<Page>
- --------------------------------------------------------------------------------
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, 2002
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)
(914) 242-7700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
-------------------
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 [ ]
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<Page>
INDEX
<Table>
<Caption>
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
March 31, 2002 and December 31, 2001.................... 2
Consolidated Statements of Earnings --
Three Months Ended March 31, 2002 and 2001.............. 3
Consolidated Statement of Changes In Partners' Equity
and Comprehensive Income
Three Months Ended March 31, 2002....................... 4
Consolidated Statements of Cash Flows --
Three Months Ended March 31, 2002 and 2001.............. 5
Notes to Consolidated Financial Statements.............. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.................................... 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISKS.................................... 16
PART II. OTHER INFORMATION.................................. 17
</Table>
1
<Page>
AMERICAN REAL ESTATE PARTNERS, L.P.
FORM 10-Q-MARCH 31, 2002
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)
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2002 2001
---- ----
(IN $000'S)
ASSETS
Real estate leased to others:
Accounted for under the financing method................ $ 175,131 $ 176,757
Accounted for under the operating method, net of
accumulated depreciation.............................. 180,825 181,840
Investment in U.S. Government and Agency obligations........ 307,363 313,641
Note receivable due from affiliate.......................... 250,000 250,000
Cash and cash equivalents................................... 87,125 61,015
Marketable equity and debt securities....................... 35,826 35,253
Mortgages and notes receivable.............................. 47,751 35,529
Equity interest in GB Holdings, Inc......................... 40,752 39,936
Hotel, casino and resort operating properties net of
accumulated depreciation:
Stratosphere Corporation hotel and casino............. 183,307 184,191
Hotel and resort...................................... 43,300 43,990
Land and construction-in-progress........................... 64,679 69,429
Receivables and other assets................................ 57,086 60,061
---------- ----------
Total............................................... $1,473,145 $1,451,642
---------- ----------
---------- ----------
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable........................................... $ 164,700 $ 166,808
Due to affiliate............................................ 68,984 68,805
Accounts payable, accrued expenses and other liabilities.... 53,825 47,967
---------- ----------
287,509 283,580
---------- ----------
Minority interest in Stratosphere Corporation hotel and
casino.................................................... 68,102 67,433
---------- ----------
Commitments and contingencies (Notes 2 and 3)
Limited partners:
Preferred units, $10 liquidation preference, 5%
cumulative pay-in-kind redeemable; 9,400,000
authorized; 9,330,963 and 8,886,631 issued and
outstanding as of March 31, 2002 and Dec. 31, 2001.... 93,309 92,198
Depositary units; 47,850,000 authorized; 47,235,484
outstanding........................................... 1,012,158 996,701
General partner............................................. 23,988 23,651
Treasury units at cost:
1,137,200 depositary units.............................. (11,921) (11,921)
---------- ----------
Partners' equity............................................ 1,117,534 1,100,629
---------- ----------
Total............................................... $1,473,145 $1,451,642
---------- ----------
---------- ----------
</Table>
See notes to consolidated financial statements.
2
<Page>
AMERICAN REAL ESTATE PARTNERS, L.P.
FORM 10-Q-MARCH 31, 2002
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED
MARCH, 31
--------------------
2002 2001
---- ----
(IN $000S EXCEPT
PER UNIT DATA)
Revenues:
Hotel and casino operating income....................... $37,151 $33,257
Land, house and condominium sales....................... 19,129 10,764
Interest income on financing leases..................... 3,924 4,411
Interest income on U.S. Government and Agency
obligations and other investments..................... 6,104 9,036
Rental income........................................... 6,876 6,140
Hotel and resort operating income....................... 2,854 2,732
Dividend and other income............................... 825 1,513
Equity in earnings (loss) of GB Holdings, Inc........... 1,556 (946)
------- -------
78,419 66,907
------- -------
Expenses:
Hotel and casino operating expenses..................... 31,637 29,147
Cost of land, house and condominium sales............... 13,829 7,429
Hotel and resort operating expenses..................... 3,113 2,836
Interest expense........................................ 4,142 5,307
Depreciation and amortization........................... 4,935 4,076
General and administrative expenses..................... 1,648 1,916
Rental property expenses................................ 1,525 1,018
------- -------
60,829 51,729
------- -------
Earnings before property and securities transactions and
minority interest....................................... 17,590 15,178
Other gains and (losses):
Gain on sale of marketable equity and debt securities... -- 1,334
Gain on sales and disposition of real estate............ 1,639 --
Minority interest in net earnings of Stratosphere
Corporation........................................... (407) (681)
------- -------
Net Earnings................................................ $18,822 $15,831
------- -------
------- -------
Net earnings attributable to (Note 10):
Limited partners........................................ $18,447 $15,516
General partner......................................... 375 315
------- -------
$18,822 $15,831
------- -------
------- -------
Net earnings per limited partnership unit:
Basic earnings.......................................... $ 0.38 $ 0.31
------- -------
------- -------
Weighted average limited partnership units outstanding...... 46,098,284 46,098,284
Diluted earnings........................................ $ 0.33 $ 0.28
------- -------
------- -------
Weighted average limited partnership units and equivalent
partnership units outstanding............................. 56,377,391 55,312,767
</Table>
See notes to consolidated financial statements.
