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                                   FORM 10-K
 
                       SECURITIES AND EXCHANGE COMMISSION
 
                              WASHINGTON, DC 20549
 
  /X/    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
 
                                       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 1-12861
 
                            ------------------------
 
                          CORNERSTONE PROPERTIES INC.
 
             (Exact name of Registrant as specified in its Charter)
 
                   NEVADA                              74-2170858
      (State or other jurisdiction of       (IRS Employer Identification No.)
      incorporation and organization)
 
                              126 EAST 56TH STREET
                               NEW YORK, NEW YORK
                    (Address of principal executive offices)
 
                                     10022
                                   (Zip Code)
 
                                 (212) 605-7100
              (Registrant's telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
 
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TITLE OF EACH CLASS:                              NAME OF EACH EXCHANGE ON WHICH REGISTERED:
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Common Stock, no par value                      New York Stock Exchange
                                                Dusseldorf Stock Exchange
                                                Frankfurt Stock Exchange
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    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 / /
 
    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. / /
 
    Aggregate market value of registrant's voting Common Stock held by
non-affiliates as of March 24, 1999: $1,159,484,338.
 
Number of shares of Common Stock outstanding as of March 24, 1999: 128,210,784.
Index of Exhibits: See Item 14(c) page 53.
 
                      DOCUMENTS INCORPORATED BY REFERENCE:
 
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                                                                                               PART OF FORM 10-K
                                                                                                  INTO WHICH
                                                                                                 INCORPORATED
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Proxy Statement for Annual Meeting of Stockholders to be held May 25, 1999.................         Part III
</TABLE>
 
Total Number of Pages: 56
 
Exhibit Index: Page 52
 
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                                     PART I
 
ITEM 1. BUSINESS.
 
                                  THE COMPANY
 
    Cornerstone Properties Inc. (together with its subsidiaries, "Cornerstone"
or the "Company") is a self-administered equity real estate investment trust
("REIT") which owns, through subsidiaries, interests in 96 Class A office
buildings comprising nearly 21 million rentable square feet, a shopping center,
a hotel and developable land (collectively, the "Properties," and each interest,
a "Property"). The Properties are primarily located in twelve major metropolitan
areas throughout the United States: Atlanta, Boston, Charlotte, suburban
Chicago, Denver, Minneapolis, New York City, Phoenix, San Francisco Bay Area,
Seattle, Southern California and Washington, D.C. and surrounding suburbs. The
Company's strategy is to own Class A office properties in prime Central Business
District ("CBD") locations and major suburban office markets in U.S.
metropolitan areas. Class A office properties are generally considered to be
those that have the most favorable locations and physical attributes, command
premium rents and experience the highest tenant retention rates within their
markets. In January 1998, Cornerstone converted its corporate structure into an
umbrella limited partnership REIT ("UPREIT"). Under the UPREIT structure,
Cornerstone owns all of its properties and conducts all of its business through
Cornerstone Properties Limited Partnership, a Delaware limited partnership (the
"Operating Partnership"), of which the Company is the sole general partner. As
of March 15, 1999, Cornerstone owned, directly or indirectly, approximately
86.3% of the common units of partnership interest ("UPREIT Units") in the
Operating Partnership.
 
    As a major owner of Class A office properties, management believes that the
Company is well positioned to capitalize on the continued improvement in the
fundamentals for office property markets in the United States. Management also
believes that the Company can continue to use its portfolio of premium quality
assets, proven access to multiple sources of debt and equity capital and
efficient management structure to grow earnings through the sale and exchange of
non-core assets and the reinvestment into higher yielding assets.
 
    The Company was incorporated under the laws of the State of Nevada in May
1981. The Company's principal place of business is located at Tower 56, 126 East
56(th) Street, New York, New York 10022. The Company has an internet website at
"http://www.cstoneprop.com".
 
                              BUSINESS OBJECTIVES
 
BUSINESS STRATEGY
 
    The Company's primary objective is to maximize long-term stockholder value
through growth in funds from operations ("FFO") per share and through
appreciation in the value of its holdings. The Company's strategies to
accomplish this objective are to:
 
    - Seek external growth by acquiring and developing additional Class A office
      properties in core markets with local submarket and asset characteristics
      consistent with the Properties currently in its portfolio; and
 
    - Generate internal growth by aggressively maintaining, managing and leasing
      its Properties, increasing rent, maintaining high occupancy and tenant
      retention levels and maximizing current returns and long-term value.
 
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EXTERNAL GROWTH STRATEGY
 
    The Company will continue to pursue significant growth in its asset base to
the extent that appropriate Class A office properties, development opportunities
and financing are available on attractive terms. The Company will continue to
implement its external growth strategies by developing and acquiring properties
and portfolios of properties with the following characteristics:
 
    - CLASS A OFFICE PROPERTIES. The Company believes that its strategy of
      investing in and owning Class A office properties has the following
      benefits: (i) Class A properties can currently be acquired at prices that
      produce attractive yields for the Company and are accretive to earnings;
      (ii) Class A properties typically maintain higher occupancies because,
      when overall vacancy rates are rising, tenants often take the opportunity
      to relocate to better located and higher quality buildings; and (iii)
      Class A properties generally attract tenants with strong credit, resulting
      in a more stable source of cash flow.
 
    - MAJOR METROPOLITAN AREAS. The Company intends to continue targeting
      properties located in the CBDs and major suburban submarkets of major
      metropolitan areas. Target markets typically exhibit underlying economic,
      demographic and employment trends that lead to the positive net absorption
      of Class A office space. The Company also expects future acquisitions to
      be concentrated in submarkets where high barriers to entry reduce the
      likelihood that new office space will be constructed; such barriers to
      entry may include a limited supply of attractive building sites and
      significant regulatory constraints on new development.
 
    - DISCOUNT TO REPLACEMENT COST. The Company expects to continue acquiring
      properties at discounts to replacement cost that possess one or more
      competitive advantages, such as a superior location, quality construction,
      high-quality tenancy, efficient floorplates and modern building systems.
      Because Class A properties being considered for acquisition by the Company
      are at prices below replacement cost, the opportunity exists for the
      Company to enhance property performance and operating income, thereby
      increasing asset values, before potentially competitive new construction
      is justified in most markets.
 
    - UPREIT UNIT TRANSACTIONS AND STOCK-FOR-ASSET SWAPS. The Company believes
      that opportunities exist for it to grow its asset base and increase
      earnings through UPREIT Unit transactions and stock-for-asset swaps with
      major institutional owners of property. For example, a number of major
      pension funds and life insurance companies have publicly announced
      initiatives to exchange portfolios of direct real estate holdings for
      securities of publicly traded companies in order to improve portfolio
      diversification, liquidity and overall investment returns. The Company
      believes that the high quality of its Properties makes the Company an
      attractive vehicle for stock-for-asset swap transactions and affords
      access to a broader range of acquisition opportunities.
 
    - DEVELOPMENT. The Company believes that the acquisition of selective
      development sites in strategically located areas will allow the Company to
      develop Class A office properties which will provide superior returns and
      allow the Company to grow its portfolio with modern technologically
      advanced properties. The Company currently owns or has under ground lease
      12.8 acres of land held for development on which it can build up to
      approximately 360,000 square feet of office space.
 
INTERNAL GROWTH STRATEGY
 
    The Company believes that its existing portfolio offers opportunities for
growth through the Company's active and aggressive asset and property management
programs, which emphasizes maintaining a strong market position based on
superior asset quality and tenant service. The Company will continue to
implement its internal growth strategies through the following:
 
    - RENTAL INCOME INCREASES. The Company believes that its current contractual
      rents on leases which expire over the next several years are substantially
      below the current market rents in the aggregate
 
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      across the portfolio. As a result of this, the Company should continue to
      increase its cash flow, even without an increase in occupancy.
 
    - MAINTENANCE. The Company places strong emphasis on programs for regular
      maintenance of the Properties as well as periodic refurbishment,
      renovation and redevelopment where such investment provides attractive
      returns and cash flow growth. Higher maintenance levels generally allow
      building systems to operate more efficiently, thereby reducing operating
      expenses to a level which is lower than that of competing properties. In
      addition, many of the Company's capital and maintenance expenditures, such
      as the upgrading of a building's electrical system, are designed to
      produce ongoing operational efficiencies in order to increase cash flow
      and long-term value.
 
    - PROACTIVE LEASING PROGRAM. The Company believes that retention of existing
      tenants, and the leasing of additional space to those tenants, is
      important to a property's stability and enhances its cash flow and value
      over time. Maximizing tenant retention reduces the cost of lease rollovers
      and rental revenue fluctuations by removing "down" periods between tenant
      occupancies and reducing the "up front" costs (tenant improvements and
      leasing commissions) of signing leases. Therefore, the Company's senior
      management focuses significant attention on negotiating lease terms for
      prospective new tenants and on working with existing tenants to negotiate
      lease renewals that meet the tenant's changing space needs.
 
FINANCING STRATEGY
 
    The Company believes that in order to continue to maximize the value of its
stockholders' equity and to execute its growth strategies, it is essential to
implement and periodically review a diversified financing strategy that: (i)
incorporates long-term secured and unsecured corporate debt; (ii) minimizes
exposure to fluctuations of interest rates; and (iii) maintains maximum
flexibility to manage the Company's short-term cash needs. Furthermore, the
Company believes that its capital structure will be conducive to and allow
flexibility for the growth that the Company seeks to achieve. The Company
anticipates employing the following strategies to enhance stockholder value:
 
    - ACCESS TO MULTIPLE CAPITAL SOURCES. Because of the high quality of its
      assets, the Company believes that it has several competitive advantages in
      its ability to access equity capital from several different sources on
      attractive terms. This financial flexibility should enable the Company to
      choose from among several equity alternatives and to select the capital
      source that best meets the Company's needs at that time. The Company
      expects to continue to obtain capital from the most cost-efficient
      sources, including public and private equity and debt.
 
    - PRUDENT LEVERAGE. The Company will use leverage prudently to take
      advantage of what it believes to be the positive spread between the total
      return on investment and the cost of debt financing in the Class A office
      property market. Historically, the Company has employed somewhat higher
      levels of leverage than property companies holding assets of lesser
      quality, since the Company's high-quality assets and tenancy have
      generally produced occupancy rates, rent levels and income streams that
      are higher and more stable than those associated with lower quality
      assets. The Company believes that its use of leverage has been and will
      continue to be consistent with its ownership of very high-quality assets
      in which a significant portion of its tenants carry investment-grade
      long-term debt ratings.
 
    - REVOLVING CREDIT FACILITY. On November 3, 1998, the Company's corporate
      line of credit was increased from $350.0 million to $550.0 million and the
      term was extended through November 3, 2001 (the "Revolving Credit
      Facility"). The Revolving Credit Facility is with a syndicate of 17 banks
      led by Bankers Trust Company, The Chase Manhattan Bank and NationsBank.
      The Revolving Credit Facility has been and will continue to be used for
      the acquisition of additional properties as well as for general working
      capital purposes. Borrowings under the Revolving Credit Facility bear
      interest at a rate between 1.10% and 1.40% above the applicable London
      Interbank Offered Rate
 
                                       3
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      ("LIBOR"), depending upon the Company's ratio of total debt to asset value
      (as defined) at the time of borrowing or the Prime Rate at the borrower's
      option. The Revolving Credit Facility is also available for the issuance
      of letters of credit.
 
    - REDEPLOYMENT OF ASSETS. The Company periodically reviews its portfolio of
      Properties to determine whether any assets are inconsistent with its
      long-term business objectives and should, therefore, be sold and the
      proceeds therefrom applied to the acquisition of more suitable assets. The
      Company currently intends to sell Charlotte Plaza as well as other
      non-core assets, but no assurance can be given that the Company will be
      able to locate a willing buyer or sell such Properties at attractive
      prices.
 
                              RECENT DEVELOPMENTS
 
    In 1998, the Company completed more than $2.2 billion of real estate
acquisitions, consisting of 76 Class A office properties containing
approximately 10.7 million rentable square feet, a shopping center, a hotel and
12.8 acres of developable land (collectively, the "Acquired Properties"). With
the purchase of the Acquired Properties, the Company increased its investments
in real estate by approximately 109.0% from December 31, 1997 to December 31,
1998.
 
1998 ACQUISITIONS AND DISPOSITIONS
 
    CORPORATE 500 CENTRE.  On January 28, 1998, the Company purchased Corporate
500 Centre in Deerfield, Illinois. This Property consists of four Class A office
buildings with approximately 679,000 rentable square feet. The consideration
paid for this Property was approximately $135.0 million in cash and
approximately $15.0 million in UPREIT Units, valued at $18.50 per unit, for a
total purchase price of approximately $150.0 million.
 
    DEARBORN LAND.  On March 31, 1998, the Company sold the Dearborn Land (an
undeveloped parcel of land in Chicago that was acquired as part of the
acquisition of the PGGM Portfolio (as defined hereinafter) in October 1997) for
gross proceeds of approximately $19.0 million, resulting in a loss of
approximately $0.2 million.
 
    ONE MEMORIAL DRIVE.  On April 28, 1998, the Company purchased One Memorial
Drive in Cambridge, Massachusetts. This Class A office Property contains
approximately 353,000 rentable square feet. The total purchase price for the
Property was approximately $112.5 million, approximately $23.5 million of which
was paid in cash, approximately $29.0 million of which was paid in UPREIT Units
valued at $17.50 per unit and approximately $60.0 million of which was paid in
Common Stock valued at $17.50 per share.
 
    FRICK BUILDING.  On April 29, 1998, the Company sold the Frick Building,
located in Pittsburgh, Pennsylvania, for gross proceeds of approximately $26.7
million, resulting in a loss of approximately $2.1 million.
 
    201 CALIFORNIA STREET & WILSHIRE PALISADES.  On June 3, 1998, the Company
purchased 201 California Street in San Francisco, California and the Wilshire
Palisades building in Santa Monica, California. 201 California Street contains
approximately 240,000 rentable square feet and Wilshire Palisades contains
approximately 187,000 rentable square feet. The total purchase price for the
Properties was approximately $121.5 million, approximately $29.5 million of
which was paid in cash and approximately $29.1 million of which was paid in
UPREIT Units valued at $17.50 per unit. Also included in the purchase price was
$62.9 million in assumed debt (recorded at $64.6 million for GAAP purposes).
 
    WILSON ACQUISITION.  After receiving stockholder approval on December 14,
1998, the Company acquired substantially all of the properties and real estate
operations of William Wilson & Associates and related entities ("WW&A") (the
"Wilson Acquisition"). As part of the Wilson Acquisition, the Company acquired
interests in 69 Class A office Properties, comprising approximately 9.2 million
rentable square
 
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feet located primarily in the San Francisco Bay Area and in Southern California,
a shopping center consisting of approximately 252,000 rentable square feet in
Santa Clara, California, a hotel consisting of 90,000 square feet in Santa
Clara, California and 12.8 acres of developable land in the San Francisco Bay
Area (collectively, the "Wilson Projects").
 
    The Company acquired WW&A for a purchase price of approximately $1.8
billion, consisting of approximately 14.9 million shares of Common Stock valued
at $17.25 per share (recorded at $16.25 per share for generally accepted
accounting principles ("GAAP") purposes), approximately 16.2 million UPREIT
Units valued at $17.25 per unit (recorded at $16.25 per unit for GAAP purposes),
approximately $465.0 million in cash and the assumption of approximately $760.0
million of property and construction related debt (recorded at $773.7 million
for GAAP purposes). The cash portion of the transaction was financed primarily
from the Company's Revolving Credit Facility and the sale of $200.0 million of
Common Stock to Stichting Pensioenfonds Voor de Gezondheid Geestelijke en
Maatschappelijke Belangen ("PGGM"), an approximate 33.6% stockholder prior to
the Wilson Acquisition, priced at $17.25 per share. See "ITEM 2.
PROPERTIES--Table of Properties" for a listing of the Wilson Projects described
above.
 
    The Company has undertaken the Wilson Acquisition and the other recent
acquisitions in order to solidify the Company's status as a leading Class A
office REIT and to further its objective of growing its earnings and asset base
by acquiring high-profile Class A office properties in major real estate markets
nationwide. Taken together, the additional benefits of these acquisitions are
expected to include: (i) accretive effects to the Company's FFO for 1999; (ii)
expanded presence in attractive California markets; (iii) higher internal growth
rate for the combined portfolio; (iv) expanded capabilities including
development and property management as well as increased management depth; (v)
diversification of Cornerstone's tenant base; (vi) expanded base of investors
and increased market capitalization; and (vii) access to former WW&A
relationships.
 
OTHER RECENT DEVELOPMENTS
 
    TOWER 56.  On January 5, 1998, the Company purchased for approximately $5.5
million, the remaining participation rights in the cash flow and residual value
of Tower 56 from the former participants for 307,692 shares of Common Stock. As
a result, all of the cash flow and residual value of Tower 56 inures to the
Company.
 
    UPREIT TRANSACTION.  On January 20, 1998, the Company transferred
substantially all of its assets into the Operating Partnership. As part of the
UPREIT formation, all of the Company's interests in the Properties are held by
or through the Operating Partnership, a Delaware limited partnership, of which
the Company is the sole general partner. As of March 24, 1999, Cornerstone
owned, directly or indirectly, approximately 86.3% of the UPREIT Units in the
Operating Partnership. The purpose of the Company forming an UPREIT was to
create an acquisition vehicle attractive to sellers whose sale of properties to
the Company in exchange for UPREIT Units may be characterized as a tax-deferred
capital contribution rather than a taxable sale.
 
    SECONDARY PUBLIC OFFERING.  On February 6, 1998, the Company completed a
secondary public offering of 14,375,000 shares of Common Stock at $18.25 per
share. The shares were placed in the U.S. through a syndicate of seven
investment banks led by Merrill Lynch & Co. Net proceeds to the Company were
approximately $247.9 million ($262,343,750 gross proceeds less an underwriting
discount of $13,728,125 and expenses of $750,000). The net proceeds were used to
repay outstanding borrowings under the Revolving Credit Facility and for working
capital purposes.
 
    DEVELOPMENT PROJECT.  On April 15, 1998, the Company entered into an
agreement to purchase a 927,000 square-foot Class A office building, currently
under development, in downtown Minneapolis, Minnesota. Approximately $36.9
million has been spent through December 31, 1998 on the construction. The
project is scheduled to be completed in the year 2000 and is 50% pre-leased. The
development is
 
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being financed through a construction loan by U.S. Bank. Upon completion, the
Company will retire the construction loan and acquire the property from the
developer for an amount to be determined by applying a negotiated formula to
in-place net operating income.
 
    ONE NORWEST CENTER REFINANCING.  On September 25, 1998, the Company
completed the refinancing of the $96.1 million mortgage on One Norwest Center
with Connecticut General Life Insurance Company ("CIGNA") and Massachusetts
Mutual Life Insurance Company ("Mass Mutual"). As a result of the refinancing,
the principal was increased to $98.5 million, the term of the loan was extended
from three years to ten years and the interest rate was reduced from 7.50% to
6.90%.
 
