income earned on the Rights Offering
and sales proceeds, other income from the Forte settlement and lease termination
and decreased interest expense due to repayments of maturing debt obligations,
partially offset by a decrease in financing lease income.

Gain on property transactions decreased by approximately $4,269,000 during the
three months ended March 31, 1996 as compared to the same period in 1995, due to
differences in the size and number of transactions.

Net earnings for the three months ended March 31, 1996 increased by
approximately $526,000, or 5.0%, as compared to the three months ended March 31,
1995 for the reasons previously stated. Due to the seasonal nature of the
Company's two hotel properties previously mentioned, results of hotel operations
for the three months ended March 31, 1996 are expected to be significantly
higher than subsequent quarters of 1996.

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 larger portion of its 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 and
non-recurring other income) plus principal payments received on financing leases
as well as principal receipts on certain mortgages receivable reduced by
periodic principal payments on mortgage debt.

The Company may not be able to re-let certain of its properties at current 
rentals.  As

14

AMERICAN REAL ESTATE PARTNERS, L.P. - FORM 10-Q - MARCH 31, 1996

previously discussed, net leases representing approximately 40% of the Company's
net annual rentals will be due for renewal by the end of the year 2002. In 1996,
22 leases covering 22 properties and representing approximately $2,413,000 in
annual rentals are scheduled to expire. Seven of these 22 leases originally
representing approximately $1,102,000 in annual rental income have been or will
be re-let or renewed for approximately $1,109,000 in annual rentals. Such
renewals are generally for a term of five years. Six leases, with an approximate
annual rental income of $822,000, will be marketed for sale or lease when the
current lease terms expire. Tenants occupying two of the properties with
approximate annual rental income of $358,000 have elected to exercise their
purchase options and the renewal status of the remaining seven properties
representing approximately $131,000 in annual rental income is uncertain as of
the date hereof.

On December 4, 1995, the Board of Directors of the General Partner announced
that no distributions on its Depositary Units are expected to be made in 1996.
In making its announcement, the Company noted it plans to continue to apply
available Partnership operating cash flow towards its operations, repayment of
maturing indebtedness, tenant requirements and other capital expenditures and
creation of cash reserves for Partnership contingencies including environmental
matters and scheduled lease expirations. As previously reported, by the end of
the year 2000, net leases representing approximately 26% of the Company's net
annual rentals will be due for renewal, and by the end of the year 2002, 40% of
such rentals will be due for renewal. Another factor that the Company took into
consideration was that net leases representing approximately 30% of the
Company's annual rentals from its portfolio are with tenants in the retail
sector, some of which are currently experiencing cash flow difficulties and
restructurings. In making its announcement, the Company stated that it expects
to reconsider distribution issues for 1997.

There were no distributions due to Unitholders for the three months ended March
31, 1996. Distributions paid during the three months ended March 31, 1996
totaled approximately $37,000, representing distributions due to Unitholders who
exchanged their limited partner interests during 1996. There were no
distributions due to Unitholders for the three months ended March 31, 1995.
Distributions paid during the three months ended March 31, 1995 totaled
approximately $22,000, representing distributions due to Unitholders who
exchanged their limited partner interests during 1995.

During the three months ended March 31, 1996 the Company generated approximately
$ 7.6 million in cash flow from day-to-day operations which excludes
approximately $1.5 million in interest earned on the Rights Offering proceeds
which will be retained for future acquisitions. In addition, approximately $2.8
million of non-recurring income, including approximately $2.7 million, net of
related costs, from the Forte lease termination, was recorded. During the
comparable period of 1995, the Company generated approximately $6.9 million in
cash flow from day-to-day operations.

Capital expenditures for real estate, excluding new acquisitions, were
approximately $420,000 during the three months ended March 31, 1996. During the
comparable period of 1995, there were approximately $312,000 of such
expenditures.

In 1996 and 1997, the Company has approximately $11.3 million of principal
payments due each year on its Senior Unsecured Debt and approximately $19.0
million and $5.5 million of maturing balloon mortgages due, respectively. During
the three months ended March 31, 1996, approximately $1.9 million of balloon
mortgages were repaid out of the Company's cash flow.

15

AMERICAN REAL ESTATE PARTNERS, L.P. - FORM 10-Q - MARCH 31, 1996

During the comparable period of 1995, approximately $2.9 million of balloon
mortgages were repaid out of the Company's cash flow. The Company will seek to
refinance a portion of these maturing mortgages, although it does not expect to
refinance all of them and may be required to 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, 1996, net cash flow after payment of
maturing debt obligations and capital expenditures but before creation of cash
reserves was approximately $5 million, excluding non-recurring income and
interest earned on the Rights Offering proceeds which will be retained for
acquisitions. After the creation of such reserves net cash flow for the three
months ended March 31, 1996 was approximately break-even. The Company's
operating cash reserves are approximately $28 million at March 31, 1996 which
are being retained to meet maturing debt obligations, capitalized 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 guard
against scheduled lease expirations and other contingencies including
environmental matters. Rights Offering proceeds and related interest income are
being retained for investment in undervalued assets including commercial
properties, residential development projects, land parcels for the development
of residential and commercial properties, non-performing loans and securities of
entities which own, manage or develop significant real estate assets, including
limited partnership units and securities issued by real estate investment
trusts. In addition to using its available cash to make these types of
investments, the Company intends to sell some of its existing portfolio
properties and use such proceeds to reinvest in undervalued assets. These types
of investments may involve debt restructuring, capital improvements and active
asset management and by their nature as underperforming assets may not be
readily financeable and may not generate immediate positive cash flow. As such,
they require the Company to maintain a strong capital base both to react quickly
to these market opportunities as well as to allow the Company to rework the
assets to enhance their turnaround performance.  The Company notes that 
acquisition opportunities in the real estate market for value-added 
investors are becoming 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 sought by the Company.