3
<Page>
AMERICAN REAL ESTATE PARTNERS, L.P.
FORM 10-Q-MARCH 31, 2002
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS'
EQUITY AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED) (IN $000'S)
<Table>
<Caption>
LIMITED PARTNERS'
EQUITY
GENERAL ---------------------- HELD IN TREASURY TOTAL
PARTNER'S DEPOSITARY PREFERRED ---------------- PARTNERS'
EQUITY UNITS UNITS AMOUNTS UNITS EQUITY
------ ----- ----- ------- ----- ------
Balance, December 31, 2001........ $23,651 $ 996,701 $92,198 $(11,921) 1,137 $1,100,629
Comprehensive income:
Net earnings.................. 375 18,447 -- -- -- 18,822
Net unrealized losses on
securities available for
sale........................ (38) (1,879) -- -- -- (1,917)
------- ---------- ------- -------- ----- ----------
Comprehensive income.............. 337 16,568 -- -- -- 16,905
Pay-in-kind distribution.......... -- (1,111) 1,111 -- -- --
------- ---------- ------- -------- ----- ----------
Balance, March 31, 2002........... $23,988 $1,012,158 $93,309 $(11,921) 1,137 $1,117,534
------- ---------- ------- -------- ----- ----------
------- ---------- ------- -------- ----- ----------
</Table>
Accumulated other comprehensive income (loss) at March 31, 2002 was
($19,095).
See notes to consolidated financial statements.
4
<Page>
AMERICAN REAL ESTATE PARTNERS, L.P.
FORM 10-Q-MARCH 31, 2002
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED
MARCH, 31
------------------
2002 2001
---- ----
(IN $000'S)
Cash flows from operating activities:
Net earnings............................................ $18,822 $ 15,831
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization....................... 4,935 4,076
Gain on sale of marketable equity securities........ -- (1,334)
Gain on sales and disposition of real estate........ (1,639) --
Minority interest in net earnings of Stratosphere
Corporation....................................... 407 681
Equity in (earnings) losses of GB Holdings, Inc. ... (1,556) 946
Changes in operating assets and liabilities:
Decrease (increase) in land and construction-in
progress...................................... 4,473 (1,036)
Increase in accounts payable, accrued expenses
and other liabilities......................... 5,696 3,335
(Increase) decrease in receivables and other
assets........................................ (2,826) 848
------- --------
Net cash provided by operating activities... 28,312 23,347
------- --------
Cash flows from investing activities:
Increase in mortgages and notes receivable.............. (12,222) (3,692)
Net proceeds from the sales and disposition of real
estate................................................ 5,554 --
Principal payments received on leases accounted for
under the financing method............................ 1,626 1,775
Additions to hotel, casino and resort operating
property.............................................. (1,090) (19,906)
Additions to rental real estate......................... (107) (204)
Decrease in investment in U.S. Government and Agency
obligations........................................... 6,278 20,744
Disposition of marketable equity & debt securities...... -- 10,876
Decrease in due to affiliate............................ (181) (9,640)
Decrease in investment in limited partnership
interests............................................. 48 --
------- --------
Net cash used in investing activities....... (94) (47)
------- --------
Cash flows from financing activities:
Debt:
Payments on mortgages payable....................... (70) --
Periodic principal payments......................... (2,038) (1,920)
Balloon payments.................................... -- (2,463)
------- --------
Net cash used in financing activities....... (2,108) (4,383)
------- --------
Net increase in cash and cash equivalents................... $26,110 $ 18,917
Cash and cash equivalents, beginning of period.............. 61,015 147,705
------- --------
Cash and cash equivalents at end of period.................. $87,125 $166,622
------- --------
------- --------
Supplemental Information:
Cash payments for interest, net of amounts
capitalized........................................... $ 3,686 $ 4,172
------- --------
------- --------
Supplemental schedule of noncash investing and financing
activities:
Reclassification of real estate to operating lease...... $ -- $ 1,017
Reclassifications from hotel and resort operating
properties............................................ -- (1,167)
Reclassification of real estate from financing lease.... -- (1,017)
Reclassification of real estate to
construction-in-progress.............................. -- 1,167
------- --------
$ -- $ --
------- --------
------- --------
</Table>
See notes to consolidated financial statements.
5
<Page>
AMERICAN REAL ESTATE PARTNERS, L.P.
FORM 10-Q-MARCH 31, 2002
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, 2001.