    CORPORATE 500 CENTRE REFINANCING.  On October 9, 1998, the Company completed
the refinancing of the $80.0 million mortgage on Corporate 500 Centre with
Teachers Insurance and Annuity Association. As a result of the refinancing, the
principal balance was increased to $90.0 million, the term of the loan was
extended from 4.5 years to 10 years and the interest rate was increased by three
basis points to 6.66%.
 
    TERMS OF THE REVOLVING CREDIT FACILITY.  On November 3, 1998, a syndicate of
17 banks led by Bankers Trust Company, The Chase Manhattan Bank and NationsBank
provided the Company with a $550.0 million Revolving Credit Facility for
acquisitions, general working capital purposes as well as the issuance of
letters of credit. The interest rate on the Revolving Credit Facility depends on
the Company's ratio of total debt to total asset value (as defined) at the time
of borrowing and will be at a spread of 1.10% to 1.40% over the applicable LIBOR
rate or the Prime Rate at the borrower's option. The Revolving Credit Facility
expires on November 3, 2001.
 
    MARKET SQUARE TRANSACTION.  On November 6, 1998, the Company purchased an
additional 14.29% partnership interest in Market Square Associates ("MSA") for
$4.0 million. Upon completion of the transaction, the Company effectively owns
99.14% of the MSA entity, which has a 70.0% interest in Avenue Associates
Limited Partnership ("AALP"). AALP owns and operates Market Square.
 
    AMENDMENT AND RESTATEMENT OF THE INCENTIVE PLAN.  On December 14, 1998, the
stockholders of the Company approved the amended and restated Cornerstone
Properties Inc. 1998 Long-Term Incentive Plan (the "Incentive Plan"). The
amendment and restatement increased the number of shares of Cornerstone Common
Stock available for issuance of grants under the Incentive Plan from 3,000,000
to approximately 7,400,000 and permits the granting of stock options and other
awards to non-employee directors of Cornerstone.
 
                                  RISK FACTORS
 
    Set forth below are the risks that we believe are material to investors who
purchase or own the Company's Common Stock or Units of limited partnership
interest of the Operating Partnership, which are redeemable on a one-for-one
basis for shares of Common Stock or, at our option, cash.
 
THERE CAN BE NO ASSURANCE THAT WE WILL EFFECTIVELY MANAGE THE WILSON ACQUISITION
  AND EXPANSION INTO NEW MARKETS
 
    We have been growing rapidly through acquisitions. As of March 24, 1999, we
owned interests in 96 office buildings containing approximately 21 million
square feet. In October 1997, we acquired nine properties from PGGM. The
acquisition of 201 California Street and the Wilshire Palisades building in June
1998 extended the Company's operations to California. The Wilson Acquisition in
December 1998 added 69 office buildings to the Company's portfolio, primarily in
the San Francisco Bay Area and Southern California. The Wilson Acquisition also
requires the Company to integrate the executive management and other employees
of WW&A into the Company's organization. If we do not effectively manage the
rapid growth of our portfolio and the addition of former WW&A personnel to the
Company's management team, we may not be able to make expected distributions to
our stockholders.
 
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OUR PERFORMANCE AND SHARE VALUE ARE SUBJECT TO RISKS ASSOCIATED WITH THE REAL
  ESTATE INDUSTRY
 
    GENERAL.  If our assets do not generate income sufficient to pay our
expenses, service our debt and maintain our properties, we may not be able to
make expected distributions to our stockholders. Several factors may adversely
affect the economic performance and value of our Properties. These factors
include changes in the national, regional and local economic climate, local
conditions such as an oversupply of office properties or a reduction in demand
for office properties, the attractiveness of our Properties to tenants,
competition from other available office properties, changes in market rental
rates and the need to periodically repair, renovate and relet space. Our
performance also depends on our ability to collect rent from tenants and to pay
for adequate maintenance, insurance and other operating costs (including real
estate taxes), which could increase over time. Also, the expenses of owning and
operating a property are not necessarily reduced when circumstances such as
market factors and competition cause a reduction in income from the property. If
a Property is mortgaged and we are unable to meet the mortgage payments, the
lender could foreclose on the mortgage and take the Property. In addition,
interest rate levels, the availability of financing, changes in laws and
governmental regulations (including those governing usage, zoning and taxes) and
financial distress or bankruptcies of tenants may adversely affect our financial
condition.
 
    WE MAY BE UNABLE TO RENEW LEASES OR RELET SPACE AS LEASES EXPIRE.  When our
tenants decide not to renew their leases upon their expiration, we may not be
able to relet the space. Even if the tenants do renew or we can relet the space,
the terms of renewal or reletting, including the cost of required renovations,
may be less favorable than current lease terms. Through the end of 2003, leases
will expire on a total of 54.3% of the "Full Service Straight-Line Rent" (the
average of all actual rent required to be paid through the term of the leases
relating to the Properties calculated in accordance with GAAP, plus recoveries).
If we are unable to promptly renew the leases or relet this space, or if the
rental rates upon such renewal or reletting are significantly lower than
expected rates, then our results of operations and financial condition will be
adversely affected. Consequently, our cash flow and ability to service debt and
make distributions to stockholders would be adversely affected.
 
    NEW ACQUISITIONS MAY FAIL TO PERFORM AS EXPECTED.  We intend to continue to
actively acquire office properties. Newly acquired properties may fail to
perform as expected. If newly acquired properties fail to deliver expected
returns, our ability to service debt incurred in connection with such
acquisitions and to make distributions to stockholders would be adversely
affected.
 
    COMPETITION FOR ACQUISITIONS MAY RESULT IN INCREASED PRICES FOR
PROPERTIES.  Other major real estate investors with significant capital will
compete with us for attractive investment opportunities. These competitors
include other publicly traded REIT's, private REIT's, investment banking firms
and private institutional investment funds. This competition has increased
prices for office properties in recent years. As prices increase, the spread
between the rate of return on investments and our cost of capital is reduced.
Accordingly, the increase in prices for acquisitions will make it more difficult
for us to make suitable property acquisitions on favorable terms.
 
    BECAUSE CORNERSTONE'S PROPERTIES ARE ILLIQUID AND SUBJECT TO RESTRICTIONS ON
SALE, WE MAY NOT BE ABLE TO SELL PROPERTIES AT THE MOST FAVORABLE TIMES.  Real
estate investments, especially office property investments of relatively large
size, generally cannot be sold quickly. We may not be able to vary our portfolio
promptly in response to economic or other conditions. This inability to respond
promptly to changes in the performance of our investments could adversely affect
our financial condition and ability to service debt and make distributions to
our stockholders. Further, Cornerstone has entered into several agreements
pursuant to which Cornerstone has subjected a number of its Properties,
including all of the Wilson Projects, to restrictions that may adversely impact
Cornerstone's ability to sell or otherwise dispose of such Properties if such
disposal would result in certain adverse tax consequences for the former owners
of such Properties. The Operating Partnership is also subject to a number of
similar sale and merger restrictions and debt maintenance obligations in
connection with certain of its Properties under the terms of
 
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amendments to the partnership agreement of the Operating Partnership entered
into at the time of acquisition of such Properties. These restrictions may
prevent us from selling Properties on favorable terms and thereby could
adversely affect our financial position and results of operations.
 
    CORNERSTONE'S ASSETS ARE CONCENTRATED IN SAN FRANCISCO BAY AREA.  45 of the
Company's 96 office Properties are located in the metropolitan San Francisco
area. This concentration of assets makes the Company particularly vulnerable to
adverse changes in the San Francisco economy. A deterioration of economic
conditions in this market would have an adverse effect on our results of
operations and our ability to make expected distributions to stockholders.
 
    CORNERSTONE'S ASSETS ARE CONCENTRATED IN EARTHQUAKE-PRONE AREAS.  66 of our
office Properties are located in California, an area of particular earthquake
risk. A major earthquake in California may cause substantial damage or
destruction to our Properties. We carry earthquake insurance on all of our
Properties located in California. Our earthquake policies, however, are subject
to coverage limitations. In light of the California earthquake risk, California
building codes since the early 1970s have established construction standards for
all new buildings. The current and strictest construction standards were adopted
in 1987. Of the 66 office Properties located in California as of March 24, 1999,
25 have been built since January 1, 1988, and we believe they were constructed
in full compliance with the applicable standards existing at the time of
construction. It is possible that material losses in excess of insurance
proceeds will occur in the future, which would have a material adverse impact on
the Company's financial position.
 
WE ARE DEPENDENT ON EXTERNAL SOURCES OF CAPITAL
 
    To qualify as a REIT, we must distribute to stockholders each year at least
95% of our "REIT taxable income" (excluding any net capital gain). Because of
these distribution requirements, it is not likely that we will be able to fund
all future capital needs. We therefore will have to rely on third-party sources
of capital, which may or may not be available on favorable terms or at all. Our
access to third-party sources of capital depends on a number of things,
including the market's perception of our growth potential and our current and
potential future earnings. Moreover, additional equity offerings may result in
substantial dilution of stockholders' interests, and additional debt financing
may substantially increase our leverage.
 
DEBT FINANCING, FINANCIAL COVENANTS, DEGREE OF LEVERAGE AND INCREASES IN
  INTEREST RATES COULD ADVERSELY AFFECT OUR PERFORMANCE
 
    SCHEDULED DEBT PAYMENTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.  Our
business is subject to risks normally associated with debt financing. Cash flow
could be insufficient to pay distributions at expected levels and meet required
payments of principal and interest. We may not be able to refinance existing
indebtedness (which in virtually all cases requires substantial principal
payments at maturity) and, if we can, the terms of such refinancing might not be
as favorable as the terms of existing indebtedness. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." If principal payments due at maturity cannot be refinanced,
extended or paid with proceeds of other capital transactions, such as new equity
capital, our cash flow will not be sufficient in all years to repay all maturing
debt. If prevailing interest rates or other factors at the time of refinancing
(such as the possible reluctance of lenders to make commercial real estate
loans) result in higher interest rates, increased interest expense would
adversely affect cash flow and our ability to service debt and make
distributions to stockholders.
 
    FINANCIAL COVENANTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.  If a
Property is mortgaged to secure payment of indebtedness and we are unable to
meet mortgage payments, the mortgagee could foreclose on the Property, resulting
in loss of income and asset value. The mortgages on our Properties contain
customary negative covenants which, among other things, limit our ability,
without the prior consent of the lender, to further mortgage the Property, to
enter into new leases or materially modify existing leases, and to discontinue
insurance coverage. In addition, our Revolving Credit Facility contains
 
                                       8
<PAGE>
certain customary restrictions, requirements and other limitations on our
ability to incur indebtedness. Foreclosure on mortgaged Properties or an
inability to refinance existing indebtedness would likely have a negative impact
on our financial condition and results of operations.
 
    OUR DEGREE OF LEVERAGE COULD LIMIT OUR ABILITY TO OBTAIN ADDITIONAL
FINANCING.  Our Debt-to-Total-Market-Capitalization Ratio, which is defined as
the total indebtedness of the Company as a percentage of total indebtedness plus
the market value of the outstanding shares of Common Stock (assuming the
conversion of all outstanding shares of preferred stock and the redemption of
all UPREIT Units into shares of Common Stock) as of December 31, 1998 was
approximately 45.6%. The degree of leverage could have important consequences to
stockholders, including affecting our ability to obtain additional financing in
the future for working capital, capital expenditures, acquisitions, development
or other general corporate purposes and making us more vulnerable to a downturn
in business or the economy in general.
 
    RISING INTEREST RATES COULD ADVERSELY AFFECT CASH FLOW.  Advances under the
Revolving Credit Facility bear interest at a variable rate depending upon the
Company's leverage ratio based upon LIBOR. We had, as of March 24, 1999,
interest rate hedging agreements for approximately $250.0 million of our
floating rate debt to limit our exposure to rising interest rates. Although
hedging agreements enable us to convert floating rate liabilities to fixed rate
liabilities, they expose us to the risk that the counterparties to such hedge
agreements may not perform, which could increase our exposure to rising interest
rates. We may borrow additional money with variable interest rates in the
future, and enter into other transactions to limit our exposure to rising
interest rates as appropriate. Increases in interest rates, or the loss of the
benefits of hedging agreements, would increase our interest expense, which would
adversely affect cash flow and our ability to service our debt and make expected
distributions to stockholders.
 
PGGM AND WILLIAM WILSON III EXERCISE SIGNIFICANT CONTROL OF CORPORATE GOVERNANCE
  MATTERS
 
    PGGM owns approximately 35.7% of the outstanding shares of Common Stock as
of March 24, 1999. As a result, PGGM exercises significant influence over the
outcome of any matters submitted to a vote of stockholders. PGGM also has the
right to designate two individuals for nomination to the Board of Directors of
the Company. The Restated and Amended Bylaws of the Company provide that William
Wilson III shall serve as Chairman of the Board for a term of at least three
years from the date of the Wilson Acquisition, December 16, 1998, and during
such term Mr. Wilson will have the right to designate himself and two other
individuals to serve as directors of the Company. These provisions give Mr.
Wilson significant influence over the management of the Company. In exercising
their control, PGGM and Mr. Wilson may have interests that differ from those of
other stockholders with respect to prospective acquisitions or dispositions of
assets, development opportunities, compensation policy, setting the appropriate
degree of leverage for the Company or other matters. PGGM and Mr. Wilson, if
they act in concert, may delay or prevent a change in control of the Company or
other transaction that could provide the stockholders with a premium over the
then-prevailing market price of their shares of Common Stock or which might
otherwise be in the best interest of our stockholders.
 
WE HAVE A SHARE OWNERSHIP LIMIT FOR REIT TAX PURPOSES
 
    To remain qualified as a REIT for federal income tax purposes, not more than
50% in value of our outstanding shares of Common Stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the federal income tax
laws applicable to REITs) at any time during the last half of any year. To
facilitate maintenance of our REIT qualification, our Articles of Incorporation
contain restrictions on share ownership that are designed to prevent violation
of this requirement. We refer to this as the "Ownership Limit." Our Articles of
Incorporation exempt certain stockholders from the Ownership Limit and permit
the Board of Directors to waive or modify the Ownership Limit with respect to a
stockholder where such exemption or waiver would not jeopardize our REIT status.
The Ownership Limit could delay or prevent a change in control and, therefore,
could adversely affect our stockholders' ability to realize a premium over the
then-prevailing market price for the Common Stock.
 
                                       9
<PAGE>
THIRD-PARTY SERVICES BUSINESS RISKS; LACK OF CONTROL OF WCP SERVICES, INC.
 
    THIRD-PARTY SERVICES CONTRACTS MAY BE TERMINATED.  In addition to ownership
of our Properties, we provide fee-based management, leasing, construction and
development services for third parties. Many of these services are provided
under contracts that can be terminated by either party upon short or no notice.
Any such contract would likely be terminated in connection with a sale of the
property, over which we have no control. When they expire, these contracts might
not be renewed or might be renewed on less favorable terms. Also, the rental
revenues on which certain management fees are based could decline as a result of
general real estate market conditions or specific market factors. This would
result in decreased management fee income for the Company.
 
    WE DO NOT CONTROL OUR MANAGEMENT AND SERVICES BUSINESS.  To facilitate
maintenance of our REIT qualification, our third-party services business is
conducted by WCP Services, Inc. Although we own 95% of the economic interest in
WCP Services, Inc., its voting stock is owned by William Wilson III and John S.
Moody. We therefore do not control the timing or amount of distributions or the
management and operation of WCP Services, Inc. As a result, decisions relating
to the declaration and payment of distributions and the business policies and
operations of WCP Services, Inc. could be adverse to our interests or could lead
to adverse financial results.
 
ENVIRONMENTAL PROBLEMS ARE POSSIBLE AND CAN BE COSTLY
 
    Federal, state and local laws and regulations relating to the protection of
the environment may require a current or previous owner or operator of real
estate to investigate and clean up hazardous or toxic substances or petroleum
product releases at such property. The owner or operator may have to pay a
governmental entity or third parties for property damage and for investigation
and clean-up costs incurred by such parties in connection with the
contamination. Such laws typically impose clean-up responsibility and liability
without regard to whether the owner or operator knew of or caused the presence
of the contaminants. Even if more than one person may have been responsible for
the contamination each person covered by the environmental laws may be held
responsible for all of the clean-up costs incurred. In addition, third parties
may sue the owner or operator of a site for damages and costs resulting from
environmental contamination emanating from that site.
 
    We are not aware of any environmental liabilities at the Properties that we
believe would have a material adverse effect on our business, assets, financial
condition or results of operations. We believe that our Properties are in
compliance in all material respects with applicable environmental laws.
Unidentified environmental liabilities could arise, however, and could have an
adverse effect on our financial condition and performance.
 
THE MARKET VALUE OF THE COMMON STOCK CAN BE ADVERSELY AFFECTED BY A NUMBER OF
  FACTORS
 
    CHANGES IN MARKET CONDITIONS COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR
SHARES.  As with other publicly traded shares, the value of our Common Stock
depends on various market conditions, which may change from time to time. Among
the market conditions that may affect the value of our publicly traded
securities are the following: the extent of institutional investor interest in
the Company; the reputation of REIT's and office REIT's generally and the
attractiveness of their equity securities in comparison to other equity
securities (including securities issued by other real estate companies); our
financial condition and performance; and general financial market conditions.
 
    OUR EARNINGS AND CASH DISTRIBUTIONS WILL AFFECT THE MARKET PRICE OF OUR
SHARES.  We believe that the market value of a REIT's common stock is based at
least in part upon the market's perception of the REIT's growth potential and
its current and potential future cash distributions, as well as upon the real
estate market value of the underlying assets. For that reason, our Common Stock
may trade at prices that are higher or lower than the net asset value per share.
Our failure to meet the market's expectations with
 
                                       10
<PAGE>
regard to future earnings and cash distributions would likely adversely affect
the market price of our Common Stock.
 
    MARKET INTEREST RATES MAY HAVE AN EFFECT ON THE VALUE OF OUR SHARES.  One of
the factors that investors consider important in deciding whether to buy or sell
shares of a REIT is the distribution rate on such shares (as a percentage of the
price of such shares) relative to market interest rates. If market interest
rates go up, prospective purchasers of REIT shares may expect a higher
distribution rate. Higher interest rates would not, however, result in more
funds for us to distribute and, in fact, would likely increase our borrowing
costs and potentially decrease funds available for distribution. Thus, higher
market interest rates could cause the market price of our Common Stock to go
down.
 