The Company also has significant maturing debt requirements under the Note
Agreements. As of March 31, 1996, the Company has $33,923,329 of Senior
Unsecured Debt outstanding. Pursuant to the Note Agreements, the Company is
required to make semi-annual interest payments and annual principal payments.
The interest rate charged on the Senior Unsecured Debt is 9.6% per annum. Under
the terms of the Note Agreements, the Company deferred and capitalized 2%
annually of its interest payment through May 1993. In May 1994 and 1995, the
Company repaid $10 million and $11.3 million, respectively, of its outstanding
Senior Unsecured Debt under the Note Agreements and principal payments of
approximately $11,308,000 are due annually from 1996 through the final payment
date of May 27, 1998. As of March 31, 1996, the Company was in compliance with
the terms of the Note Agreements.

The Note Agreements contain certain covenants restricting the activities of the
Company. Under the Note Agreements, the Company must maintain a specified level
of net annual rentals from unencumbered properties (as defined in the Note
Agreements) and is restricted, in certain respects, in its ability to create
liens and incur debts. Investment by the Company in certain types of assets that
may be regarded as non-income producing, such as land or non-performing loans,
is restricted under the Note Agreements. The holders of the Senior Unsecured
Debt have agreed, however, to waive this restriction with respect to any capital
raised by the Company in the Rights Offering.

16

AMERICAN REAL ESTATE PARTNERS, L.P. - FORM 10-Q - MARCH 31, 1996

The Note Agreements contain certain prepayment penalties which the Company would
be required to pay if it extinguishes any portion of the outstanding principal
prior to its annual due date. The Note Agreements require that such prepayment
consist of 100% of the principal amount to be prepaid plus a premium based on a
formula described therein. As of April 26, 1996 the premium required in order to
prepay the Note Agreement in full would have been approximately $2,084,000.
Subject to negotiating favorable terms the Company may prepay in full the Senior
Unsecured Debt. Prepayment would release the Company from certain covenants
which restrict its operating and investment activities, including, among others,
covenants relating to the level of net annual rentals from unencumbered
properties and the ability to create liens and incur additional debt. To date,
the Partnership has been unable to negotiate favorable terms for such
prepayment.

Sales proceeds from the sale or disposal of portfolio properties totaled
approximately $290,000 in the three months ended March 31, 1996. During the
comparable period of 1995, sales proceeds totaled approximately $8.1 million.
There were no mortgage proceeds during the three months ended March 31, 1996.
During the comparable period of 1995, the Company received $9.8 million of
mortgage proceeds from the financing of its two apartment complexes located in
Lexington, Kentucky. The Company intends to use property sales, financing and
refinancing proceeds for new investments. In addition, the Company successfully
completed its Rights Offering in April 1995 and net proceeds of approximately
$107.6 million were raised for investment purposes.

The Company entered into two joint ventures with unaffiliated co-venturers in
June 1994 for the purpose of developing luxury garden apartment complexes in
Hoover, Alabama, and Cary, North Carolina. During the three months ended March
31, 1996, the Company invested approximately $7,000 in these joint ventures.
During the comparable period of 1995, the Company invested approximately
$300,000.

The Company's cash and cash equivalents increased by approximately $10.1 million
during the three months ended March 31, 1996, primarily due to the approximate
$2.7 million Forte lease termination payment, interest earned on the Rights
Offering proceeds of $1.5 million and sales proceeds of approximately $.3
million. These funds are being retained for investment in undervalued assets
including commercial properties, residential development projects, land parcels,
non-performing loans and securities of companies which own significant real
estate assets. In addition, approximately $5 million of additional cash reserves
were created.

PART II. Other information

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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

EXHIBIT INDEX

Exhibit            Description
-------            -----------
EX-27              Financial Data Schedule

(b) Reports on Form 8-K

None

17

AMERICAN REAL ESTATE PARTNERS, L.P. - FORM 10-Q - MARCH 31, 1996

18

AMERICAN REAL ESTATE PARTNERS, L.P. - FORM 10-Q - MARCH 31, 1996

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 14, 1996

19

AMERICAN REAL ESTATE PARTNERS, L.P. - FORM 10-Q - MARCH 31, 1996

21

<ARTICLE> 5
<MULTIPLIER> 1,000

<PERIOD-TYPE>                              3-MOS
<FISCAL-YEAR-END>                          DEC-31-1995
<PERIOD-END>                               MAR-31-1996
<CASH>                                         176,411
<SECURITIES>                                         0
<RECEIVABLES>                                        0
<ALLOWANCES>                                         0
<INVENTORY>                                          0
<CURRENT-ASSETS>                                     0
<PP                                         476,784
<DEPRECIATION>                                  47,912
<TOTAL-ASSETS>                                 629,735
<CURRENT-LIABILITIES>                                0
<BONDS>                                        193,314
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                             0
<OTHER-SE>                                     415,190
<TOTAL-LIABILITY-AND-EQUITY>                   629,735
<SALES>                                              0
<TOTAL-REVENUES>                                20,592
<CGS>                                                0
<TOTAL-COSTS>                                    4,486
<OTHER-EXPENSES>                                   677
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                               4,480
<INCOME-PRETAX>                                 11,001
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                                  0
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    11,001
<EPS-PRIMARY>                                      .39
<EPS-DILUTED>                                      .39