The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
The results of operations for the three months ended March 31, 2002 are not
necessarily indicative of the results to be expected for the full year. Hotel,
casino and resort operations are highly seasonal in nature and are not
necessarily indicative of results expected for the full year.
2. RELATED PARTY TRANSACTIONS
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 $135,000, plus its share of certain additional rent. Such
agreement was approved by the Audit Committee of the Board of Directors of the
General Partner (the 'Audit Committee'). For the three months ended March 31,
2002 and 2001 the Company paid rent of approximately $36,000, in accordance with
the agreement.
b. Stratosphere Corp. ('Stratosphere') received from affiliates of the
General Partner approximately $476,000 and $105,000 as reimbursement for
administrative services performed by Stratosphere personnel during the three
months ended March 31, 2002 and 2001, respectively.
Stratosphere recorded hotel revenue of approximately $57,000 and $132,000
during the three months ended March 31, 2002 and 2001, respectively, in
connection with a tour and travel agreement entered into with an affiliate of
the General Partner.
c. As of May 1, 2002 affiliates of Carl C. Icahn ('Icahn'), the Chairman of
the Board of the General Partner, own 8,073,466 Preferred Units and 39,706,836
Depositary Units.
3. COMMITMENTS AND CONTINGENCIES
a. On January 31, 2001, Stratosphere was named in an action styled Disabled
Rights Action Committee v. Stratosphere Gaming Corp., Case No. A430070, in the
Eighth Judicial District Court of the State of Nevada. The complaint alleges a
number of violations of the Americans with Disabilities Act ('ADA'), including
inadequate room selection, door widths and other similar items. Simultaneously
with the complaint, plaintiffs filed a Motion for Preliminary Injunction,
seeking to have construction halted on the new hotel tower until the property
fully complies with the ADA. Stratosphere removed the action to the United
States District Court in Nevada and it is now styled as Disabled Rights Action
Committee v. Stratosphere Gaming Corp., Case No. CV-S-01-0162-RLH (PAL).
The federal district court held a hearing on plaintiffs' Motion for
Preliminary Injunction and denied the motion, focusing upon what the Court
believed to be the plaintiffs' lack of irreparable injury. The federal district
court also granted Stratosphere's Motion to Dismiss the plaintiffs' state law
claims, leaving in place only the ADA claims. Stratosphere and the Plaintiffs
then filed Motions for Summary Judgement. The District Court granted and denied
in part each of the parties respective motions. The Court ordered that
Stratosphere must make certain renovations to 532 rooms that were opened in
1996. The Court issued an injunction requiring that these renovations be
completed by August 9, 2002. Stratosphere had already commenced these
renovations prior to the Court order and expects to meet the court deadline.
Stratosphere believes the cost of these renovations will be approximately
$500,000. On April 5, 2002, plaintiffs filed a motion seeking attorney's fees of
approximately $50,000. Stratosphere has opposed the motion that, at best,
plaintiffs could seek approximately $10,000. The court has yet to rule on
plaintiffs' motion.
6
<Page>
b. In addition, in the ordinary course of business, the Company, its
subsidiaries and other companies in which the Company has invested are parties
to various legal actions. In management's opinion, the ultimate outcome of such
legal actions will not have a material effect on the results of operations or
the financial position of the Company.
c. In January 2002, Kmart Corp., a tenant leasing seven properties owned by
the Company which represent approximately $1,374,000 in annual rentals, filed a
voluntary petition for reorganization under Chapter 11 of the Federal Bankruptcy
Code. Pursuant to an order of the Bankruptcy Court, four leases have been
rejected representing approximately $713,000 in annual rents. The related
properties are being held for sale. The Company previously recorded a provision
for loss on real estate of approximately $1.9 million on these four properties
in the year ended December 31, 2001. As of May 1, 2002, the Company has not been
notified regarding the three remaining leases representing approximately
$661,000 in annual rents. The tenant is current in its rent payments on these
three leases. At March 31, 2002, the carrying value of the seven properties was
approximately $6,845,000, which reflects net realizable value.
d. In September 2001, Ames Department Stores, a tenant in a property owned
by the Company filed a voluntary petition for reorganization under Chapter 11 of
the Bankruptcy Code. The annual rent for this property is approximately
$327,000. The tenant rejected the lease effective March 15, 2002. At March 31,
2002, the carrying value of this property was approximately $2,188,000, which
reflects net realizable value.
4. NOTE RECEIVABLE-AFFILIATE
On December 27, 2001, the Company entered into a transaction with Carl C.