OUR SUCCESS AS A REIT IS DEPENDENT ON COMPLIANCE WITH FEDERAL INCOME TAX
  REQUIREMENTS
 
    FAILURE TO QUALIFY AS A REIT WOULD HAVE SERIOUS ADVERSE CONSEQUENCES TO OUR
STOCKHOLDERS.  We have made an election to be taxed as a REIT and believe that
we meet the requirements for qualification and taxation as a REIT. We plan to
continue to meet the requirements for taxation as a REIT. Many of these
requirements, however, are highly technical and complex. The determination that
the Company is a REIT requires an analysis of various factual matters and
circumstances that may not be totally within our control. For example, to
qualify as a REIT we must meet certain tests regarding the sources of our gross
income and the nature of our assets. The Company is also required to distribute
to stockholders at least 95% of its REIT taxable income (excluding capital
gains). The fact that we hold our assets through the Operating Partnership and
its subsidiaries further complicates the application of the REIT requirements.
Even a technical or inadvertent mistake could jeopardize our REIT status.
Furthermore, Congress and the Internal Revenue Service ("IRS") might make
changes to the tax laws and regulations, and the courts might issue new rulings
that make it more difficult, or impossible, for the Company to remain qualified
as a REIT.
 
    If the Company fails to qualify as a REIT, the Company would be subject to
federal income tax at regular corporate rates. Also, unless the IRS granted the
Company relief under certain statutory provisions, the Company would remain
disqualified as a REIT for four years following the year the Company first
failed to qualify. If the Company failed to qualify as a REIT, the Company would
have to pay significant income taxes and would therefore have less money
available for investments or for distributions to stockholders. This would
likely have a significant adverse effect on the value of our Common Stock. In
addition, the Company would no longer be required to make any distributions to
stockholders.
 
    EFFECT OF REIT DISTRIBUTION REQUIREMENTS.  To qualify as a REIT, we are
required each year to distribute to our stockholders at least 95% of our "REIT
taxable income" (excluding net capital gains). In addition, we are subject to a
nondeductible 4% excise tax on the amount, if any, by which certain
distributions we pay with respect to any calendar year are less than the sum of
85% of our ordinary income and 95% of our capital gain net income for the
calendar year, plus any amount of such income not distributed in prior years.
Although we anticipate that cash flow from operations will be sufficient to
enable us to pay our operating expenses and meet the distribution requirements
discussed above, there can be no assurance that this will be the case. In
addition, there could be differences in timing between the accrual of income and
the deduction of expenses in arriving at our taxable income. Under certain
circumstances, it may be necessary for us to incur borrowings or otherwise
obtain funds to satisfy the distribution requirements associated with
maintaining qualification as a REIT. There can be no assurance that we will be
able to borrow funds or otherwise obtain funds if and when necessary to satisfy
such requirements.
 
GOVERNMENTAL REGULATIONS MAY IMPOSE SIGNIFICANT COSTS ON OUR BUSINESS
 
    The Properties are, and properties that the Company may acquire in the
future will be, subject to various other federal, state and local regulatory
requirements such as local building codes and other similar
 
                                       11
<PAGE>
regulations. Failure to comply with these requirements could result in the
imposition of fines by governmental authorities or awards of damages to private
litigants. The Company believes that the Properties are currently in substantial
compliance with all applicable regulatory requirements. Although no material
expenditures are contemplated at this time in order to comply with any such laws
or regulations, there can be no assurance that these requirements will not be
changed or that new requirements will not be imposed that would require
significant unanticipated expenditures by the Company, which could have an
adverse effect on the Company and its ability to make distributions to
stockholders. Similarly, changes in laws increasing the potential liability for
environmental conditions existing at the Properties may result in significant
unanticipated expenditures, which could adversely affect the Company and its
ability to make distributions to stockholders.
 
YEAR 2000 COMPLIANCE
 
    GENERAL
 
    The Year 2000 compliance issue concerns the inability of computerized
information systems to accurately calculate, store or use a date after December
31, 1999. This could result in a system failure or miscalculations causing
disruptions of operations. The Year 2000 issue affects virtually all companies
and all organizations. Management recognizes the importance of ensuring that its
business and operational systems are not disrupted as a result of Year 2000
issues.
 
    READINESS
 
    Cornerstone Properties Inc. has created a Year 2000 task force to evaluate
and take the appropriate actions regarding Year 2000 compliance. The Company's
plan is divided into three major sections: (i) compliance of information systems
at the corporate offices in New York and Atlanta ("Home Office"); (ii)
compliance of information and real estate operating systems at the corporate
offices in California and the Wilson Projects ("Wilson"); and (iii) assessment
of compliance of significant service providers including third party managers
and the buildings they manage, vendors and customers ("External Agents"). The
plan covers the following major tasks: (i) inventory of all systems; (ii)
analysis of inventory including assessment of risk; (iii) verification of
compliance of inventory with vendors; (iv) testing of critical equipment and
processes; and (v) replacement or modification of systems.
 
    The first section of the plan, Home Office, is complete. The Wilson and
External Agents sections of the plan are proceeding according to schedule with
expected completions before December 31, 1999. The plan also includes
questionnaires that will be sent to tenants in order to attempt to determine the
effect of Year 2000 on their businesses and ultimately the Company's income
stream.
 
    COST
 
    The total historical and anticipated remaining costs for the Year 2000
remediation are estimated to be immaterial to the Company's financial condition.
The costs to date consist of recurring systems upgrades and replacements,
immaterial internal staff costs and other expenses such as telephone and mailing
costs. The information and real estate operating systems that have thus far been
identified as non-compliant are at or approaching the end of their useful lives
and have been or will be replaced or upgraded as a part of the normal operations
of the Company.
 
    RISKS AND CONTINGENCY PLANS
 
    The Company does not anticipate significant delays in finalizing the first
two sections of its Year 2000 remediation plan. However, External Agents having
a material relationship with the Company (e.g., property managers, utilities,
financial institutions, governmental agencies, municipalities and major tenants)
may be a potential risk based on their individual Year 2000 preparedness, which
may not be within
 
                                       12
<PAGE>
the Company's reasonable control. The Company is in the process of identifying,
reviewing and logging the Year 2000 preparedness of critical External Agents.
 
    While the Company is not aware of any matters with regard to its major
tenants which could give rise to a material default, there may be a potential
risk with regard to their Year 2000 preparedness which may be outside the
Company's reasonable control. The Company is currently in the process of
surveying its tenants to try to predetermine the risk of defaults due to Year
2000 issues.
 
    Currently, there has been no indication or expectation of material risks in
the compliance of the first two sections of the plan. Pending unfavorable
results, the Company will determine what course of action and contingencies will
need to be made. There can be no assurance that external Year 2000 issues will
be resolved. Noncompliance of External Agents as well as the Company's major
tenants could have a material adverse impact on the Company's business,
operating results and financial condition.
 
    YEAR 2000 COMPLIANCE DETAIL
 
    Home Office
 
     I. Inventory of all systems: The Company has inventoried all information
        systems at its corporate offices in New York and Atlanta. The hardware
        systems primarily consist of desktop and laptop computers, server
        computers, printers, phone systems and local area and wide area network
        infrastructures. The software applications primarily consist of
        commercial off the shelf software ("COTS") products for spreadsheet
        analysis, word processing, accounting, cash flow analysis and other
        office automation tasks.
 
    II. Analysis of inventory and assessment of risk: The systems inventory has
        been analyzed as to its compliance via vendor certifications. All of the
        Home Office systems are Year 2000 compliant.
 
    III. Verification of compliance with vendors: The Company has verified
         compliance of systems through systems' documentation, mail
         correspondences and vendor web sites.
 
    IV. Testing of critical equipment and processes: The Home Office primarily
        uses COTS products and does not significantly rely on any proprietary or
        customized systems. The Company has performed no testing and has relied
        upon vendor certifications and vendor internal testing processes.
 
     V. Replacement or modification of systems: The Company has replaced or
        modified non-compliant systems in the ordinary course of business.
 
    Wilson
 
     I. Inventory of all systems: The Company continues to inventory all
        information and real estate operating systems at its offices and
        Properties, the majority of which are located in California. The
        information systems primarily consist of desktop and laptop computers,
        server computers, printers, phone systems, local area and wide area
        network infrastructures, and COTS products for spreadsheet analysis,
        word processing, accounting, cash flow analysis and other office
        automation tasks. The real estate operating systems primarily consist of
        heating ventilation and air conditioning ("HVAC") systems, elevator
        systems, electrical systems, fire and life safety systems and security
        control systems.
 
    II. Analysis of inventory and assessment of risk: The systems inventory has
        been analyzed as to its compliance via vendor certifications.
        Substantially all of the information and real estate operating systems
        are Year 2000 compliant. Those systems identified as non-compliant will
        be upgraded or replaced in the normal course of business by December 31,
        1999. A component of the accounting system used by Wilson has been
        identified as non-compliant. An upgrade has been purchased and will be
        installed by the end of the second quarter of 1999. The cost of the
        upgrade was approximately $10,000.
 
                                       13
<PAGE>
    III. Verification of compliance with vendors: The Company has verified
         compliance of systems through systems' documentation, mail
         correspondences and vendor web sites.
 
    IV. Testing of critical equipment and processes: Wilson primarily uses COTS
        products and does not significantly rely on any proprietary or
        customized systems. The Company has performed no testing and has relied
        upon vendor certifications and vendor internal testing processes.
 
     V. Replacement or modification of systems: The Company has and will
        continue to replace or modify non-compliant systems in the ordinary
        course of business.
 
    External Agents
 
    As part of the Company's Year 2000 compliance plan, significant service
providers, vendors and customers have been identified and steps are being
undertaken to reasonably ascertain their stage of Year 2000 readiness. Through
questionnaires, web sites, interviews, on site visits and other available means,
the Company is assessing the Year 2000 risk of its third party property
managers, financial institutions, significant tenants and other significant
business partners.
 
    Of the External Agents, the Company has focused attention on assessing the
Year 2000 risk of its third party property managers and the associated real
estate operating systems (HVAC systems, elevator systems, electrical systems,
fire and life safety systems and security control systems). Currently, through
the process of surveys, interviews and on site visits, there has been no
indication of material Year 2000 risks at the Company's third-party property
managers. Non-compliant systems will be upgraded or replaced in the normal
course of business before December 31, 1999 or will be addressed with a
contingency plan.
 
    There can be no assurance that external Year 2000 issues will be resolved.
Should non-compliance of External Agents not be discovered, such non-compliance
could have a material adverse impact on the Company's business, operating
results and financial condition. Where possible, the Company will terminate any
vendor relationships should it find any material Year 2000 issues with that
vendor.
 
                                   TAX STATUS
 
    The Company has elected to be taxed as a REIT for federal income tax
purposes and believes that it has met the requirements for qualification and
taxation as a REIT commencing with its taxable year ended December 31, 1983. As
a REIT, the Company generally is not subject to corporate federal income tax on
net income that it currently distributes to its stockholders, provided that the
Company satisfies certain technical requirements relating to, among other
things, the composition of its gross income and assets and the requirements to
distribute at least 95% of its REIT taxable income to stockholders.
 
                                  COMPETITION
 
    The leasing of real estate is highly competitive. The Company's Properties
compete for tenants with similar properties located in its markets primarily on
the basis of location, rent charged, services provided and the design and
condition of the improvements. The Company also experiences competition when
attempting to acquire interests in desirable real estate, including competition
from domestic and foreign financial institutions, other REIT's, life insurance
companies, pension trusts, trust funds, partnerships and individual investors.
In addition, the Company competes for the acquisition of building sites or
redevelopment opportunities with domestic and foreign financial institutions,
other REIT's, life insurance companies, pension trusts, trust funds,
partnerships and individual investors.
 
                                       14
<PAGE>
                               INDUSTRY SEGMENTS
 
    The Company has one reportable segment--real estate. The Company does not
have foreign operations and its business is not seasonal. The Company has
adopted Statement of Financial Accounting Standard No. 131 ("SFAS 131"), which
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to stockholders. See Notes to Consolidated
Financial Statements which are part of this report for further discussion.
 
                                   EMPLOYEES
 
    As of December 31, 1998, the Company had approximately 340 employees.
 
                DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
 
    In passing the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"), 15 U.S.C.A. Section 77z-2 and 78u-5 (Supp. 1996), Congress encouraged
public companies to make "forward-looking statements" by creating a safe harbor
to protect companies from securities law liability in connection with
forward-looking statements. Cornerstone intends to qualify both its written and
oral forward-looking statements for protection under the Reform Act and any
other similar safe harbor provisions.
 
    "Forward-looking statements" are defined by the Reform Act. Generally,
forward-looking statements include expressed expectations of future events and
the assumptions on which the expressed expectations are based. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to those
uncertainties and risks, the investment community is urged not to place undue
reliance on written or oral forward-looking statements of Cornerstone. The
Company undertakes no obligation to update or revise this Safe Harbor Compliance
Statement for Forward-Looking Statements to reflect future developments. In
addition, Cornerstone undertakes no obligation to update or revise
forward-looking statements to reflect changed assumptions, the occurrence of
unanticipated events or changes to future operating results over time.
 
    The "forward-looking statements" contained in this document are made under
the captions "Business--The Company", "--Business Objectives", "--Recent
Developments", "--Risk Factors", "--Regulatory Compliance", "--Tax Status",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations" and "--Liquidity and Capital Resources".
Moreover, the Company, through its senior management, may from time to time make
"forward-looking statements" about matters described herein or other matters
concerning the Company.
 
    Stockholders are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties and that
actual results may differ materially from those contemplated by such
forward-looking statements. Important factors known to management of Cornerstone
that could cause actual results to differ materially from those contemplated by
the forward-looking statements include, but are not limited to, difficulties
related to acquisitions and integrations of real estate companies or portfolios,
adverse changes in real estate markets, increases in interest rates, increased
development of properties that compete with the Company's portfolio, earthquakes
or other casualties in areas where a substantial number of the Company's
buildings are located, risks related to the Company's liquidity and capital
requirements, risks relating to the Company's failure to ensure its information
systems and those of its tenants are Year 2000 compliant, risks of a
deterioration in general economic conditions and other matters disclosed under
the caption "Risk Factors" herein.
 
                                       15
<PAGE>
ITEM 2. PROPERTIES.
 
TABLE OF PROPERTIES
 
    The following table summarizes Cornerstone's interest in real estate
investments at December 31, 1998:
 
<TABLE>
<CAPTION>
                                                     TOTAL
MARKET NAME                                        RENTABLE      CORNERSTONE
  PROPERTY                                        SQUARE FEET   INTEREST (A)   YEAR CONSTRUCTED    OCCUPANCY       NOTES
-----------------------------------------------  -------------  -------------  ----------------  -------------     -----
<S>                                              <C>            <C>            <C>               <C>            <C>
BOSTON, MASSACHUSETTS
  Sixty State Street...........................       823,014         100.0%         1978                 99%            B
  500 Boylston Street..........................       714,636          91.5%         1988                100%            D
  222 Berkeley Street..........................       531,184          91.5%         1991                100%            D
  125 Summer Street............................       463,691         100.0%         1989                 97%
  One Memorial Drive...........................       352,764         100.0%         1985                100%            C
                                                 -------------                                           ---
  MARKET TOTAL.................................     2,885,289                                             99%
 
SAN MATEO COUNTY, CALIFORNIA
  Bayhill (4 buildings)........................       513,910         100.0%      1982-1987               88%            E
  Peninsula Office Park (7 buildings)..........       493,214         100.0%      1971-1998               98%            E
  Seaport Centre...............................       463,142         100.0%         1988                 65%            E
  Bay Park Plaza (2 buildings).................       257,058         100.0%      1985-1998               97%            E
  One Bay Plaza................................       176,533         100.0%         1979                 93%            E
  Belmont Shores...............................       141,643         100.0%         1983                 97%            E
  1300 South El Camino.........................        84,441         100.0%         1986                100%            E
  66 Bovet.....................................        43,968         100.0%         1968                 87%            E
                                                 -------------                                           ---
  MARKET TOTAL.................................     2,173,909                                             88%
 
EAST BAY, CALIFORNIA
  Corporate Centre (2 buildings)...............       329,604         100.0%      1985-1987               97%            E
  ADP Plaza (2 buildings)......................       299,591         100.0%      1987-1989               93%            E
  PeopleSoft Plaza.............................       279,931         100.0%         1984                 99%            E
  Norris Tech Center (3 buildings).............       260,513         100.0%      1984-1998               96%            E
  Golden Bear Center...........................       160,587         100.0%         1986                 96%            E
  2700 Ygnacio Valley Road.....................       103,214         100.0%         1984                 96%            E
  Park Plaza...................................        87,040         100.0%         1986                 86%            E
  1600 South Main..............................        83,277         100.0%         1983                 95%            E
  Foothill Corporate Center....................        70,355         100.0%         1982                 98%            E
                                                 -------------                                           ---
  MARKET TOTAL.................................     1,674,112                                             96%
 
ATLANTA, GEORGIA
  191 Peachtree Street.........................     1,215,288          80.0%         1991                 98%          D,F
  200 Galleria.................................       432,698         100.0%         1985                 95%            D
                                                 -------------                                           ---
  MARKET TOTAL.................................     1,647,986                                             97%
 
SEATTLE, WASHINGTON
  Washington Mutual Tower (3 buildings)........     1,154,560          50.0%         1988                 99%            G
  110 Atrium Place                                    213,854         100.0%         1981                 97%            E
  Island Corporate Center......................       100,075         100.0%         1987                 96%            E
                                                 -------------                                           ---
  MARKET TOTAL.................................     1,468,489                                             99%
</TABLE>
 
                                       16
<PAGE>
<TABLE>
<CAPTION>
                                                     TOTAL
MARKET NAME                                        RENTABLE      CORNERSTONE
  PROPERTY                                        SQUARE FEET   INTEREST (A)   YEAR CONSTRUCTED    OCCUPANCY       NOTES
-----------------------------------------------  -------------  -------------  ----------------  -------------     -----
<S>                                              <C>            <C>            <C>               <C>            <C>
SANTA CLARA COUNTY, CALIFORNIA
  Pruneyard Office (3 buildings)...............       354,005         100.0%      1971-1999               99%          E,H
  10 Almaden...................................       293,685         100.0%         1989                100%            E
  Pruneyard Shopping Center....................       252,210         100.0%        1970s                 95%            E
  Embarcadero Place (4 buildings)..............       192,108         100.0%         1984                100%            E
  Pruneyard Inn................................        90,000         100.0%         1989                              E,I
  First American Plaza.........................        82,596         100.0%         1971                 98%            E
  490 California...............................        24,539         100.0%         1985                100%            E
                                                 -------------                                           ---
  MARKET TOTAL.................................     1,289,143                                             99%
 
DENVER, COLORADO
  One Norwest Center...........................     1,187,752         100.0%         1983                 97%
                                                 -------------                                           ---
  MARKET TOTAL.................................     1,187,752                                             97%
 
SAN FRANCISCO, CALIFORNIA
  120 Montgomery Street........................       410,902          66.7%         1955                 95%            E
  One Post.....................................       389,660          50.0%         1969                 99%            E
  201 California Street........................       240,230         100.0%         1980                100%            J
  188 Embarcadero..............................        85,209         100.0%         1985                 99%            E
                                                 -------------                                           ---
  MARKET TOTAL.................................     1,126,001                                             98%
 