Icahn, Chairman of the Board of the General Partner, pursuant to which the
Company made a two-year $250 million loan to Mr. Icahn, secured by securities
consisting of (i) $250 million aggregate market value of the Company's units
owned by Mr. Icahn (approximately 21.1 million depositary units and 7.7 million
preferred units) and (ii) shares of a private company owned by Mr. Icahn, which
shares were represented to have an aggregate book value of at least $250
million, together with an irrevocable proxy on sufficient additional shares of
the private company so that the pledged shares and the shares covered by the
proxy equal in excess of 50% of the private company's shares. The private
company owns other Icahn investments and does not own the Company's units. The
loan bears interest, payable semi-annually beginning June 30, 2002, at a per
annum rate equal to the greater of (i) 3.9% and (ii) 200 basis points over 90
day LIBOR to be reset each calendar quarter. The applicable rate during the
three months ended March 31, 2002 was 3.9%. The loan must be prepaid in an
amount of up to $125 million to the extent that the Company requests such funds
for an investment opportunity and may be prepaid at any time by Mr. Icahn. The
Company entered into this transaction to earn interest income on a secured
investment. In the event of a loan default, the Company would at its option,
liquidate the shares of the private company or reacquire its own units, or both,
to satisfy the loan. Accrued interest income of approximately $2.5 million was
recorded on this loan in the three months ended March 31, 2002 and is included
in 'Interest income on U.S. Government and Agency obligations and other
investments' in the Consolidated Statements of Earnings.
5. HOTEL, CASINO AND RESORT OPERATING PROPERTIES
a. Stratosphere Hotel and Casino
The Company owns approximately 51% of Stratosphere and consolidates
Stratosphere in its financial statements. Stratosphere owns and operates the
Stratosphere Tower Casino and Hotel located in Las Vegas, Nevada.
On February 1, 2002 the Company entered into a merger agreement with
Stratosphere under which the Company will acquire the remaining shares of
Stratosphere that the Company does not currently own. The Company currently owns
approximately 51% of Stratosphere and Carl C. Icahn owns approximately 38.6%.
The initial determination to engage in the transaction at the prices set forth
below was previously announced by the Company in September 2000.
Under the agreement the stockholders who are unaffiliated with Mr. Icahn
will receive a cash price of $45.32 per share (approximately $9.6 million) and
the Icahn related stockholders other than the
7
<Page>
Company will receive a cash price of $44.33 per share (approximately $34.7
million). The Company will pay an aggregate of approximately $44.3 million for
the Stratosphere shares. Stratosphere filed a Preliminary Proxy Statement with
the Securities and Exchange Commission on March 14, 2002 and expects this
transaction to be completed in the second half of 2002.
Stratosphere's operations for the three months ended March 31, 2002 and 2001
have been included in 'Hotel and casino operating income and expenses' in the
Consolidated Statements of Earnings. Hotel and casino operating expenses include
all expenses except for approximately $3,317,000 and $2,423,000 of depreciation
and amortization for the three months ended March 31, 2002 and 2001,
respectively. Such amounts have been included in 'Depreciation and amortization
expense' in the Consolidated Statements of Earnings.
b. Hotel and Resort Operating Properties
Hotel and resort operations for the three months ended March 31, 2002 and
2001 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 $369,000 and $323,000 of
depreciation and amortization for the three months ended March 31, 2002 and 2001
respectively. Such amounts have been included in 'Depreciation and amortization
expense' in the Consolidated Statements of Earnings.
6. MARKETABLE EQUITY AND DEBT SECURITIES
In March 2000, in accordance with a prior agreement, the Company transferred
its First Mortgage Notes ('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 $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 increased by Icahn
advances, decreased by distributions and/or interest payments received (together
with interest at an annual rate of 1 1/2% over the prime rate) when appropriate
licenses are obtained by the Company from the New Jersey Casino Control
Commission ('Casino Control Commission').
Regarding the Sands, subsequent to such transfer of interests, in July 2000,
the U.S. Bankruptcy Court ruled in favor of the reorganization plan proposed by
affiliates of Icahn, which provided for an additional investment of $65 million
by the Icahn affiliates in exchange for a 46% equity interest, with the
bondholders (which also included Icahn affiliates) receiving $110 million in new
notes and a 54% ownership position. The plan, which became effective
September 29, 2000, provided the Icahn affiliates with a controlling interest.
In February 2001, the Icahn affiliates sold their entire Claridge portfolio
($37.1 million face amount of Claridge Notes) for the following additional
interests in the Sands: (i) 779,861 common shares of GB Holdings Inc. ('GB
Holdings'), (ii) $15.96 million face amount of GB Property First Mortgage Notes
('GB Notes') and (iii) $21.56 million in cash. The Company no longer has any
interest in the Claridge. As a result, affiliates of the General Partner are, in
effect, holding on behalf of the Company approximately (i) 3.6 million common
shares of GB Holdings and (ii) $26.9 million face amount of GB Notes, to which
the Company will become entitled and obligated to purchase when it is fully
licensed for approximately $69 million at March 31, 2002 including accrued
interest from March 2000 of approximately $11 million. Accrued interest expense
of approximately $919,000 and $1,695,000 was recorded on this obligation in the
three months ended March 31, 2002 and 2001, respectively, and is included in
'Interest expense' in the Consolidated Statements of Earnings.
For accounting purposes, the Company reflects its liability to repurchase
its Sands interest as 'Due to affiliates' in the Consolidated Balance Sheets.
The Company includes its new Sands notes in 'Debt and equity securities' and its
pro rata equity interest in the Sands as 'Equity interest in GB Holdings, Inc.'
in the Consolidated Balance Sheets.
In May 2002, the Company was qualified as a holding company by the Casino
Control Commission and repurchased its interests in the Sands, as disclosed
above, for approximately $69.3 million.
8
<Page>
As required by the New Jersey Casino Control Act, ('Casino Control Act') the
Partnership Agreement was amended to provide that securities of the Company are
held subject to the condition that if a holder thereof is found to be
disqualified by the Casino Control Commission pursuant to the provisions of the
Casino Control Act such holder shall dispose of his interest in the Company in
accordance with the Casino Control Act.
7. NEW ACCOUNTING PRONOUNCEMENTS
As of January 1, 2002 the Company has adopted the Statements of Financial
Accounting Standards Nos. 141, 142 and 144 (SFAS 141, SFAS 142 and SFAS 144)
'Business Combinations', 'Goodwill and Other Intangible Assets' and 'Accounting
for the Impairment or Disposal of Long-Lived Assets.' The adoption of SFAS 141,
SFAS 142 and SFAS 144 has not had any impact in the Company's consolidated
financial statements.
8. MORTGAGES AND NOTES RECEIVABLE
a. Included in this classification are mezzanine loan advances of $23
million of which $13 million of principal amount is due November 29, 2002 and
$10 million of principal amount is due May 29, 2003. Interest accrues on these
loans with principal and interest due at maturity. The loans may be prepaid at
anytime from the proceeds of condominium unit sales after satisfaction of the
senior debt of approximately $45 million. For accounting purposes, no income has
been recognized on this investment in the Company's financial statements to
date. Accrued interest of approximately $7 million due on the mezzanine loans as
of March 31, 2002 has been deferred pending receipt of principal and interest
payments.
b. In February 2002, the Company loaned an unaffiliated borrower $12.2
million as an initial funding of a mezzanine loan to be used for certain initial
development costs associated with a 223 unit condominium property located in
Aventura, Florida. Additional funding of $5 million, to be used exclusively for
flooring costs for individual condo units, will be made within the next year.
The loan accrues interest of 22% per annum, compounded monthly, and matures in
twenty-four months with two six month extensions. For accounting purposes, no
income will be recognized on this investment pending receipt of principal and
interest payments, which are expected to be made from the proceeds of
condominium unit sales subject to repayment of senior debt.
9. PREFERRED UNITS
Pursuant to the terms of the Preferred Units, on February 22, 2002, 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, 2002 to holders of record as of
March 15, 2002. A total of 444,331 additional Preferred Units were issued. As of
March 31, 2002, 9,330,963 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 equivalent units outstanding. The Preferred Units are
considered to be equivalent units.
For the three months ended March 31, 2002 and 2001, basic and diluted
earnings per weighted average limited partnership unit are detailed as follows:
<Table>
<Caption>
THREE MONTHS
ENDED
------------------
3/31/02 3/31/01
------- -------
Basic:
Earnings before property and securities transactions.... $.35 $.28
Net gain from property and securities transactions...... .03 .03
---- ----
Net earnings........................................ $.38 $.31
---- ----
---- ----
</Table>
(table continued on next page)
9
<Page>
(table continued from previous page)
<Table>
<Caption>
THREE MONTHS
ENDED
---------------------
3/31/02 3/31/01
------- -------
Diluted:
Earnings before property and securities transactions.... $.30 $.26
Net gain from property and securities transactions...... .03 .02
---- ----
Net earnings........................................ $.33 $.28
---- ----
---- ----
</Table>
11. COMPREHENSIVE INCOME
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, 2002 and 2001 is
as follows (in $000's):
<Table>
<Caption>
THREE MONTHS
ENDED
-----------------
2002 2001
---- ----
Net income.................................................. $18,822 $15,831
Sale of debt securities available for sale.................. -- 3,896
Unrealized (losses) gains on securities available for
sale...................................................... (1,917) 715
------- -------
Comprehensive income........................................ $16,905 $20,442
------- -------
------- -------
</Table>
12. SEGMENT REPORTING
The Company is engaged in five operating segments consisting 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 and debt securities. The Company's reportable segments
offer different services and require different operating strategies and
management expertise. There have been no material changes in segment assets
since December 31, 2001.
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, 2002 and 2001 (in
$000's).
<Table>
<Caption>
THREE MONTHS
ENDED
------------------
3/31/02 3/31/01
------- -------
Revenues:
Hotel & casino operating income......................... $37,151 $33,257
Rental real estate...................................... 10,800 10,551
Land, house and condominium sales....................... 19,129 10,764
Hotel & resort operating income......................... 2,854 2,732
Other investments....................................... 2,603 2,057
------- -------
Sub-total........................................... 72,537 59,361
Reconciling items -- primarily interest income on U.S.