MINNEAPOLIS, MINNESOTA
  Norwest Center...............................     1,118,062          50.0%         1988                100%            K
                                                 -------------                                           ---
  MARKET TOTAL.................................     1,118,062                                            100%
 
WASHINGTON, D.C./ALEXANDRIA, VIRGINIA
  Market Square (2 buildings)..................       688,709          70.0%         1990                 96%          D,L
  99 Canal Center..............................       137,945         100.0%         1986                 98%            D
  TransPotomac Plaza 5.........................        92,980         100.0%         1983                 96%            D
  11 Canal Center..............................        70,365         100.0%         1986                 95%            D
                                                 -------------                                           ---
  MARKET TOTAL.................................       989,999                                             96%
 
SUBURBAN CHICAGO, ILLINOIS
  Corporate 500 Centre (4 buildings)...........       678,885         100.0%      1986/1990               97%            M
  One Lincoln Centre...........................       297,067         100.0%         1986                 90%
                                                 -------------                                           ---
  MARKET TOTAL.................................       975,952                                             95%
 
SANTA MONICA/WEST LOS ANGELES, CALIFORNIA
  West Wilshire (2 buildings)..................       235,781         100.0%      1960-1976               90%            E
  Wilshire Palisades...........................       186,714         100.0%         1981                 99%            J
  Janss Court..................................       125,556         100.0%         1989                 97%          E,N
  Searise Office Tower.........................       122,292         100.0%         1975                 94%            E
  Commerce Park................................        94,252         100.0%         1977                 79%          E,O
  429 Santa Monica.............................        81,414         100.0%         1982                 81%            E
                                                 -------------                                           ---
  MARKET TOTAL.................................       846,009                                             92%
</TABLE>
 
                                       17
<PAGE>
<TABLE>
<CAPTION>
                                                     TOTAL
MARKET NAME                                        RENTABLE      CORNERSTONE
  PROPERTY                                        SQUARE FEET   INTEREST (A)   YEAR CONSTRUCTED    OCCUPANCY       NOTES
-----------------------------------------------  -------------  -------------  ----------------  -------------     -----
<S>                                              <C>            <C>            <C>               <C>            <C>
ORANGE COUNTY, CALIFORNIA
  Bixby Ranch..................................       277,289         100.0%         1987                 98%            E
  18301 Von Karman.............................       219,537         100.0%         1991                 64%            E
  2677 North Main..............................       212,542         100.0%         1987                 81%            E
                                                 -------------                                           ---
  MARKET TOTAL.................................       709.368                                             82%
 
CHARLOTTE, NORTH CAROLINA
  Charlotte Plaza..............................       612,728         100.0%         1982                 99%            D
                                                 -------------                                           ---
  MARKET TOTAL.................................       612,728                                             99%
 
ARIZONA
  Gateway (2 buildings)........................       212,222         100.0%      1984-1985               92%            E
  Scottsdale Centre............................       164,469         100.0%         1985                 94%            E
  Biltmore Lakes...............................       207,489         100.0%         1982                 96%            E
                                                 -------------                                           ---
  MARKET TOTAL.................................       584,180                                             94%
 
SAN DIEGO, CALIFORNIA
  Centerside II................................       286,941         100.0%         1987                 94%            E
  Crossroads...................................       133,950         100.0%         1983                 99%            E
                                                 -------------                                           ---
  MARKET TOTAL.................................       420,891                                             95%
 
LOS ANGELES, CALIFORNIA
  700 North Brand..............................       202,785         100.0%         1981                 94%            E
  Tri-Center Plaza.............................       141,946         100.0%         1990                 96%            E
  Warner Park Center...........................        58,798         100.0%         1986                 98%            E
                                                 -------------                                           ---
  MARKET TOTAL.................................       403,529                                             95%
 
NEW YORK CITY, NEW YORK
  527 Madison Avenue...........................       215,332         100.0%         1986                 94%
  Tower 56.....................................       163,633         100.0%         1983                 99%            P
                                                 -------------                                           ---
  MARKET TOTAL.................................       378,965                                             96%
 
CONEJO VALLEY (VENTURA), CALIFORNIA
  Westlake Spectrum (2 buildings)..............       118,990         100.0%         1990                100%            E
  Agoura Hills.................................       115,265         100.0%         1987                 88%            E
                                                 -------------                                           ---
  MARKET TOTAL.................................       234,255                                             94%
 
OTHER REGIONS
  U.S. West (Murray, Utah).....................       136,608         100.0%         1985                 86%            E
  Exposition Centre (Sacramento, California)...        72,547         100.0%         1984                 65%            E
                                                 -------------                                           ---
  MARKET TOTAL.................................       209,155                                             79%
                                                 -------------                                           ---
  TOTAL PORTFOLIO..............................    20,935,774                                             96%
  Minority Interest Adjustment (Q).............      (684,784)
                                                 -------------                                           ---
  CORNERSTONE PORTFOLIO........................    20,250,990                                             95%
                                                 -------------                                           ---
                                                 -------------                                           ---
</TABLE>
 
                                       18
<PAGE>
------------------------
 
(A) Unless noted below, cash flow and residual proceeds will be distributed to
    Cornerstone according to its percentage interest.
 
(B) On December 31, 1997, the Company purchased the second mortgage on Sixty
    State Street. The mortgage is a cash flow mortgage through which all the
    economic benefits/risks (subject to the first mortgage) inure to the
    Company. The Company controls all major decisions regarding management and
    leasing. The total purchase price for the second mortgage was $131.5
    million. The $78.4 million first mortgage on the Property was originally
    recorded by the Company as an $89.6 million liability due to its
    above-market interest rate.
 
   The second mortgage, which the Company holds, is collateralized only by the
    improvements on Sixty State Street. Title to the improvements is owned by
    Sixty State Street Trust, the ground lessee under a ground lease that
    expires on December 28, 2067. The lease payments on the ground lease are
    $398,896 per annum throughout the term.
 
(C) On April 28, 1998, the Company purchased One Memorial Drive in Cambridge,
    Massachusetts. The total purchase price for the Property was approximately
    $112.5 million, approximately $23.5 million of which was paid in cash,
    approximately $29.0 million of which was paid in UPREIT Units valued at
    $17.50 per unit and approximately $60.0 million of which was paid in Common
    Stock valued at $17.50 per share.
 
(D) On October 27, 1997, the Company acquired interests in nine Class A office
    properties comprising approximately 4.5 million rentable square feet in
    Alexandria, Virginia (3 properties), Atlanta (2 properties), Boston (2
    properties), Charlotte and Washington, D.C., as well as an undeveloped
    parcel of land in Chicago (collectively, "the PGGM Portfolio"). The Company
    acquired the PGGM Portfolio for a purchase price of approximately $1.06
    billion, consisting of approximately 34.2 million shares of Common Stock
    valued and recorded at $16.00 per share, approximately $260.0 million in
    cash and $250.0 million in promissory notes. The cash portion of the
    acquisition was financed with proceeds from the Company's Initial Public
    Offering in April 1997 and $54.0 million from its Revolving Credit Facility.
 
(E) Property was acquired as a result of the Wilson Acquisition in December
    1998. After receiving stockholder approval on December 14, 1998, the Company
    acquired substantially all of the properties and real estate operations of
    WW&A. As part of the Wilson Acquisition, the Company acquired interests in
    69 Class A office Properties, comprising approximately 9.2 million rentable
    square feet primarily in the San Francisco Bay Area and in Southern
    California, a shopping center consisting of approximately 252,000 rentable
    square feet in Santa Clara, California, a hotel consisting of 90,000 square
    feet in Santa Clara, California and 12.8 acres of developable land in the
    San Francisco Bay Area.
 
   The Company acquired WW&A for a purchase price of approximately $1.8 billion,
    consisting of approximately 14.9 million shares of Common Stock valued at
    $17.25 per share (recorded at $16.25 per share for GAAP purposes),
    approximately 16.2 million UPREIT Units valued at $17.25 per unit (recorded
    at $16.25 per unit for GAAP purposes), approximately $465.0 million in cash
    and the assumption of approximately $760.0 million of property and
    construction related debt (recorded at $773.7 million for GAAP purposes).
    The cash portion of the transaction was financed primarily from the
    Company's Revolving Credit Facility and the sale of $200.0 million of Common
    Stock to PGGM, an approximate 33.6% stockholder prior to the Wilson
    Acquisition, priced at $17.25 per share.
 
(F) While the Company's stated interest in the partnership that owns 191
    Peachtree Street is 80.0%, its economic interest is significantly larger
    since it has acquired the first mortgage note on the Property in the amount
    of $145.0 million, which earns interest at 9.375% and will receive a
    priority distribution on its acquired capital base. In 1997 and 1998, the
    partner in the transaction, CH Associates, Ltd.,
 
                                       19
<PAGE>
    received an annual Incentive Distribution (as defined) of $250,000, which
    the Company expects it will continue to receive under the partnership
    agreement through February 28, 2000, with the Company
    receiving the remainder of the cash flow of the Property.
 
   The partnership that owns 191 Peachtree Street leases a portion of the land
    upon which the project is located pursuant to a ground lease agreement. The
    agreement requires annual payments of $5,000 through January 31, 1998,
    $45,000 through January 31, 2002 and $75,000 through January 31, 2008.
    Thereafter, the annual rent increases $2,500 per year until the expiration
    date of January 31, 2087. The partnership records ground rental expense
    relating to this agreement on a straight-line basis. The ground lease is
    renewable for an additional 99 years.
 
(G) While the Company's stated interest in the partnership that owns Washington
    Mutual Tower is 50.0%, its economic interest in the Property is
    significantly larger due to priority distributions it receives on its
    invested capital base. For the year ended December 31, 1998, the Company
    received 100% of the cash distributions from the partnership that owns
    Washington Mutual Tower.
 
(H) Pruneyard Place is under construction with an expected completion date of
    April 1999. The building is 100% pre-leased. The building will be six
    stories and contain approximately 120,000 square feet of net rentable area.
 
(I) The Pruneyard Inn is a 118-room, three-story hotel. The Property is
    currently undergoing a 25,000-square foot expansion, which will add 54 new
    rooms.
 
(J) On June 3, 1998, the Company purchased 201 California Street and Wilshire
    Palisades. The total purchase price for the Properties was approximately
    $121.5 million, approximately $29.5 million of which was paid in cash,
    approximately $29.1 million of which was paid in UPREIT Units valued at
    $17.50 per unit and approximately $62.9 million of assumed debt (recorded at
    $64.6 million for GAAP purposes).
 
(K) While the Company's stated interest in the partnership that owns Norwest
    Center is 50.0%, its economic interest in the Property is significantly
    larger due to priority distributions it receives on its invested capital
    base. For the year ended December 31, 1998, the Company's share of earnings
    and cash distributions from the partnership that owns Norwest Center was
    77.9%.
 
(L) During 1998, through a series of transactions, the Company acquired
    partnership interests with a stated interest of approximately 70.0% in the
    partnerships that own Market Square. The Company's economic interest is
    significantly larger since it has acquired the first mortgage note on the
    Property in the amount of $181.0 million which earns interest at 9.75% and
    will receive a priority distribution on its acquired capital base. In
    addition, the Company acquired a "buffer loan", with accrued principal and
    interest of $49.0 million at purchase, which accrues interest at a rate of
    Prime plus 1.25% and is payable from cash flow, refinancing or sales
    proceeds in excess of the first mortgage. During the year ended December 31,
    1998, the Company received 100% of the cash flow from the Property.
 
(M) On January 28, 1998, the Company purchased Corporate 500 Centre in
    Deerfield, Illinois. This Property consists of four Class A office buildings
    with approximately 679,000 rentable square feet. The consideration paid for
    this Property was approximately $135.0 million in cash and approximately
    $15.0 million in UPREIT Units valued at $18.50 per unit, for a total
    purchase price of approximately $150.0 million. The Company financed a
    portion of the purchase price with an $80.0 million mortgage loan from
    Bankers Trust Company; this mortgage was subsequently refinanced in October
    1998.
 
(N) Janss Court is a seven-story, 125,000-square foot Class A mixed-use
    building. In addition to 92,000 square feet of retail and office space,
    Janss Court offers 32 apartments for a total of 33,000 rentable square feet
    of residential space.
 
(O) The Property is subject to a ground lease agreement. The agreement requires
    annual payments of $115,000 through March 31, 2002 and $121,000 from April
    1, 2002 through March 31, 2007. The lease
 
                                       20
<PAGE>
    payment increases every ten years thereafter according to a formula based on
    the Consumer Price Index. The ground lease expires on March 31, 2041.
 
(P) On January 5, 1998, the Company purchased for approximately $5.5 million,
    the remaining participation rights in the cash flow and residual value of
    Tower 56 from the former participants for 307,692 shares of Common Stock. As
    a result, all of the cash flow and the residual value of Tower 56 inure to
    the Company.
 
(Q) Rentable square feet includes an adjustment for the interest of a joint
    venture or minority partner. Calculations are based on the partners'
    percentage interest in the cash flows of the property.
 
    None of the above Properties had either (i) net book values equal to 10.0%
or more of the Company's total assets as of December 31, 1998 or (ii) gross
revenues equal to 10.0% or more of the Company's consolidated gross revenues for
the year ended December 31, 1998.
 
JOINT VENTURE PROPERTIES
 
    This section describes the Properties in which the Company has an interest
through joint venture or other ownership arrangement.
 
NORWEST CENTER
 
    Norwest Center is a 55-story, granite and glass office tower containing
approximately 1,118,000 square feet of net rentable area and a 340-vehicle
underground parking facility. Norwest Center is located at the center of
downtown Minneapolis, at the intersection of Seventh Street South and Marquette
Avenue. The main business entrance to the building is on Seventh Street South,
opposite the IDS Center, a prominent landmark in the Twin Cities. Pedestrian
access is also available from Sixth Street South and Marquette Avenue; a grand
ceremonial entrance to the building on Sixth Street South incorporates a rotunda
and retail banking function.
 
    THE PARTNERSHIP
 
    Norwest Center is owned by NWC Limited Partnership ("NWC"), a partnership in
which the Company owns a 50.0% general partnership interest through a
wholly-owned subsidiary of the Operating Partnership. Sixth and Marquette
Limited Partnership ("S&M") owns a 49.0% managing general partnership interest
and a 1.0% limited partnership interest in NWC. The managing general partner of
NWC is currently S&M. The Company has the right, at its sole discretion, to
become the managing general partner of NWC. Due to the above factors, the
Company consolidates NWC. Norwest Center is managed by Hines Interests Limited
Partnership ("Hines").
 
    Under the partnership agreement governing NWC, the managing general partner
has the right to manage and operate NWC's business. Until certain cash flow
levels have been achieved for two consecutive years (the "NWC Preference
Period"), S&M and the Company each hold a 50.0% interest in NWC. After the NWC
Preference Period ends, the Company will be entitled to hold a 60.0% interest
(subject to increases in the Company's interest that may result from early
termination of the NWC Preference Period), and S&M a 40.0% interest. The Company
does not expect the NWC Preference Period to end in the foreseeable future.
 
    During the NWC Preference Period, the Company is entitled to receive an
annual preference return (the "NWC Preference Return") equal to 7.0% of its
capital base, which was $92.3 million as of December 31, 1998. The NWC
Preference Return is cumulative, and if operating revenues (after payment of
operating costs, capital expenditures and debt service) are not sufficient to
fund the distribution of any NWC Preference Return then due, the amount of such
deficiency shall accumulate and shall bear interest at the rate of 7.0%,
compounded annually. Currently, there is no accrued deficiency outstanding on
the NWC Preference Return.
 
                                       21
<PAGE>
    Subject to the preferential distributions to the Company described above,
all of NWC's operating revenues remaining after making payments required for the
operations of NWC and Norwest Center and the payment of debt service will be
distributed 50.0% to the Company and 50.0% to S&M during the NWC Preference
Period.
 
WASHINGTON MUTUAL TOWER
 
    Washington Mutual Tower is a 55-story, granite and glass office tower
containing approximately 1,155,000 square feet of net rentable area (including
the Galland and Seneca Buildings described below). Washington Mutual Tower is
located in the heart of the downtown Seattle CBD, at 1201 Third Avenue, with
unobstructed views of Puget Sound. The project site ("Project Site") is
comprised of Washington Mutual Tower and Block 6 ("Block 6") which consists of a
6-level underground parking garage for 810 cars; an adjacent historic brick
building (the Brooklyn Building); three levels of restaurants, shops and service
businesses; and, to protect sight lines from Washington Mutual Tower, two
masonry office buildings located across the street - the Galland and Seneca
Buildings - master leased by Third and University Limited Partnership ("Third
Partnership") through 2005 from Samis Land Company. Wright Runstad & Company has
a subordinated equity interest in Washington Mutual Tower and manages the
Property for Cornerstone.
 
    THE PARTNERSHIP
 
    The Project Site is owned by Third Partnership. The Company owns, through a
wholly-owned subsidiary of the Operating Partnership, a 50.0% general
partnership interest in Third Partnership. 1212 Second Avenue Limited
Partnership, a Washington limited partnership ("1212 Partnership"), currently
holds a 49.0% managing general partnership interest and a 1.0% limited
partnership interest in Third Partnership. Third Partnership is the successor in
interest as lessee under a lease, expiring in 2005, of the Galland and Seneca
Buildings.
 
    The Company holds the right, at its sole discretion, to elect to become the
managing general partner of Third Partnership. Due to the above factors, the
Company consolidates Third Partnership. 1212 Partnership was originally the only
general partner and is now the managing general partner with the obligation to
manage and operate Third Partnership's business.
 
    Until certain cash flow levels have been achieved for two consecutive years
(the "Washington Preference Period"), all of Third Partnership's operating
revenues remaining after making payments required for: (i) the operations of
Third Partnership and Washington Mutual Tower; (ii) net Block 6 costs; (iii) the
payment of debt service; and (iv) the Washington Preference Returns (defined
below), will be distributed 50.0% to the Company and 50.0% to 1212 Partnership.
The Washington Preference Period is expected to continue for the foreseeable
future. During the Washington Preference Period, the Company is also entitled to
receive an annual preference return (the "Washington Preference Return") equal
to 8.0% of its capital base, which was $100.0 million as of December 31, 1998.
The Washington Preference Return is cumulative, and if operating revenues,
adjusted for payment of operating costs, capital expenditures and debt service
are insufficient to fund the distribution of any Washington Preference Return
then due, the amount of such deficiency shall accumulate and shall bear interest
at the rate of 8.0%, compounded annually. As of December 31, 1998, the Company
is due a cumulative preference deficit, including accrued interest, of
approximately $9.7 million, which will be reduced as cash flow becomes
available. On a priority basis to the Washington Preference Return described
above, the Company also receives a 9.53% return on an additional equity
investment of $47.0 million made in September 1995. The Company is entitled to
receive this return through September 30, 2003, at which time the rate of return
will adjust based on conditions in the interest rate markets.
 
                                       22
<PAGE>
191 PEACHTREE STREET
 
    191 Peachtree Street, located in downtown Atlanta, is a 50-story
multi-tenant office building containing approximately 1,215,000 square feet of
net rentable area. The Property was completed in 1991 and designed by John
Burgee Architects and Philip Johnson. Attached to the building is a 16-story
parking deck with 1,386 spaces. 191 Peachtree Street was developed on
approximately 2 acres of land, of which approximately 1.5 acres is owned and
approximately one-half acre under the parking facility is leased for a 99-year
term expiring in 2087 with a 99-year renewal option.
 
    191 Peachtree Street is located in the heart of Atlanta's CBD, also referred
to as Downtown. Peachtree Street is a major corridor through the CBD from which
development radiates. The property is located on the east side of Peachtree
Street between Ellis Street and International Boulevard, and extends to
Peachtree Center Avenue. The topography of the site slopes down to the east,
with both the Peachtree Street and Peachtree Center Avenue entrances at street
grade.
 
    OWNERSHIP STRUCTURE
 
    THE MORTGAGE.  Cornerstone holds the first mortgage on the Property in the
amount of $145.0 million. The mortgage earns interest at a rate of 9.375% and
matures on February 28, 2008. The loan was interest only through March 1, 1998
and has since required principal payments based on a 30-year amortization
schedule.
 
    THE PARTNERSHIP.  Cornerstone has an 80.0% interest in One Ninety One
Peachtree Associates, the partnership which owns the Property. The Company's
interest in One Ninety One Peachtree Associates is consolidated for accounting
purposes, as the Company has substantial control over major decisions, as well
as the right to become managing general partner. Through February 28, 2000, the
minority partner in the transaction, C-H Associates, Ltd, will receive an
Incentive Distribution (as defined) of $250,000 per annum. This payment will be
made out of net cash flow after the payment of the first mortgage loan described
above. Cornerstone will receive the remaining cash flow up to the amount of an
Undistributed Preferred Return, defined in the partnership agreement for the
Property. Should cash flow be insufficient to repay the Undistributed Preferred
Return, the remainder will earn interest at a rate increasing over the next
eight years from 7.25% to 11.5%; at December 31, 1998, the cumulative
Undistributed Preferred Return was approximately $162.9 million. Through a
buy-sell agreement that becomes effective in 2002, either the Company or the
minority partner will have the right to withdraw from the partnership by
offering to the other its entire interest in the partnership, or if such offer
is not accepted, the right to buy the other partner's entire interest in the
partnership and gain full control of the asset.
 
    THE GROUND LEASE.  A small portion of the site that is below the parking
structure is subject to a long-term ground lease from the Ritz-Carlton Hotel
(see above). As part of the ground lease agreement, the Ritz-Carlton Hotel has
its ballroom located in the basement of 191 Peachtree Street.
 
500 BOYLSTON STREET
 
    500 Boylston Street, a 25-story, Class A office building containing a total
rentable area of approximately 715,000 square feet, was designed by the team of
John Burgee Architects and Philip Johnson. The project shares a full city block
with 222 Berkeley Street, and together, the two buildings are considered the
premier buildings in the Back Bay submarket of Boston. 500 Boylston Street is
comprised of 642,000 square feet of office area on floors three through
twenty-five, 8,000 square feet of storage space, and 65,000 square feet of
retail area on floors one and two. Parking for 1,000 cars is shared with 222
Berkeley Street and is located on three levels below grade. The 500 Boylston
Street site contains approximately 137,000 square feet of land area or 3.15
acres, with approximately 500 feet of frontage on Boylston Street.
 
    The 500 Boylston Street and 222 Berkeley Street complex occupies a city
block bound by Boylston Street on the north, St. James Avenue on the south,
Clarendon Street on the west and Berkeley Street on
 
                                       23
<PAGE>
the east. Development of the Back Bay has historically been subject to
restrictive zoning ordinances, aimed at preserving the character of the area and
concentrating commercial development along the "High Spine", of which Boylston
Street is the center.
 
    THE PARTNERSHIP
 
    Cornerstone has a 91.5% interest in Five Hundred Boylston West Venture, the
partnership which owns the fee simple title to the Property. The remaining 8.5%
interest is owned by Boylston West 1986 Associates Limited Partnership
("Boylston West"). Cash flow, excess financing and sales proceeds are shared on
a pro rata basis between the partners with respect to each partnership interest.
The Company consolidates its investment in the partnership which owns 500
Boylston Street. In addition, through buy-sell agreements that become effective
in 2007 with respect to each partner, either the Company or Boylston West will
have the right to withdraw from the partnership by offering to the other its
entire share in the partnership, or if such offer is not accepted, the right to
buy the other partner's entire interest in the partnership and gain full control
in the underlying asset. The Property is managed by Hines under a long-term
management agreement.
 
222 BERKELEY STREET
 
    222 Berkeley Street is a 22-story Class A office building containing
approximately 531,000 square feet of net rentable area. Its floor plates range
from approximately 40,000 square feet on floors one through six to approximately
14,000 square feet on floors twenty through twenty-two. The main lobby has
inlaid marble patterned floors, marble and painted walls and upper level mill
worked interior windows. Designed by Robert A.M. Stern Architects, the building
is clad in brick and uses natural cast stone for trim and detailing. This design
approach blends the historic flavor of the Back Bay area architecture with that
of a modern office building. The retail area of 46,000 square feet is located on
the first and second floors. Completed in 1991, 222 Berkeley Street was designed
as the second phase of a full block development and is therefore physically
attached to 500 Boylston Street. The two buildings have interconnecting garage
and retail areas. A reciprocal easement agreement has been established to permit
the operation of these shared facilities.
 
    The site is bound by Berkeley Street on the east, St. James Avenue on the
south, the 500 Boylston Street building on the west and Boylston Street on the
north. The office tower fronts Berkeley Street and is turned at a ninety degree
angle to the tower of 500 Boylston Street, providing views from the tower
towards downtown Boston and the Charles River.
 
    THE PARTNERSHIP
 
    Cornerstone has a 91.5% interest in Two Twenty Two Berkeley Venture, the
partnership which owns the fee simple title to the Property. The remaining 8.5%
interest is owned by Hines 222 Berkeley Limited Partnership ("Hines LP"). Cash
flow, excess financing and sales proceeds are shared on a pro rata basis between
the partners with respect to each partnership interest. The Company consolidates
its investment in the partnership which owns 222 Berkeley Street. In addition,
through buy-sell agreements that become effective in 2007 with respect to each
partner, either the Company or Hines LP will have the right to withdraw from the
partnership by offering to the other its entire share in the partnership, or if
such offer is not accepted, the right to buy the other partner's entire interest
in the partnership and gain full control in the underlying asset. The Property
is managed by Hines under a long-term management agreement.
 
SIXTY STATE STREET
 
    Sixty State Street, a 38-story, Class A office building containing a total
rentable area of approximately 823,000 square feet, was designed by Skidmore,
Owings, & Merrill Architects. The project is located on the northeast corner of
State and Congress Streets and is considered one of the premier office buildings
in
 
                                       24
<PAGE>
Boston's Financial District. The exterior facade consists of granite and
reflective glass. The building's irregular shape yields 11 sides and thus,
substantial window-office space. Built in 1978 on a 1.35-acre site, the building
has three levels of below grade parking capable of accommodating 215 vehicles.
 
    The project is well located and convenient to all forms of public
transportation and scores of cultural attractions. Most notably, the building
overlooks the adjacent Faneuil Hall Market Place and the Government Center
Transit Station. In addition, its location provides convenient commuter access
from Boston's suburbs.
 
    The ground under Sixty State Street is leased to the leasehold owner, Sixty
State Street Trust, through December 28, 2067. The lease payments on the ground
lease are $398,896 per annum throughout the term.
 
    OWNERSHIP STRUCTURE
 
    On December 31, 1997, Cornerstone purchased the second mortgage on Sixty
State Street. The mortgage is a cash flow mortgage through which all the
economic benefits/risks (subject to the first mortgage) inure to the Company.
The Company controls all major decisions regarding management and leasing. The
total purchase price for the second mortgage was $131.5 million and is
consolidated in land and building due to the above factors. The $78.4 million
first mortgage on the property was originally recorded by the Company as an
$89.6 million liability as a result of its above-market interest rate.
 
MARKET SQUARE
 
    Market Square, located at 701 and 801 Pennsylvania Avenue, N.W., in
Washington, D.C., comprises two freestanding buildings which are mirror images
of each other. Each building contains eight floors of office space, a plaza and
a concourse level, plus four floors of condominium residential units. The
condominium units are not owned by the Company. The total rentable area of
Market Square is approximately 689,000 square feet and the project has a four
level below grade parking garage with 777 spaces. Of this total area, 621,000
square feet is office space, 58,000 square feet is retail and concourse space
and 10,000 square feet is storage space. Designed by Hartman Cox, the project
won a competition to be the backdrop for the U.S. Navy Memorial plaza.
 
    Market Square is located midway between the White House and the Capitol on
Pennsylvania Avenue, a prominent address in Washington, D.C. Pennsylvania Avenue
is wide, thereby providing the project with open city views, including the White
House, the Capitol and the Washington Monument. In addition, the Archives-Navy
Memorial Metro stop is located in the U.S. Navy Memorial Plaza in front of the
building.
 
    OWNERSHIP STRUCTURE
 
    THE MORTGAGE.  Cornerstone holds the first mortgage on the property in the
amount of $181.0 million. The mortgage earns interest at a rate of 9.75% and
matures with a balloon payment on November 15, 2007. The loan requires principal
payments based on a 30-year amortization schedule. The remaining balance of the
mortgage as of December 31, 1998 was approximately $178.5 million. In addition,
Cornerstone acquired a "buffer loan", with accrued principal and interest of
$49.0 million at purchase, which accrues interest at a rate of Prime plus 1.25%
and is payable from cash flow, refinancing or sales proceeds from Market Square
in excess of the first mortgage.
 
    THE PARTNERSHIP.  During 1998, through a series of transactions, the Company
acquired partnership interests with a stated interest of approximately 70.0% in
AALP, the partnership that owns Market Square. The remaining 30.0% partnership
interest is owned by Western Associates Limited Partnership. The Company's
interest in AALP is consolidated for accounting purposes at December 31, 1998.
The income statement has been consolidated since November 1, 1998, as the
Company is managing general partner and has substantial control over major
decisions as of such date. Cash flow from AALP is distributed to pay the debt
service on the first mortgage note described above. Remaining cash flow is used
to pay a series of
 
                                       25
<PAGE>
preference returns and "buffer loans" (as described above). Refinancing or sales
proceeds would be used to pay the first mortgage, preference returns and
outstanding "buffer loans". The unpaid preference return and "buffer loans"
through December 31, 1998 totaled approximately $75.5 million. During the year
ended December 31, 1998, the Company received 100% of the cash flow from the
Property.
 
120 MONTGOMERY STREET
 
    120 Montgomery Street is a 25-story Class A office building in San
Francisco, California, containing approximately 411,000 rentable square feet.
Completed in 1955, this building set the standard of quality for all succeeding
high-rise office buildings. Today, it continues to offer its tenants access to
the business resources and market exposure commensurate with a downtown business
district address. The building is of steel frame construction, with an exterior
surface of polished granite panels and stainless-steel mullions. 120 Montgomery
Street is apportioned into low-rise and high-rise sections, and is separated by
a roof garden on the sixteenth floor, a rare amenity for a downtown high-rise.
 
    Located at the northeast corner of Montgomery and Sutter Streets, and
directly across the street from the world headquarters of Charles Schwab & Co.,
120 Montgomery Street provides tenants with a high profile location and ease of
access. Situated one block off Market Street and adjacent to a subterranean
entrance to the Montgomery BART station, the property is well located with
respect to all major forms of transportation in San Francisco's Financial
District.
 
    OWNERSHIP STRUCTURE
 
    Cornerstone has a 66.7% interest in 120 Montgomery Associates, LLC, the
company which owns the fee simple title to the building. The remaining 33.3%
interest is owned by Sansome Partners III, L.P. Cash flow, excess financing and
sales proceeds are shared on a pro rata basis between the members with respect
to each member's interest. The Company makes all operating decisions and
consolidates its investment in 120 Montgomery Associates, LLC. Cornerstone
manages and leases the Property.
 
ONE POST
 
    One Post is a 38-story, Class A office building located at One Post Street
in the San Francisco CBD. The building was built in 1969 and offers
approximately 390,000 rentable square feet of office and retail space. The
building has the distinction of being one of the first modern high-rise
buildings to be built in San Francisco and is the corporate headquarters for
McKesson Corporation, a tenant since 1970.
 
    A two-level plaza in front of the building is comprised of approximately
20,000 square feet of public space bordered by Market and Montgomery Streets.
The lower plaza has 6,000 square feet of retail shops and an 18,000 square foot
fitness center. This lower plaza provides tenants and visitors with direct
access to the regional subway and city rail lines.
 
    OWNERSHIP STRUCTURE
 
    The Property is owned through a co-tenancy agreement whereby the Company and
Crocker Plaza Company ("Crocker") each owns an undivided 50% fee simple
interest. Distributions of cash flows and sales proceeds are shared in
proportion to the co-tenant's respective interest. The Company accounts for its
investment in One Post under the equity method of accounting. The Company and
Crocker co-manage and lease the Property.
 
                                       26
<PAGE>
DEBT SCHEDULE
 
    The following table sets forth certain information regarding the
consolidated debt obligations of the Company as of December 31, 1998, including
mortgage obligations relating to the Properties. All of this debt, with the
exception of the Convertible Promissory Note due 2001, is nonrecourse to the
Company. However, notwithstanding the nonrecourse indebtedness, the lender may
have the right to recover deficiencies from the Company in certain
circumstances, including fraud, misappropriation of funds and environmental
liabilities.
 
<TABLE>
<CAPTION>
                                                                                     MATURITY
PROPERTY                              AMORTIZATION           INTEREST RATE (A)         DATE         12/31/98        12/31/97
--------------------------------  ---------------------  -------------------------  -----------  --------------  --------------
<S>                               <C>                    <C>                        <C>          <C>             <C>
188 Embarcadero.................  25 year                                    6.90%      Jun-99   $    9,135,000  $           --
One and Two Gateway.............  25 year                                    6.90%      Dec-99        8,679,000              --
Seaport Centre..................  Interest only                   LIBOR plus 1.50%      Dec-99       58,000,000              --
The Pruneyard...................  24 year                         LIBOR plus 2.00%      Mar-00       49,384,000              --
18301 Von Karman................  25 year                                    6.90%      Apr-00       10,647,000              --
Centerside II...................  25 year                                    6.90%      Jun-00       13,818,000              --
Scottsdale Centre...............  25 year                                    6.90%      Jul-00        7,745,000              --
TransPotomac Plaza 5 and
  Charlotte Plaza (B)...........  Interest only                              7.28%      Oct-00       65,000,000      65,000,000
1600 South Main.................  25 year                                    6.90%      Dec-00        5,038,000              --
Convertible Promissory Note due
  2001 (C)......................  Interest only                          8.11% max(D)     Jan-01     12,926,000      12,926,000
Biltmore Lakes..................  25 year                                    6.90%      Apr-01       11,468,000              --
Belmont Shores..................  25 year                                    6.90%      Apr-01        9,839,000              --
700 North Brand.................  25 year                                    6.90%      May-01       18,108,000              --
2677 North Main.................  25 year                                    6.90%      May-01       10,774,000              --
2700 Ygnacio Valley Road........  25 year                                    6.90%      Aug-01        5,035,000              --
Westlake Spectrum...............  25 year                                    6.90%      Aug-01        3,993,000              --
Park Plaza......................  25 year                                    6.90%      Oct-01        4,940,000              --
Warner Park Center..............  25 year                                    6.90%      Dec-01        5,213,000              --
West Wilshire Office and
  Medical.......................  25 year                                    6.90%      Jan-02       17,301,000              --
Searise Office Tower............  25 year                                    6.90%      Jan-02       11,864,000              --
Golden Bear Center..............  25 year                                    6.90%      Mar-02       15,753,000              --
Exposition Centre...............  25 year                                    6.90%      May-02        5,200,000              --
Bixby Ranch.....................  25 year                                    6.90%      May-02       20,243,000              --
Wilshire Palisades..............  22 year                                    6.70%      Jul-02       29,902,000              --
120 Montgomery Street...........  24 year                         LIBOR plus 1.40%      Nov-02       46,930,000              --
1300 South El Camino............  23 year                                    6.90%      Dec-02        4,007,000              --
125 Summer Street...............  Interest only (E)                          7.20%      Jan-03       50,000,000      50,000,000
429 Santa Monica................  25 year                                    6.90%      Mar-03       10,176,000              --
Crossroads......................  25 year                                    6.90%      Mar-03        7,339,000              --
Westlake Spectrum II............  25 year                                    6.90%      Mar-03        5,284,000              --
Tower 56........................  30 year                                    7.67%      May-03       17,548,000      17,742,000
Two ADP Plaza...................  Interest only                              6.90%      Dec-03       13,400,000              --
Two Corporate Centre............  Interest only                              6.90%      Dec-03       18,600,000              --
Norris Tech Center..............  25 year                         LIBOR plus 1.65%      Dec-03       16,392,000              --
Peninsula Office Park 4.........  25 year                                    6.90%      Feb-04        5,436,000              --
Peninsula Office Park 1,3,5,6,8
  & 9...........................  25 year                                    6.90%      Feb-04       54,806,000              --
110 Atrium Place................  30 year                                    6.90%      Mar-04       21,838,000              --
10 Almaden......................  25 year                                    6.90%      Apr-04       33,885,000              --
Embarcadero Place...............  20 year                                    6.90%      Apr-04       26,061,000              --
527 Madison Avenue and One
  Lincoln Centre (B)............  Interest only                              7.47%      Oct-04       65,000,000      65,000,000
Sixty State Street..............  30 year                                    6.84%      Jan-05       87,627,000      89,630,000
201 California Street...........  30 year                                    6.70%      Mar-05       33,071,000              --
Island Corporate Center.........  30 year                                    6.90%      Apr-05       13,294,000              --
Washington Mutual Tower.........  Interest only                              7.53%      Nov-05       79,100,000      79,100,000
Norwest Center..................  Interest only                              8.74%      Dec-05      110,000,000     110,000,000
Agoura Hills....................  25 year                                    6.90%      Dec-05       12,328,000              --
Janss Court.....................  30 year                                    6.90%      Dec-05       18,723,000              --
Bayhill 4,5,6 & 7...............  25 year                                    6.90%      Dec-06       59,071,000              --
66 Bovet........................  22 year                                    6.90%      Apr-07        3,939,000              --
Market Square (F) and 200
  Galleria (B)..................  Interest only                              7.54%      Oct-07      120,000,000     120,000,000
One Norwest Center (G)..........  30 year                                    6.90%      Oct-08       98,252,000      96,780,000
Corporate 500 Centre (H)........  25 year                                    6.66%      Nov-08       89,765,000              --
Other loans.....................  Various                                  Various     Various          597,000              --
                                                         -------------------------  -----------  --------------  --------------
Total Cornerstone Debt before
  adjustments...................                                             7.20%(I)     6.7yrs (I) $1,532,474,000 $  706,178,000
 
Adjustments:
One Post (J)....................  25 year                                    6.90%      Dec-02       17,250,000              --
120 Montgomery Street (K)         24 year                         LIBOR plus 1.40%      Nov-02      (15,646,000)             --
Norwest Center (K)..............  Interest only                              8.74%      Dec-05      (24,310,000)    (24,310,000)
                                                         -------------------------  -----------  --------------  --------------
Total Cornerstone Share of
  Debt..........................                                             7.17%(I)     6.6yrs (I) $1,509,768,000 $  681,868,000
                                                         -------------------------  -----------  --------------  --------------
                                                         -------------------------  -----------  --------------  --------------
</TABLE>
 
                                       27
<PAGE>
------------------------
 
(A) The interest rate is the stated interest rate (for Cornerstone originated
    debt) or the prevailing market rate at the time of acquisition (for debt
    assumed as part of an acquisition).
 