Government obligations and the Icahn note receivable...... 5,882 7,546
------- -------
Total revenues...................................... $78,419 $66,907
------- -------
------- -------
</Table>
(table continued on next page)
10
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(table continued from previous page)
<Table>
<Caption>
THREE MONTHS
ENDED
-----------------
3/31/02 3/31/01
------- -------
Net earnings:
Segment earnings (losses):
Rental real estate...................................... $ 9,275 $ 9,533
Land, house and condominium development................. 5,300 3,335
Hotel and resort operating properties................... (259) (104)
Hotel and casino operating properties................... 5,514 4,110
Other investments....................................... 2,603 2,057
------- -------
Total segment earnings.............................. 22,433 18,931
Other expenses net.......................................... (3,611) (3,100)
General partner's share of net income....................... (375) (315)
------- -------
Net earnings-limited partner unitholders............ $18,447 $15,516
------- -------
------- -------
</Table>
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 is a master limited partnership primarily engaged in acquiring
and managing real estate investments with a primary focus on office, retail,
industrial, hotel, gaming and residential properties.
The Company believes that it will benefit from the diversification of its
portfolio of assets. 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. 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. 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 and entertainment industries,
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
under-performing properties that may require active asset management and
significant capital improvements. The Company has made investments in the gaming
industry and may consider additional gaming industry investments and investments
related to the entertainment industry. Such investments may include additional
casino properties and those in the entertainment field, such as movie theater
interests, and the financing and investment in the movie production and
distribution industry. Such investments may include acquisitions from, or in
joint venture or co-management with, Icahn, the General Partner or their
affiliates, provided that the terms thereof are fair and reasonable to the
Company. 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
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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 2004, net leases representing approximately 15% of
the Company's net annual rentals from its portfolio will be due for renewal, and
by the end of the year 2006, net leases representing approximately 35% 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.
The Partnership Agreement 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.
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 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
property refinancings.
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 2002 with another thirty-five scheduled for the year 2003.
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<Page>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001
Gross revenues increased by $11,512,000, or 17.2%, during the three months
ended March 31, 2002 as compared to the same period in 2001. This increase
reflects increases of $8,365,000 in land, house and condominium sales,
$3,894,000 in hotel and casino operating income, $2,502,000 in equity in
earnings of GB Holdings, Inc., $736,000 in rental income and $122,000 in hotel
and resort operating income, partially offset by decreases of $2,932,000 in
interest income on U.S. Government and Agency Obligations and other investments,
$688,000 in dividend and other income and $487,000 in financing lease income.
The increase in land, house and condominium sales is primarily due to an
increase in the number of units sold. The increase in hotel and casino operating
income is primarily attributable to an increase in gaming and hotel revenues as
a result of increased room capacity brought about by the hotel expansion. The
average daily rate ('ADR') increased $1 to $50; however, percentage occupancy
decreased approximately 12% to 86.2%. The increase in equity in earnings of GB
Holdings, Inc. is due to increased slot machine revenues, reduced promotional
allowances and decreased casino expenses. The increase in rental income is
primarily attributable to reclassifications of financing leases to operating
leases. The decrease in interest income on U.S. Government and Agency
obligations and other investments is primarily attributable to a decrease in
interest rates on short-term investments mitigated by higher rates obtained on
the Icahn note receivable and on U.S. Agency obligations maturing within four to
six years. The decrease in dividend and other income is primarily due to a lease
termination fee (approximately $1 million) received in the three months ended
March 31, 2001. The decrease in financing lease income is the result of lease
expirations, reclassifications of financing leases and normal financing lease
amortization.
Expenses increased by $9,100,000, or 17.6%, during the three months ended
March 31, 2002 as compared to the same period in 2001. This increase reflects
increases of $6,400,000 in the cost of land, house and condominium sales,
$2,490,000 in hotel and casino operating expenses, $859,000 in depreciation and
amortization, $507,000 in rental property expenses and $277,000 in hotel and
resort operating expenses partially offset by decreases of $1,165,000 in
interest expense and $268,000 in general and administrative expenses. The
increase in the cost of land, house and condominium sales is due to the
increased sales as discussed above. Costs as a percentage of sales increased
from 69% in 2001 to 72% in 2002 primarily due to higher margin land sales in
2001. The increase in hotel and casino operating expenses is primarily
attributable to increased costs associated with increased revenues. Costs as a
percentage of sales declined from 88% in 2001 to 85% in 2002 as hotel and casino
revenues increased at a greater rate than hotel and casino expenses. The
increase in property expenses is primarily due to an increase in expenses
related to off-lease properties. The decrease in interest expense is primarily
due to decreased interest rates as well as a decrease in the amount due
affiliates in connection with repurchase obligations. The increase in
depreciation expense is primarily attributable to the expansion of the
Stratosphere hotel and casino.