(B) The three notes arising from the acquisition of several properties from PGGM
    are cross-collateralized, having the effect of forming a "collateral pool"
    for the underlying notes.
 
(C) The lender, Hines Colorado Limited, has the right to convert the note into
    Common Stock at a conversion price of $14.30 per share. At maturity, the
    Company is entitled to repay the principal of the note with Common Stock
    priced at the lesser of $14.30 per share or the then existing share price.
 
(D) Lesser of 30-day LIBOR plus 0.5% or 8.11%.
 
(E) Interest only payments through January 1, 2001, with a 25-year amortization
    schedule thereafter.
 
(F) The collateral for this loan is a pledge of the $181.0 million first
    mortgage loan on Market Square that the Company purchased from PGGM.
 
(G) On September 25, 1998, the Company completed the refinancing of the $96.1
    million mortgage on One Norwest Center with CIGNA and Mass Mutual. As a
    result of the refinancing, the principal balance was increased to $98.5
    million, the term of the loan was extended from three years to ten years and
    the interest rate was reduced from 7.50% to 6.90%.
 
(H) On October 9, 1998, the Company completed the refinancing of the $80.0
    million mortgage on Corporate 500 Centre with Teachers Insurance and Annuity
    Association. As a result of the refinancing, the principal balance was
    increased to $90.0 million, the term of the loan was extended from 4.5 years
    to ten years and the interest rate was increased by three basis points to
    6.66%.
 
(I) Weighted-average interest rate and maturity of the Company's long-term debt.
 
(J) Amount relates to the Company's share of property debt as this Property is
    accounted for under the equity method of accounting.
 
(K) Amounts relate to the joint venture or minority partners' portion of the
    total debt. Calculations are based on the partners' 1998 percentage
    participation in the cash flow of such Property.
 
    The combined aggregate amount of maturities for all long-term borrowings for
1999 through 2003 are $75,814,000, $151,632,000, $82,296,000, $151,200,000 and
$138,739,000, respectively.
 
    REVOLVING CREDIT FACILITY
 
    The Company has a $550.0 million Revolving Credit Facility with a syndicate
of 17 banks led by Bankers Trust Company, The Chase Manhattan Bank and
NationsBank for acquisitions and general working capital purposes as well as the
issuance of letters of credit. The interest rate on the facility depends on the
Company's ratio of total debt to asset value (as defined) at the time of
borrowing and will be at a spread of 1.10% to 1.40% over the applicable LIBOR
rate or the Prime Rate at the borrower's option. The letters of credit will be
priced at the applicable Eurodollar credit spread. The Revolving Credit Facility
expires on November 3, 2001. As of December 31, 1998, $465.0 million of the
facility was outstanding at a rate of approximately 6.9%. In addition, at
December 31, 1998, there was a $5.0 million letter of credit outstanding at a
rate of 1.40%. The Revolving Credit Facility contains certain restrictive
covenants including: (i) a limitation on the Company's dividend to 90.0% of FFO
and 110.0% of funds available for distribution, both as defined in the
agreement; (ii) the percentage of total liabilities to total property asset
value (as defined) cannot exceed 55.0%; (iii) the ratio of adjusted EBITDA to
interest expense may not be less than 2.00 to 1.00 through July 1, 1999 and 2.25
to 1.00 thereafter; (iv) fixed charge coverage may not be less than 1.75 to
1.00; and (v) the ratio of total property asset value (as defined) to secured
indebtedness may not be less than 2.50 to 1.00.
 
                                       28
<PAGE>
TENANTS
 
    The Company's tenants include local, regional, national and international
companies engaged in a wide variety of businesses. The following table sets
forth, as of December 31, 1998, information concerning the ten largest tenants
(ranked by Full Service Straight-Line Rent, adjusted for the interest of a joint
venture or minority partner, as of that date) occupying the Properties. "Full
Service Straight-Line Rent" is Straight-Line Rent plus annual operating expense
recoveries. "Straight-Line Rent" means the annual average of all actual rent
required to be paid through the term of the lease, calculated in accordance with
GAAP. "Expense Recoveries" are the actual recovery of operating expenses in net
lease buildings or the actual recovery of operating expense escalations in gross
lease buildings. Full Service Straight-Line Rent does not reflect the cost of
any leasing commissions or tenant improvements.
 
<TABLE>
<CAPTION>
                                                                          FULL SERVICE
                                               STRAIGHT-LINE   EXPENSE    STRAIGHT-LINE    PERCENT      SCHEDULED   RENTABLE SQUARE
TENANT                                             RENT      RECOVERIES       RENT        OF TOTAL     EXPIRATION    FEET EXPIRING
---------------------------------------------  ------------  -----------  ------------  -------------  -----------  ---------------
<C>        <S>                                 <C>           <C>          <C>           <C>            <C>          <C>
           Norwest Corporation [Wells
(1)(3)(4)    Fargo]..........................   $19,006,195  $ 9,742,586   $28,748,781            5%       Mar-99          14,659
                                                                                                           Aug-01           7,200
                                                                                                           Oct-01           1,796
                                                                                                           Mar-02          12,898
                                                                                                           Feb-03          13,191
                                                                                                           Jul-03         143,103
                                                                                                           Aug-04          29,810
                                                                                                           Oct-04           5,007
                                                                                                           Jul-13         401,735
                                                                                                           Aug-18         351,391
                                                                                                                    ---------------
                                                                                                                          980,790
           Massachusetts Financial
   (1)(4)    Services........................    9,015,212     4,195,090   13,210,302             2%       Feb-03         328,540
      (1)  Wachovia Bank.....................    9,061,416     3,333,240   12,394,656             2%       Sep-03           7,730
                                                                                                           Dec-08         380,442
                                                                                                                    ---------------
                                                                                                                          388,172
      (1)  Hale & Dorr.......................    7,957,404     3,992,607   11,950,011             2%       Jun-13         296,028
      (1)  King & Spalding...................    8,168,292     2,760,336   10,928,628             2%       Mar-06         305,267
      (1)  Deloitte & Touche.................    7,643,072     1,730,572    9,373,644             2%       Feb-99          15,064
                                                                                                           Oct-99         129,614
                                                                                                           Jun-08          84,947
                                                                                                                    ---------------
                                                                                                                          229,625
   (1)(4)  The New England Life..............    4,730,957     2,547,352    7,278,309             1%       Sep-08         199,055
      (2)  Perkins Coie......................    6,378,103       503,193    6,881,296             1%       Dec-99          10,436
                                                                                                           Jul-03           6,811
                                                                                                           Jul-04          23,775
                                                                                                           Dec-11         199,110
                                                                                                                    ---------------
                                                                                                                          240,132
      (2)  First Union.......................    6,188,976        71,808    6,260,784             1%       Mar-99          23,190
                                                                                                           Jun-00          27,210
                                                                                                           Aug-00          22,884
                                                                                                           Mar-01          22,520
                                                                                                           Aug-01          46,097
                                                                                                           Feb-02          23,421
                                                                                                           Sep-02          22,366
                                                                                                           Aug-08          46,072
                                                                                                           Mar-09          23,105
                                                                                                           Mar-10          46,768
                                                                                                           Mar-11          47,542
                                                                                                           Apr-14           3,905
                                                                                                                    ---------------
                                                                                                                          355,080
   (1)(4)  Houghton Mifflin..................    3,162,483     2,916,682    6,079,165             1%       Feb-07         225,883
                                                                                                 --
                                               ------------  -----------  ------------                              ---------------
           Total Top 10 Tenants..............   $81,312,110  $31,793,466  1$13,105,576           20%                    3,548,572
                                                                                                 --
                                                                                                 --
                                               ------------  -----------  ------------                              ---------------
                                               ------------  -----------  ------------                              ---------------
      (4)  Total Portfolio...................  4$55,603,405  $103,878,253 5$59,481,658                                 19,233,939
                                               ------------  -----------  ------------                              ---------------
                                               ------------  -----------  ------------                              ---------------
</TABLE>
 
------------------------------
(1)  Net Lease.
(2)  Gross Lease.
(3)  Norwest Corporation [Wells Fargo] includes all space associated with
     Norwest Corporation, Norwest Bank Denver N.A. and Wells Fargo Bank.
(4)  Straight-Line Rent and rentable square feet include an adjustment for the
     interest of a joint venture or minority partner. Calculations are based on
     the partners' 1998 percentage participation in the cash flows of the
     Property.
 
                                       29
<PAGE>
LEASE EXPIRATIONS
 
    The following table sets forth certain categories of information relating to
lease expirations for all of the Properties owned as of December 31, 1998.
<TABLE>
<CAPTION>
                                       1999            2000            2001            2002            2003            2004
                                  --------------  --------------  --------------  --------------  --------------  --------------
<S>              <C>              <C>             <C>             <C>             <C>             <C>             <C>
Portfolio--All
  Properties
  Total(7)       Square feet        1,814,970 sf    1,774,550 sf    1,928,531 sf    2,751,615 sf    3,169,786 sf    1,450,354 sf
                 expiring(1)....
                 Full service     $   46,086,712  $   43,611,395  $   56,969,565  $   72,182,531  $   94,702,701  $   40,798,457
                 St-Line
                 rent(2)........
Minority
  Interest
  Adjustment
  (3)            Square feet           53,851 sf       50,166 sf       27,798 sf       60,148 sf      150,589 sf       49,256 sf
                 expiring (1)...
                 Full service     $    1,441,303  $    1,375,946  $      801,132  $    1,571,496  $    4,869,422  $    1,585,446
                 St-Line
                 rent(2)........
 
Cornerstone
  Portfolio      Square feet        1,761,119 sf    1,724,384 sf    1,900,733 sf    2,691,467 sf    3,019,197 sf    1,401,098 sf
                 expiring(1)(3)..
                 Full service     $   44,645,410  $   42,235,449  $   56,168,433  $   70,611,035  $   89,833,279  $   39,213,010
                 St-Line
                 rent(2)(3).....
                 Full service              25.35           24.49           29.55           26.24           29.75           27.99
                 St-Line rent
                 per sq. ft.....
                 % Full service             7.98%           7.55%          10.04%          12.62%          16.06%           7.01%
                 St-Lined rent..
                 No. of tenant               343             317             303             299             321             117
                 leases
                 expiring(4)....
                 Asking market    $        34.70
                 rent per sq.
                 ft.(5).........
                 Operating        $        10.24
                 Expenses per
                 sq. ft.(6).....
 
<CAPTION>
                                                                                   2009 AND
                     2005            2006            2007            2008           BEYOND          TOTAL
                --------------  --------------  --------------  --------------  --------------  --------------
<S>              <C>            <C>             <C>             <C>             <C>             <C>
Portfolio--All
  Properties
  Total(7)          669,892 sf    1,113,593 sf    1,159,709 sf    1,466,471 sf    2,609,658 sf   19,909,129 sf
                $   23,182,656  $   37,645,521  $   32,924,199  $   47,801,926  $   85,116,419  $  581,022,082
Minority
  Interest
  Adjustment
  (3)                 6,288 sf          638 sf      126,249 sf       27,291 sf      122,916 sf      675,190 sf
                $      210,635  $       14,580  $    3,569,374  $    1,008,960  $    5,092,130  $   21,540,424
Cornerstone
  Portfolio         663,604 sf    1,112,955 sf    1,033,460 sf    1,439,180 sf    2,486,742 sf   19,233,939 sf
                $   22,972,021  $   37,630,941  $   29,354,826  $   46,792,966  $   80,024,288  $  559,481,658
                         34.62           33.81           28.40           32.51  $        32.18           29.09
                          4.11%           6.73%           5.25%           8.36%          14.30%         100.00%
                            53              31              47              45              46           1,922
</TABLE>
 
----------------------------------
 
(1) The Total square footage expiring in any particular year.
 
(2) Full Service Straight-line rent is the annual average of all lease payments
    required to be made through the term of the lease required under Generally
    Accepted Accounting Principles plus the annualized recovery of operating
    expenses.
 
(3) Full Service Straight-line rent and square feet expiring include an
    adjustment for the interest of a joint venture or minority partner.
    Calculations are based on the partners' 1998 percentage participation in the
    cash flows of the Property.
 
(4) The number of tenant leases expiring in each year.
 
(5) Asking market rent is the average initially quoted rent to prospective
    tenants in each building. All market rents shown are on full service basis.
 
(6) Operating Expenses are the projected recoverable expenses quoted to
    prospective tenants in each building.
 
(7) The Pruneyard Inn (90,000sf) is not included.
 
                                       30
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
 
    In the ordinary course of business, the Company is subject to tenant and
property related claims and other litigation. It is the opinion of management,
after consultation with outside counsel, that the resolution of these claims
will not have a material effect on the consolidated financial condition or
results of operations of the Company.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
    A special meeting of stockholders of the Company was held on December 14,
1998 for the purpose of considering and voting upon the following matters.
 
(1) a proposal to approve the issuance of up to 39,000,000 shares of Cornerstone
    Common Stock (directly and upon redemption of UPREIT Units) in connection
    with the Wilson Acquisition (the "Wilson Issuance");
 
(2) a proposal to approve the issuance of 11,594,203 shares of Cornerstone
    Common Stock to PGGM (the "PGGM Investment"); and
 
(3) a proposal to approve the amendment and restatement of the Cornerstone
    Properties Inc. 1998 Long-Term Incentive Plan to increase the number of
    shares of Cornerstone Common Stock reserved for issuance thereunder and to
    permit the granting of stock options and other awards to non-employee
    directors of Cornerstone (the "Amendment").
 
    The holders of record of the Company's Common Stock at the close of business
on November 9, 1998 (the "Record Date") were entitled to vote at the Special
Meeting. On the Record Date, there were 101,636,864 shares of Common Stock
outstanding, each of which was entitled to one vote with respect to each
proposal. Approval of the Wilson Issuance, the PGGM Investment and the Amendment
required the affirmative vote of a majority of the votes cast, provided that, in
the case of the Wilson Issuance and the PGGM Investment, the total votes cast
represented over 50.0% of the outstanding shares of Common Stock on the Record
Date. All of the proposals were approved. The following table sets forth the
voting results with respect to each proposal:
 
<TABLE>
<CAPTION>
                                                            NO. OF VOTES  NO. OF VOTES    NO. OF     NO. OF BROKER
PROPOSAL                                                      CAST FOR    CAST AGAINST  ABSTENTIONS    NON-VOTES
----------------------------------------------------------  ------------  ------------  -----------  -------------
<S>                                                         <C>           <C>           <C>          <C>
Wilson Issuance...........................................    66,114,206      107,675      122,837      9,624,512
PGGM Investment...........................................    66,049,294      172,386      123,038      9,624,512
Amendment.................................................    74,104,797    1,736,960      127,473        N/A
</TABLE>
 
                                       31
<PAGE>
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.
 
    The shares of Common Stock of the Company are traded on the New York,
Frankfurt and Dusseldorf Stock Exchanges. Quotations of the Common Stock in New
York are made in United States Dollars. Quotations in Dusseldorf and Frankfurt
are made in Deutsche Marks. On April 21, 1997, Cornerstone completed its initial
U.S. public offering of 16.1 million shares of common stock at $14.00 per share.
The high and low sales prices of the Common Stock on the New York Stock Exchange
for each quarter of 1997 in which the Company was listed and 1998 were as
follows:
 
    SALES PRICE
 
<TABLE>
<CAPTION>
1997                                                                               HIGH        LOW
-------------------------------------------------------------------------------  ---------  ---------
<S>                                                                              <C>        <C>
2nd Quarter....................................................................  $   15.38  $   14.25
3rd Quarter....................................................................  $   19.50  $   15.25
4th Quarter....................................................................  $   20.00  $   17.69
 
1998
-------------------------------------------------------------------------------
1st Quarter....................................................................  $   19.63  $   17.25
2nd Quarter....................................................................  $   18.38  $   16.19
3rd Quarter....................................................................  $   18.00  $   13.38
4th Quarter....................................................................  $   16.00  $   14.06
</TABLE>
 
    The high and low sales prices of the Common Stock on the Frankfurt Stock
Exchange for each quarter of 1997 and 1998 were as follows:
 
    SALES PRICE
 
<TABLE>
<CAPTION>
1997                                                                         HIGH          LOW
------------------------------------------------------------------------  -----------  -----------
<S>                                                                       <C>          <C>
1st Quarter.............................................................  DM28.25      DM23.90
2nd Quarter.............................................................  DM27.50      DM24.80
3rd Quarter.............................................................  DM33.80      DM26.20
4th Quarter.............................................................  DM34.50      DM29.00
 
1998
------------------------------------------------------------------------
1st Quarter.............................................................  DM35.00      DM31.50
2nd Quarter.............................................................  DM33.60      DM28.80
3rd Quarter.............................................................  DM32.00      DM23.00
4th Quarter.............................................................  DM26.80      DM23.00
</TABLE>
 
                                       32
<PAGE>
    The high and low sales prices of the Common Stock on the Dusseldorf Stock
Exchange for each quarter of 1997 and 1998 were as follows:
 
    SALES PRICE
 
<TABLE>
<CAPTION>
1997                                                                         HIGH          LOW
------------------------------------------------------------------------  -----------  -----------
<S>                                                                       <C>          <C>
1st Quarter.............................................................  DM28.20      DM23.40
2nd Quarter.............................................................  DM26.70      DM24.70
3rd Quarter.............................................................  DM33.60      DM26.40
4th Quarter.............................................................  DM34.50      DM29.50
 
1998
------------------------------------------------------------------------
1st Quarter.............................................................  DM35.00      DM31.50
2nd Quarter.............................................................  DM33.60      DM28.10
3rd Quarter.............................................................  DM32.20      DM23.50
4th Quarter.............................................................  DM26.10      DM23.00
</TABLE>
 
    The closing quotation of the Company's common stock on March 24, 1999 was
U.S. 14.63 on the New York Stock Exchange, DM 24.74 on the Frankfurt Stock
Exchange and DM 24.74 on the Dusseldorf Stock Exchange.
 