As a result of the completion of Stratosphere's additional 1,000 rooms and
related amenities in June 2001, hotel and casino operating revenues and expenses
have increased. Increased room capacity provided more hotel guests thereby
increasing revenues. However, these increases were muted by the September 11,
2001 terrorist attack. Management anticipates increased hotel and casino
operating revenues and expenses through the second quarter of 2002 due to the
completion of the hotel expansion in June 2001. However, these increases are
expected to be tempered by decreased air travel to Las Vegas as a result of the
terrorist threat, increased competition and uncertain economic conditions.
Earnings before property and securities transactions and minority interest
increased during the three months ended March 31, 2002 by $2,412,000 as compared
to the same period in 2001.
Gain on property transactions increased by $1,639,000 during the three
months ended March 31, 2002 as compared to the same period in 2001 as there were
no dispositions of real estate during this period in 2001.
Gain on sale of marketable equity securities decreased by $1,334,000 during
the three months ended March 31, 2002 as compared to the same period in 2001 as
there were no such dispositions in 2002.
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<Page>
Minority interest in the net earnings of Stratosphere Corporation decreased
by $274,000 during the three months ended March 31, 2002 as compared to the same
period in 2001 due to a decrease in Stratosphere's net income.
Net earnings for the three months ended March 31, 2002 increased by
$2,991,000 as compared to the three months ended March 31, 2001 primarily due to
increased equity in earnings of GB Holdings, Inc. ($2.5 million), increased
earnings from land, house, and condominium sales ($2.0 million) and increased
earnings from hotel and casino operations ($1.4 million) partially offset by
decreased interest income ($2.9 million).
Diluted earnings per weighted average limited partnership unit outstanding
before property and security transactions were $.30 in the three months ended
March 31, 2002 compared to $.26 in the comparable period of 2001, and net gain
from property and securities transactions was $.03 in the three months ended
March 31, 2002 compared to $.02 in the comparable period of 2001. Diluted
earnings per weighted average limited partnership unit outstanding totalled $.33
in the three months ended March 31, 2002 compared to $.28 in the comparable
period of 2001.
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. 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
flows 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.
The following table reflects the Company's contractual cash obligations due
over the indicated periods and when they expire (in $ millions):
<Table>
<Caption>
LESS THAN 1-3 4-5 AFTER
1 YEAR YEARS YEARS 5 YEARS TOTAL
------ ----- ----- ------- -----
Mortgages payable............................ $ 7.5 $23.3 $20.9 $113.0 $164.7
Capital lease obligation..................... 2.4 -- -- -- 2.4
Mezzanine loan commitments................... 16.0 -- -- -- 16.0
Repurchase of Sands interests................ 69.3 -- -- -- 69.3
Construction and development obligations..... 19.7 -- -- -- 19.7
------ ----- ----- ------ ------
Total.................................... $114.9 $23.3 $20.9 $113.0 $272.1
------ ----- ----- ------ ------
------ ----- ----- ------ ------
</Table>
The Company has the right and obligation to repurchase its interest in the
Sands when the appropriate licenses are obtained by the Company. At March 31,
2002, the Company's obligation to affiliates of the General Partner for
interests held in the Sands on its behalf was approximately $69 million. In May
2002, the Company was qualified as a holding company by the New Jersey Casino
Control Commission and repurchased its interests for approximately $69.3
million.
In 2002, fourteen leases covering fourteen properties and representing
approximately $2.1 million in annual rentals are scheduled to expire. Six
leases, originally representing approximately $826,000 in annual rental income,
were renewed for approximately $535,000 in annual rentals. Such renewals are
generally for a term of five years. Six leases with annual rental income of
approximately $951,000 were not renewed and are currently being marketed for
sale or lease. The status of two properties with annual rentals of $332,000 has
not yet been determined.
The Board of Directors of the General Partner announced that no
distributions on its Depositary Units are expected to be made in 2002. 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 cash flow toward its operations, repayment of
maturing indebtedness, tenant requirements, other capital expenditures and cash
reserves for contingencies including environmental matters and scheduled lease
expirations. By the end of the year 2004, net leases representing approximately
15% of the Company's net annual rentals will be due for renewal, and by the end
of the year 2006, 35% of such rentals will be due for renewal. Another factor
that the Company took into
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<Page>
consideration was that net leases representing approximately 29% of the
Company's annual rentals are with tenants in the retail sector, some of which
are currently experiencing cash flow difficulties and restructurings.
During the three months ended March 31, 2002, the Company generated
approximately $10.8 million in cash flow from day-to-day operations which
excludes approximately $14.3 million in cash flow from the operations of
Bayswater and Stratosphere which are being retained for their operations.
Capital expenditures for real estate, excluding hotel and casino operating
property, were approximately $1 million during the three months ended March 31,
2002.
During the three months ended March 31, 2002, net cash flow after payment of
maturing debt obligations and capital expenditures was approximately $9.8
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 $182 million
at March 31, 2002, (not including the cash from capital transactions or from the
1997 Offering which is being retained for investment). The current economic
conditions and the continuing terrorist threat may decrease the Company's cash
flow from rental and investment activities requiring the use of cash reserves
for (i) repayment of debt obligations, (ii) tenant and other capital
requirements and (iii) other contingencies including environmental matters.
In February 2002, the Company entered into a merger agreement with
Stratosphere under which, the Company, subject to certain conditions, will
acquire the remaining shares of Stratosphere that it does not currently own from
affiliates of Icahn and public shareholders for approximately $44.3 million.
This transaction is expected to be completed in the second half of 2002.
The Company's cash and cash equivalents and investment in U.S. Government
and Agency obligations increased by $19.8 million during the three months ended
March 31, 2002, primarily due to net cash flow from Bayswater and Stratosphere
operations ($14.3 million), net cash flow from operations ($9.8 million),
property dispositions ($5.6 million) and miscellaneous other items ($2.3
million) partially offset by mezzanine loan advances ($12.2 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 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.
The Company invests in U.S. Government and Agency obligations which are
subject to interest rate risk. As interest rates fluctuate, the Company will
experience changes in the fair value of these investments with maturities
greater than one year. If interest rates increased 100 basis points, the fair
value of these investments at March 31, 2002, would decline by approximately
$3.4 million.
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 counterparty credit exposure through various techniques, including
obtaining and maintaining collateral, and assessing the creditworthiness of
counterparties and issuers. Where
15
<Page>
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.
16
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
a. On January 31, 2001, Stratosphere was named in an action styled Disabled
Rights Action Committee v. Stratosphere Gaming Corp., Case No. A430070, in the
Eighth Judicial District Court of the State of Nevada. The complaint alleges a
number of violations of the Americans with Disabilities Act ('ADA'), including
inadequate room selection, door widths and other similar items. Simultaneously
with the complaint, plaintiffs filed a Motion for Preliminary Injunction,
seeking to have construction halted on the new hotel tower until the property
fully complies with the ADA. Stratosphere removed the action to the United
States District Court in Nevada and it is now styled as Disabled Rights Action
Committee v. Stratosphere Gaming Corp., Case No. CV-S-01-0162-RLH (PAL).
The federal district court held a hearing on plaintiffs' Motion for
Preliminary Injunction and denied the motion, focusing upon what the Court
believed to be the plaintiffs' lack of irreparable injury. The federal district
court also granted Stratosphere's Motion to Dismiss the plaintiffs' state law
claims, leaving in place only the ADA claims. Stratosphere and the Plaintiffs
then filed Motions for Summary Judgement. The District Court granted and denied
in part each of the parties respective motions. The Court ordered that
Stratosphere must make certain renovations to 532 rooms that were opened in
1996. The Court issued an injunction requiring that these renovations be
completed by August 9, 2002. Stratosphere had already commenced these
renovations prior to the Court order and expects to meet the court deadline.
Stratosphere believes the cost of these renovations will be approximately
$500,000. On April 5, 2002, plaintiffs filed a motion seeking attorney's fees of
approximately $50,000. Stratosphere has opposed the motion that, at best,
plaintiffs could seek approximately $10,000. The court has yet to rule on
plaintiffs' motion.
b. In addition, in the ordinary course of business, the Company, its
subsidiaries and other companies in which the Company has invested are parties
to various legal actions. In management's opinion, the ultimate outcome of such
legal actions will not have a material effect on the results of operations or
the financial position of the Company.
ITEM 5. OTHER INFORMATION
On May 9, 2002 the Amended and Restated Agreement of Limited Partnership of
American Real Estate Partners, L.P. was amended as required by the New Jersey
Casino Control Act, ('Casino Control Act'). The Amendment provides that
securities of the Company are held subject to the condition that if a holder
thereof is found to be disqualified by the New Jersey Casino Control Commission
pursuant to the provisions of the Casino Control Act such holder shall dispose
of his interest in the Company in accordance with the Casino Control Act. Such
Certificate of Amendment (Amendment No. 3) is attached hereto as Exhibit 3.4
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -- none
(b) (1) Form 8K dated February 1, 2002 was filed on February 6, 2002 with
Exhibit 99.1 -- Agreement and Plan of Merger by and among Stratosphere
Corporation, American Real Estate Holdings Limited Partnership, Nybor Limited
Partnership, and Strat Merger Corp. and Exhibit 99.2 -- Press Release dated
February 1, 2002 announcing that American Real Estate Partners, L.P. will
acquire remaining interest in Stratosphere Corporation.
17
<Page>
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, CHIEF FINANCIAL OFFICER
AND PRINCIPAL ACCOUNTING OFFICER
Date: March 14, 2002
18