    As of March 24, 1999, there were approximately 200 holders of record of the
Common Stock.
 
    For 1997, Cornerstone paid distributions to its stockholders of $0.60 per
share on January 31, 1997 (to stockholders of record as of December 30, 1996);
$0.30 per share on April 30, 1997 (to stockholders of record as of March 21,
1997); $0.30 per share on July 31, 1997 (to stockholders of record as of June
20, 1997); $0.30 per share on October 31, 1997 (to stockholders of record as of
September 19, 1997); and $0.14 per share on November 26, 1997 (to stockholders
of record as of October 31, 1997).
 
    For 1998, Cornerstone paid distributions to its stockholders and unitholders
of $0.30 per share/unit on February 27, 1998 (to stockholders and unitholders of
record as of January 30, 1998); $0.30 per share/unit on May 28, 1998 (to
stockholders and unitholders of record as of April 30, 1998); $0.30 per
share/unit on August 31, 1998 (to stockholders and unitholders of record as of
July 31, 1998); and $0.30 per share/unit on November 30, 1998 (to stockholders
and unitholders of record as of October 30, 1998).
 
    The Company intends to continue to pay cash distributions to its
stockholders and unitholders. It is expected that distributions will be made on
a quarterly basis in 1999 and, in accordance with the Company's qualification as
a REIT, will be equal to at least 95% of the Company's REIT taxable income
(excluding any net capital gain). The Company intends that at least 85% of all
distributions from income earned during any taxable year will be made prior to
the end of such taxable year. No assurance can be given as to the amounts of
future distributions since they are subject to the Company's FFO, earnings,
financial condition, and such other factors as the Board of Directors deem
relevant.
 
    The Revolving Credit Facility contains certain restrictive covenants
including a limitation on the Company's dividend to 90.0% of FFO and 110.0% of
funds available for distribution, both as defined in the agreement.
 
    On February 27, 1998, May 29, 1998, August 31, 1998 and November 30, 1998,
through a dividend reinvestment plan, the Company issued 109,007, 98,487, 94,610
and 95,300 shares of Common Stock and received proceeds of approximately
$2,010,000, $1,761,000, $1,476,000 and $1,456,000, respectively.
 
    On January 5, 1998, the Company purchased the participation rights in the
cash flow and residual value of Tower 56 from the former participants for
307,692 shares of Common Stock.
 
                                       33
<PAGE>
    On February 6, 1998, Cornerstone completed a secondary public offering of
14,375,000 shares of Common Stock at $18.25 per share. The shares were placed in
the U.S. through a syndicate of seven investment banks led by Merrill Lynch &
Co. Net proceeds to the Company were approximately $247.9 million (approximately
$262.3 million gross proceeds less an underwriting discount of approximately
$13.7 million and expenses of approximately $0.7 million). The net proceeds were
used to repay the Company's Revolving Credit Facility and for working capital
purposes.
 
    On April 28, 1998, the Company issued 3,428,571 shares of Common Stock to
Prudential Insurance Company of America ("Prudential') and 1,657,426 UPREIT
Units to certain other persons as partial consideration for the acquisition of
One Memorial Drive. Such securities were not registered under the Securities Act
of 1933, as amended (the "Securities Act") and were issued in an exempt
transaction pursuant to Section 4(2) of the Securities Act. The Company has
filed a Registration Statement on Form S-3 (No. 333-59259) to register under the
Securities Act the resale by Prudential of such shares of Common Stock.
 
    On May 20, 1998, the Company increased the number of authorized Preferred
Stock from 15,000,000 shares to 65,000,000 shares.
 
    On June 3, 1998, the Operating Partnership issued a total of 1,665,663
UPREIT Units to certain persons in connection with the acquisition of 201
California Street and the Wilshire Palisades building. Such securities were not
registered under the Securities Act and were issued in an exempt transaction
pursuant to Section 4(2) of the Securities Act.
 
    On December 16, 1998, as part of the consideration paid by the Company in
connection with the Wilson Acquisition, the Company issued 14,884,417 shares of
Common Stock and the Operating Partnership issued 16,187,724 UPREIT Units to the
former owners of WW&A. See "Recent Developments-- Wilson Acquisition." Such
securities were not registered under the Securities Act and were offered and
sold in a private offering pursuant to Section 4(2) of the Securities Act and
Regulation D promulgated thereunder. The Company has filed a Registration
Statement on Form S-3 (No. 333-72449) to register under the Securities Act the
resale by the holders thereof of the 14,884,417 shares of Common Stock issued in
connection with the Wilson Acquisition and 16,187,724 shares of Common Stock
issuable upon redemption of the UPREIT Units issued in connection with the
Wilson Acquisition.
 
    On December 16, 1998, in connection with the Wilson Acquisition, the Company
issued 11,594,203 shares of Common Stock to PGGM. See "Recent
Developments--Wilson Acquisition." Such shares were not registered under the
Securities Act and were offered and sold to PGGM in a private offering pursuant
to Section 4(2) of the Securities Act.
 
                                       34
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
 
    The selected financial data has been derived from, and should be read in
conjunction with the related audited consolidated financial statements.
 
<TABLE>
<CAPTION>
                                                    1998          1997          1996         1995         1994
                                                ------------  ------------  ------------  -----------  ----------
<S>                                             <C>           <C>           <C>           <C>          <C>
                                                            (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET DATA:
Real estate investments before accumulated
  depreciation................................  $  4,371,949  $  2,187,525  $    799,662  $   706,988  $  571,831
Total assets..................................     4,281,984     2,051,481       766,180      586,089     477,996
Long-term debt................................     1,532,474       706,178       400,142      369,600     130,500
Credit facility...............................       465,000       187,000            --           --     236,467
Total liabilities.............................     2,138,309       940,062       442,375      403,927     400,640
Redeemable preferred stock....................  $         --  $         --  $    162,743  $        --  $       --
OPERATING DATA:
Revenues......................................  $    359,486  $    173,911  $    116,908  $    92,387  $   85,574
Expenses......................................       262,173       134,041       106,646       90,427      88,084
Loss on sale of real estate assets............         2,076            --            --           --          --
Minority interest.............................         7,469         2,368         1,519        3,417       3,899
Gain (loss) on interest rate swap.............            --            99         4,278       (7,672)         --
Extraordinary loss............................         4,303            54         3,925        4,445         581
Net income (loss).............................  $     83,465  $     37,547  $      9,096  $   (13,574) $   (6,990)
Net income per common share, basic and
  diluted.....................................  $       0.80  $       0.63  $       0.19  $     (0.94) $    (0.53)
Dividends declared per common share...........  $       1.50  $       1.04  $       1.20  $      1.16  $     1.16
OTHER DATA:
Cash Flow from:
  Operations..................................  $    182,797  $     65,922  $     34,522  $    20,036  $   28,968
  Investing...................................      (823,082)     (462,837)      (57,259)    (135,527)     (1,762)
  Financing...................................       677,424       306,842       129,800      110,725     (33,141)
Funds From Operations (1).....................  $    155,915  $     68,308  $     34,719  $    21,424  $   15,562
</TABLE>
 
------------------------
 
(1) FFO is a calculation which is defined by the National Association of Real
    Estate Investment Trusts ("NAREIT") and is not indicative of either net
    income or cash flow from operations as calculated in accordance with GAAP as
    a measure of performance or liquidity. As disclosed in ITEM 7 of this Form
    10-K, the Company makes certain additional adjustments to FFO which are not
    contemplated in the NAREIT definition.
 
See ITEM 7 below for a discussion of the selected financial data.
 
                                       35
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
 
    Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Selected Consolidated
Financial Data set forth above and the Consolidated Financial Statements and
Notes included herein.
 
    When used in the following discussion, the words "believes", "anticipates",
and similar expressions are intended to identify "forward-looking statements".
Such statements are subject to certain risks and uncertainties, which could
cause actual results to differ materially from those projected. Readers are
cautioned not to place undue reliance on these "forward-looking statements",
which speak only as of the date hereof. The Company undertakes no obligation to
publicly release the result of any revisions of these "forward-looking
statements", which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
 
RESULTS OF OPERATIONS
 
    Cornerstone's principal source of income is rental revenues received through
its investment in 87 fee simple investments, six real estate partnerships, one
limited liability company, one co-tenancy agreement and one mortgage. NWC
Limited Partnership ("NWC"), Third and University Limited Partnership ("Third
Partnership"), One Ninety One Peachtree Associates ("191 Peachtree"), Two Twenty
Two Berkeley Associates ("222 Berkeley"), Five Hundred Boylston West Venture
("500 Boylston") and Avenue Associates Limited Partnership ("AALP") (since
November 1, 1998) have been consolidated because Cornerstone has the majority
interest in the economic benefits and is or has the right to become managing
general partner at its sole discretion. 120 Montgomery Associates, LLC ("120
Montgomery") has been consolidated because the Company has the majority interest
in the economic benefits and control of the major decisions of the limited
liability company. The Company has accounted for its investment in AALP (from
February 1, 1998 through October 31, 1998) and One Post using the equity method
of accounting because it does not have sufficient control of the day to day
operations of the investment.
 
    PROPERTY RESULTS.  For the years ended December 31, 1998, 1997, and 1996
property results can be summarized as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                            FOR THE YEAR       FOR THE YEAR       FOR THE YEAR
                                                                ENDED              ENDED              ENDED
                                                          DECEMBER 31, 1998  DECEMBER 31, 1997  DECEMBER 31, 1996
                                                          -----------------  -----------------  -----------------
<S>                                                       <C>                <C>                <C>
Office and Parking Rentals..............................      $ 338,515          $ 159,828          $ 111,494
Less:
  Building Operating Expenses...........................         75,663             35,962             24,578
  Real Estate Taxes.....................................         46,760             25,560             19,610
  Depreciation and Amortization.........................         59,278             30,978             24,317
                                                               --------           --------           --------
Total Operating Expenses................................        181,701             92,500             68,505
                                                               --------           --------           --------
Total Property Income...................................      $ 156,814          $  67,328          $  42,989
                                                               --------           --------           --------
                                                               --------           --------           --------
</TABLE>
 
    The increase in property income from 1997 to 1998 of $89.5 million was due
in part to the additional property income of $54.8 million derived from the PGGM
Portfolio (as defined hereinafter) which was acquired in October 1997. The five
single property transactions during 1998 and the Wilson Acquisition (as defined
hereinafter), which occurred in December 1998, added $29.0 million and $4.3
million, respectively of additional property income. At the properties held
during both periods, property income at Norwest Center increased $0.2 million
due to an increase in net rental income. Property income at Washington Mutual
Tower increased $1.6 million due to higher office rental revenue of $1.2
million, an increase in net parking rental income of $0.2 million, a decrease of
$0.1 million in real estate tax expense, a decrease of $0.7 million in
depreciation and amortization expense offset by a decrease of $0.4 million in
expense recovery income and an increase of $0.2 million in building operating
expenses. Property income at 125 Summer Street increased $0.6 million due to
increased rental rates and the lease up of the former Gadsby
 
                                       36
<PAGE>
and Hannah space which was vacant during the same period in 1997. Property
income at 527 Madison Avenue increased $0.9 million mainly because its 1997
results reflected only the period after it was purchased in February 1997. These
increases were offset by a reduction in property income of $1.3 million at the
Frick Building which was due to the sale of this building in April 1998 and an
increase of $0.6 million of depreciation and amortization on acquisition costs.
 
    The increase in property income from 1996 to 1997 of $24.3 million was due
to an increase in office and parking rentals at One Norwest Center due to lease
buyouts of $0.7 million and higher net rentals of $0.6 million; an increase of
$2.2 million in property income at Norwest Center due to increased real estate
tax recoveries; an increase of $0.8 million in property income at Washington
Mutual Tower due to higher garage income and lower depreciation; an increase of
$0.6 million due to a full year of operations for Tower 56 as compared to
approximately eight months in 1996; an increase of $3.4 million due to a full
year of operations for One Lincoln Centre as compared to approximately two
months in 1996, an increase of $1.8 million due to a full year of operations for
the Frick Building as compared to approximately two months in 1996; and
increased property income of $4.9 million and $10.7 million due to the
acquisition of 527 Madison Avenue in February and the acquisition of the PGGM
Portfolio (as defined hereinafter) in October, respectively. These amounts are
partially offset by a decrease of $1.4 million in property income for 125 Summer
Street due to lower net rentals, higher real estate taxes and higher
depreciation.
 
    EARNINGS IN REAL ESTATE JOINT VENTURES.  The earnings in real estate joint
ventures of approximately $11.4 million in 1998 was mainly due to the
acquisition of the partnership interest in Market Square in January 1998. The
investment in Market Square was accounted for under the equity method of
accounting from February 1998 through October 1998 due to the lack of sufficient
control of the day to day operations of the investment. In November 1998, the
Company gained sufficient control of the investment and began consolidating this
investment. The amount attributable to Market Square of $11.3 million is
comprised of approximately $17.1 million of interest earned on the loans which
was offset by an equity in loss of approximately $5.8 million. The remaining
$0.1 million of earnings in real estate joint ventures is comprised of equity
earnings from the Company's investments in One Post and WCP Services, Inc.
 
    INTEREST AND OTHER INCOME.  Interest and other income was $9.6 million in
1998, $14.1 million in 1997 and $5.4 million in 1996. These amounts primarily
consist of interest earned from short-term investments, tenant alteration income
in 1998, lease cancellation income, interest earned on a mortgage note
receivable, a note receivable from a partner, management fee income and income
from advisory contracts in 1997.
 
    The 1998 decrease in interest and other income of $4.5 million from 1997 is
due to a reduction in interest income of $5.6 million on short-term investments
due to the Company having excess cash in 1997 from its Preferred Stock placement
that occurred in November 1996 as well as its IPO in April 1997. Also adding to
the decrease was a reduction of $1.6 million of interest income on the mortgage
note on Market Square due to two and a half months of interest in 1997 versus
one month in 1998. In addition, a reduction of $0.9 million due to the
expiration of certain advisory contracts in 1997, a reduction of $0.1 million in
interest received from the note receivable from a partner due to the reduction
in principal and a reduction of $0.2 million in lease cancellation income
further added to the decrease. These amounts were offset by an increase of $2.5
million in tenant alteration income, a $0.9 million increase in management fee
income and an increase of $0.5 million in other income.
 
    The 1997 increase in interest and other income of $8.7 million from 1996 is
due to the increase in interest earned on notes receivable of approximately $2.5
million due to the purchase of the first mortgage note and "buffer loan" on
Market Square, increased advisory fees of $0.3 million, increased other income
of $0.3 million and larger working capital balances available for short-term
investment causing interest income on short-term investments to increase by $5.6
million.
 
    INTEREST EXPENSE.  Interest expense incurred by Cornerstone was $67.5
million, $34.0 million and $31.7 million for 1998, 1997, and 1996, respectively.
 
    The increase in 1998 from 1997 of approximately $33.5 million is due to an
increase of $15.2 million in interest expense on the purchase money loans from
PGGM as a result of a full year's expense in 1998
 
                                       37
<PAGE>
versus two and a half months in 1997, an increase of approximately $2.7 million
of interest expense on the Revolving Credit Facility due to increased borrowings
under the facility, an increase of $0.6 million in amortization of deferred
costs and an increase in interest expense due to the following loans that were
originated or assumed during 1998: Sixty State Street ($6.1 million), Corporate
500 Centre ($5.1 million), 201 California Street ($1.3 million), Wilshire
Palisades ($1.2 million) and loans assumed as part of the Wilson Acquisition
($2.0 million). These increases were offset by a decrease of $0.4 million in
Term Loan interest and a decrease of $0.3 million due to the 1998 refinancing of
the One Norwest Center loan, both as discussed below.
 
    The increase in 1997 from 1996 of approximately $2.3 million is primarily
due to an increase of $0.4 million due to a full year of interest expense on the
Tower 56 debt in 1997 as compared to approximately eight months in 1996, the
$250.0 million of purchase money loans associated with the purchase of the PGGM
Portfolio (as defined hereinafter) giving rise to $3.2 million of interest
expense, increased borrowings under the Company's Revolving Credit Facility
giving rise to $0.9 million of increased expense, and increased amortization of
$0.4 million. These increases are partially offset by a decrease in interest
expense on the Term Loan due to repayment in March of $1.2 million, a reduction
in other interest expense of $0.5 million and interest expense savings resulting
from the 1996 refinancing of the One Norwest Center debt of $0.9 million.
 
    GENERAL AND ADMINISTRATIVE EXPENSES.  The aggregate amount of Cornerstone's
general and administrative expenses increased to $12.9 million in 1998 from $7.6
million in 1997 and $6.4 million in 1996. The increase of $5.3 million in 1998
from 1997 is due to the additional employees, space, systems and other support
necessary to manage the substantial growth in assets of the Company during the
most recent fifteen-month period. The increase of $1.2 million in 1997 from 1996
is due to a $0.16 million increase in staff salaries, a $0.16 million increase
in incentive compensation, a $0.1 million increase in profit sharing and a $0.14
million increase in the cost of producing the annual report. The remaining
variance of $0.64 million is due to variances in numerous miscellaneous expense
items all of which are less than $0.1 million in size.
 
    LOSS ON SALE OF REAL ESTATE ASSETS.  On March 31, 1998, the Company sold the
Dearborn Land (an undeveloped parcel of land in Chicago that was acquired as
part of the acquisition of the PGGM Portfolio in October 1997) for gross
proceeds of approximately $19.0 million, resulting in a loss of approximately
$0.2 million.
 
    On April 29, 1998, the Company sold the Frick Building, located in
Pittsburgh, Pennsylvania, for gross proceeds of approximately $26.7 million,
resulting in a loss of approximately $2.1 million.
 
    On December 29, 1998, AALP sold a condominium unit in Market Square, located
in Washington D.C., for gross proceeds of approximately $0.3 million, resulting
in a gain of approximately $0.2 million.
 
    MINORITY INTEREST.  The increase in minority interest from 1997 to 1998 of
$5.1 million is due to the allocation of the Company's income to the unitholders
due to the formation of the UPREIT in 1998 and the purchase of partnership
interests in 500 Boylston, 222 Berkeley, 191 Peachtree and 120 Montgomery.
 
    The increase in minority interest from 1996 to 1997 of $0.8 million is due
to an increase of $0.4 million at Norwest Center due to higher earnings and $0.4
million on the PGGM Portfolio (as defined hereinafter).
 
    NET GAIN ON INTEREST RATE SWAPS.  The Company does not trade in derivative
instruments, but uses interest rate swap agreements to hedge the interest rate
risk on its financings with the intention of obtaining the lowest effective
interest cost on its indebtedness. During 1998, the Company had entered into an
$80.0 million interest rate swap to protect it from interest rate fluctuations
that could have affected its floating rate debt on Corporate 500 Centre. The
swap effectively fixed the interest rate on the $80.0 million loan at 6.63%.
This agreement was terminated in August 1998 (in advance of the loan being
refinanced) at no cost to the Company. The swap was considered a hedge for
federal income tax purposes.
 
                                       38
<PAGE>
    The net gain of $4.3 million in 1996 represents an unrealized mark-to-market
gain of $7.4 million on the forward interest rate swap partially offset by an
extraordinary loss of $3.9 million. $3.1 million of the realized extraordinary
loss is due to the termination of a swap relating to the refinancing of One
Norwest Center. The remainder of the realized extraordinary loss of $0.8 million
in 1996 is due to certain write-offs of deferred financing costs and other costs
relating to the refinancing of One Norwest Center. Effective January 16, 1997,
the forward swap agreement was terminated for a total cost of $170,000, giving
rise to $99,000 of income in 1997.
 
LIQUIDITY AND CAPITAL RESOURCES
 
CASH FLOW (DOLLAR AMOUNTS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                            FOR THE YEAR       FOR THE YEAR       FOR THE YEAR
                                                                ENDED              ENDED              ENDED
CASH FLOW PROVIDED BY (USED IN):                          DECEMBER 31, 1998  DECEMBER 31, 1997  DECEMBER 31, 1996
--------------------------------------------------------  -----------------  -----------------  -----------------
<S>                                                       <C>                <C>                <C>
Operating activities....................................     $   182,797        $    65,922        $    34,522
Investing activities....................................        (823,082)          (462,837)           (57,259)
Financing activities....................................         677,424            306,842            129,800
Earnings to fixed charges ratio.........................            2.02               1.62               1.11
</TABLE>
 
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
 
    Cash provided by operating activities increased to approximately $182.8
million for 1998 from approximately $65.9 million for 1997. The increase is
primarily due to the cash flows from the interests in 87 properties acquired
since the end of the third quarter of 1997.
 
    Cash used in investing activities increased to approximately $823.1 million
for 1998 from approximately $462.8 million for 1997 due mainly to the following
acquisitions for approximately $375.6 million (net of any shares or units issued
and debt assumed): Corporate 500 Centre; One Memorial Drive; 201 California
Street and Wilshire Palisades; Market Square; and the Wilson Acquisition.
Further adding to the increase is the Company's net investment in real estate
joint ventures of approximately $31.4 million and an increase in deferred costs
of approximately $0.6 million. These investments were partially offset by the
approximate $18.8 million, approximate $26.7 million and approximate $0.3
million in proceeds from the sale of the Dearborn Land, the Frick Building and
the Market Square condominium, respectively. In addition, these investments were
partially offset by the receipt of approximately $1.5 million from the repayment
of notes receivable. During 1997, the Company invested approximately $67.0
million in 527 Madison Avenue, approximately $260.0 million in the PGGM
Portfolio (as defined hereinafter), approximately $131.5 million in Sixty State
Street and approximately $5.6 million in other property investments. These
investments were slightly offset by the receipt of approximately $1.3 million
from the repayment of notes receivable.
 
    Cash provided by financing activities increased to approximately $677.4
million for 1998 from approximately $306.8 million for 1997. The increase was
mainly due to the proceeds from the Company's public offering of Common Stock in
February 1998 of approximately $262.3 million and the additional stock purchase
by PGGM of $200.0 million compared to approximately $225.4 million received from
the Company's IPO in 1997, an increase in mortgage borrowings of approximately
$92.4 million and an increase in Revolving Credit Facility borrowings versus
Revolving Credit Facility repayments of approximately $91.0 million. Further
adding to the increase was a decrease in loan repayments of approximately $30.2
million and a decrease in preferred distributions of approximately $6.7 million.
These amounts were offset by a decrease of approximately $4.4 million in
proceeds from the dividend reinvestment plan, an increase in net swap
termination and debt prepayment costs of approximately $1.6 million, an increase
in restricted cash of approximately $9.7 million, an increase of approximately
$0.1 million in stock and debt issuance costs, an increase in distributions to
minority partners of approximately $9.8 million and an increase in distributions
to common stockholders paid of approximately $61.0 million.
 
                                       39
<PAGE>
    The ratio of earnings to fixed charges and dividends on preferred stock
increased to 2.02 times at December 31, 1998 from 1.62 times at December 31,
1997 due to the conversion of the Cumulative Convertible Preferred Stock into
approximately 11,300,000 shares of Common Stock in July 1997.
 
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
 
    The increase in cash provided by operating activities of $31.4 million is
mainly due to the $28.4 million increase in net income. The $28.4 million
increase in net income is due to the following changes described in the captions
above in more detail: an increase in total property income of $24.3 million and
an increase in interest and other income of $8.7 million; these amounts are
partially offset by an increase in interest expense of $2.2 million; an increase
in general and administrative expenses of $1.2 million; a decrease in gain on
interest rate swaps and extraordinary losses of $0.4 million; and an increase in
minority interest of $0.8 million.
 
    Other factors contributing to the increase in cash provided by operating
activities were a $7.0 million increase in depreciation and amortization due to
the acquisition of additional properties, plus a $4.3 million decrease in the
unrealized gain on interest rate swaps due to the unwind of the swap in 1997, a
$6.3 million increase in the change in interest payable, a $0.8 million increase
in minority interest and a $4.6 million increase in the change in accounts
payable. These amounts are offset by a $3.9 million reduction in extraordinary
losses due to the refinancing of One Norwest Center, a $1.6 million reduction in
the change in prepaid rent and a $14.5 million reduction due to the change in
tenant receivables.
 
    The increase in cash used in investing activities is due to the net cash
investment in the PGGM Portfolio (as defined hereinafter), 527 Madison Avenue
and Sixty State Street as compared to the acquisition of One Lincoln Centre
being the only cash acquisition in 1996.
 
    The increase in cash provided by financing activities of $177.0 million is
due to the following: common equity offering in 1997 providing $225.4 million in
net proceeds; $187.0 million of borrowings under the Revolving Credit Facility
in 1997; the repayment of $97.3 million of debt in 1996 in excess of 1997 due to
the refinancing of the One Norwest Center mortgage; the receipt of $7.1 million
more proceeds under the dividend reinvestment plan in 1997 than 1996; a
reduction in swap termination payments of $6.6 million; and a decrease in
restricted cash of $2.5 million due to an escrow deposit for the benefit of a
mortgage holder arising from the prepayment of rent by a major tenant in 1996.
These amounts are offset by the $140.0 million preferred offering in 1996; the
$32.5 million repayment of the Term Loan; the $116.0 million of mortgage
proceeds received from One Norwest Center and Tower 56 in 1996; increased
minority distributions of $0.2 million due to the additional partnership
investments; increased issuance costs of $15.6 million; and increased
distributions to stockholders of $44.6 million.
 
    The ratio of earnings to fixed charges and dividends on preferred stock
increased to 1.62 times at December 31, 1997 from 1.11 times at December 31,
1996 due to the reduction of the percentage of liabilities to total assets
described above.
 
CAPITAL STOCK TRANSACTIONS
 
    On August 31, 1996, through a dividend reinvestment plan, Cornerstone
received proceeds of approximately $4.0 million and issued an additional 300,589
shares of Common Stock to stockholders.
 
    On November 8, 1996, through a merger of subsidiaries, the Company issued
$66.5 million (458,621 shares) of 8% Cumulative Convertible Preferred Stock,
Series A, in exchange for $40.0 million in cash and the Frick Building. The
preferred shares were converted in July 1997 into the Company's Common Stock at
a conversion price of $14.50 per share. The proceeds were used to acquire One
Lincoln Centre.
 
    On November 22, 1996, the Company issued $100.0 million (689,655 shares) of
8% Cumulative Convertible Preferred Stock. The preferred shares were converted
in July 1997 into the Company's Common Stock at a conversion price of $14.50 per
share. Portions of the proceeds were used to acquire 527 Madison Avenue on
February 14, 1997 and to repay the Term Loan as discussed below.
 
                                       40
<PAGE>
    On January 31, 1997, through a dividend reinvestment plan, Cornerstone
received proceeds of approximately $3.7 million and issued an additional 243,907
shares of Common Stock to stockholders.
 
    On April 21, 1997, the Company received $225.4 million in gross proceeds
from the public offering of 16,100,000 new shares of Common Stock at a price of
$14.00 per share and listed on the New York Stock Exchange through underwriters
led by Merrill Lynch & Co. The net proceeds were used as partial consideration
for the purchase of the PGGM Portfolio (as defined hereinafter).
 
    On April 30, 1997, through a dividend reinvestment plan, Cornerstone
received proceeds of approximately $2.2 million and issued an additional 141,733
shares of Common Stock to stockholders.
 
    On July 31, 1997, through a dividend reinvestment plan, Cornerstone received
proceeds of approximately $2.6 million and issued an additional 175,796 shares
of Common Stock to stockholders.
 
    On October 27, 1997, the Company increased the authorized shares from
115,000,000 shares of capital stock, without par value, to 265,000,00 shares of
capital stock, without par value, of which 15,000,000 shares are preferred stock
and 250,000,000 shares are common stock.
 
    On October 27, 1997, as consideration for the acquisition of the PGGM
Portfolio (as defined hereinafter), Cornerstone issued 34,185,500 shares of
Common Stock to PGGM as compensation for the acquisition of interests in nine
Class A office buildings and an undeveloped parcel of land (the "PGGM
Portfolio").
 
    On October 31, 1997, through a dividend reinvestment plan, Cornerstone
received proceeds of approximately $2.5 million and issued an additional 134,577
shares of Common Stock to stockholders.
 
    On January 5, 1998, the Company purchased for approximately $5.5 million the
participation rights in the cash flow and residual value of Tower 56 from the
former participants for 307,692 shares of Common Stock.
 
    On February 6, 1998, Cornerstone completed a secondary public offering of
14,375,000 shares of Common Stock at $18.25 per share. The shares were placed in
the U.S. through a syndicate of seven investment banks led by Merrill Lynch &
Co. Net proceeds to the Company were approximately $247.9 million (approximately
$262.3 million in gross proceeds less an underwriting discount of approximately
$13.7 million and expenses of approximately $0.7 million). The net proceeds were
used to repay outstanding borrowings under the Revolving Credit Facility and for
working capital purposes.
 
    On February 27, 1998, through a dividend reinvestment plan, Cornerstone
received proceeds of approximately $2.0 million and issued an additional 109,007
shares of Common Stock to stockholders.
 
    On April 28, 1998, the Company issued 3,428,571 shares of Common Stock to
the Prudential Insurance Company of America ("Prudential") and 1,657,426 UPREIT
Units to certain other persons as partial consideration for the acquisition of
One Memorial Drive. Such securities were not registered under the Securities Act
of 1933, as amended (the "Securities Act") and were issued in an exempt
transaction pursuant to Section 4(2) of the Securities Act. The Company has
filed a Registration Statement on Form S-3 (No. 333-59259) to register under the
Securities Act the resale by Prudential of such shares of Common Stock.
 
    On May 20, 1998, the Company increased the number of authorized Preferred
Stock from 15,000,000 shares to 65,000,000 shares.
 
    On May 29, 1998, through a dividend reinvestment plan, Cornerstone received
proceeds of approximately $1.8 million and issued an additional 98,487 shares of
Common Stock to stockholders.
 
    On June 3, 1998, the Operating Partnership issued a total of 1,665,663
UPREIT Units to certain persons in connection with the acquisition of 201
California Street and the Wilshire Palisades building. Such securities were not
registered under the Securities Act and were issued in an exempt transaction
pursuant to Section 4(2) of the Securities Act.
 
                                       41
<PAGE>
    On August 31, 1998, through a dividend reinvestment plan, Cornerstone
received proceeds of approximately $1.5 million and issued an additional 94,610
shares of Common Stock to stockholders.
 
    On November 30, 1998, through a dividend reinvestment plan, Cornerstone
received proceeds of approximately $1.5 million and issued an additional 95,300
shares of Common Stock to stockholders.
 
    On December 16, 1998, as part of the consideration paid by the Company in
connection with the Wilson Acquisition, the Company issued 14,884,417 shares of
Common Stock and the Operating Partnership issued 16,187,724 UPREIT Units to the
former owners of WW&A and the Wilson Properties. See "Recent
Developments--Wilson Acquisition." Such securities were not registered under the
Securities Act and were offered and sold in a private offering pursuant to
Section 4(2) of the Securities Act and Regulation D promulgated thereunder. The
Company has filed a Registration Statement on Form S-3 (No. 333-72449) to
register under the Securities Act the resale by the holders thereof of the
14,884,417 shares of Common Stock issued in connection with the Wilson
Acquisition and 16,187,724 shares of Common Stock issuable upon redemption of
the UPREIT Units issued in connection with the Wilson Acquisition.
 
    On December 16, 1998, in connection with the Wilson Acquisition, the Company
issued 11,594,203 shares of Common Stock to PGGM. See "Recent
Developments--Wilson Acquisition." Such shares were not registered under the
Securities Act and were offered and sold to PGGM in a private offering pursuant
to Section 4(2) of the Securities Act.
 
FUNDS FROM OPERATIONS
 
    The Company calculates Funds from Operations ("FFO") based upon guidance
from the National Association of Real Estate Investment Trusts ("NAREIT"). FFO
is defined as net income, excluding gains or losses from debt restructuring and
sales of property, plus depreciation and amortization and after adjustments for
unconsolidated joint ventures. The Company has adjusted 1997 and 1996 FFO by the
net gain on interest rate swaps due to the non-cash nature of these items.
 
    Industry analysts generally consider FFO to be an appropriate measure of
performance of a REIT such as Cornerstone. FFO does not represent cash generated
from operating activities in accordance with generally accepted accounting
principles ("GAAP") and, therefore, should not be considered a substitute for
net income as a measure of performance or a substitute for cash flow from
operations as a measure of liquidity calculated in accordance with GAAP.
 
    The Company believes that FFO is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flows from operating
activities, financing activities and investing activities, it provides investors
an understanding of the ability of the Company to generate earnings from its
recurring operations, after the payment of all administrative costs and interest
expense. For cash flows from operating, financing, and investing activities in
accordance with GAAP see the Consolidated Statements of Cash Flows included in
the Consolidated Financial Statements which are part of this report.
 
    The Company no longer reports free and deferred rental income as an
adjustment to FFO because this is not part of the industry standard. Therefore,
included in FFO for 1998, 1997, and 1996 are $14.5 million, $2.7 million and
$1.0 million, respectively, for free and deferred rental income (after
adjustment for minority interest).
 
                                       42
<PAGE>
    The table below sets forth the adjustments which were made to the net income
of the Company in the calculation of FFO for the last three years (amounts in
thousands):
 
<TABLE>
<CAPTION>
                                                                                     FUNDS FROM OPERATIONS (1)
                                                                                 ---------------------------------
<S>                                                                              <C>         <C>         <C>
                                                                                    1998        1997       1996
                                                                                 ----------  ----------  ---------
Net income.....................................................................  $   83,465  $   37,547      9,096
NAREIT adjustments:
  Depreciation and amortization (2)............................................      59,278      30,978     24,317
  Minority adjustments.........................................................      (2,120)     (1,551)    (2,011)
  Unconsolidated depreciation..................................................       4,054          --         --
  Realized/unrealized gain.....................................................          --         (99)    (4,278)
  Loss on sale of real estate assets...........................................       2,076          --         --
  Extraordinary losses.........................................................       4,303          54      3,925
Other adjustments:
  Amortization on rent notes...................................................       1,531       1,379      1,242
  Severance payments...........................................................         478          --         --
  Minority interest allocated to unitholders...................................       2,850          --         --
  Real estate tax adjustment...................................................          --          --      2,428
                                                                                 ----------  ----------  ---------
Funds from operations..........................................................     155,915      68,308     34,719
                                                                                 ----------  ----------  ---------
Preferred dividends............................................................      (3,500)    (10,160)    (5,153)
                                                                                 ----------  ----------  ---------
Funds from operations
  available for common shares..................................................  $  152,415  $   58,148  $  29,566
                                                                                 ----------  ----------  ---------
                                                                                 ----------  ----------  ---------
</TABLE>
 
------------------------
 
(1) Although the Company believes that this table is a full and fair
    presentation of the Company's FFO, similarly captioned items may be defined
    differently by other REITs, in which case direct comparisons may not be
    possible.
 
(2) The depreciation and amortization adjustment does not include amortization
    of deferred financing costs and depreciation of non-real estate assets in
    accordance with guidance from NAREIT. Depreciation and amortization includes
    $170,000 of amortization relating to certain intangible assets purchased as
    part of the Wilson Acquisition.
 
    The increase in FFO from 1997 to 1998 of approximately $87.6 million is due
to the $45.9 million increase in net income due to the following changes
described in the captions above in more detail: an increase in total property
income of $89.5 million and an increase in earnings in real estate joint
ventures of $11.4 million; these amounts are partially offset by a decrease in
interest and other income of $4.5 million; an increase in interest expense of
$33.5 million; an increase in general and administrative expenses of $5.4
million; an increase in loss on sale of real estate assets of $2.1 million; an
increase in minority interest of $5.1 million; a decrease in gain on interest
rate swaps of $0.1 million; and an increase in extraordinary losses of $4.3
million.
 
    The following factors also contributed to the increase in FFO: a $28.3
million increase in depreciation and amortization due to new property
acquisitions, plus a $4.1 million increase in unconsolidated depreciation, plus
a $0.1 million reduction in realized/unrealized gain on interest rate swaps,
plus a $2.1 million increase in loss on sale of real estate assets, plus a $4.2
million increase in extraordinary loss, plus a $0.6 million increase in
amortization on rent notes and severance payments and a $2.9 million increase in
minority interest allocated to unitholders. These amounts are partially offset
by the $0.6 million decrease in minority interest adjustments.
 
    The increase in FFO from 1996 to 1997 of approximately $33.6 million is due
to the $28.4 million increase in net income due to the following changes
described in the captions above in more detail: an increase in total property
income of $24.3 million and an increase in interest and other income of
 
                                       43
<PAGE>
$8.7 million; these amounts are partially offset by an increase in interest
expense of $2.3 million; an increase in general and administrative expenses of
$1.2 million; a decrease in gain on interest rate swaps and extraordinary losses
of $0.3 million; and an increase in minority interest of $0.8 million.
 
    The following factors also contributed to the increase: a $6.7 million
increase in depreciation and amortization due to new property acquisitions, plus
a $4.2 million reduction in realized/unrealized gain on interest rate swaps,
plus a $0.5 million reduction in minority adjustments and a $0.1 million
increase in amortization on rent notes. These amounts are partially offset by
the $3.9 million decrease in extraordinary losses from refinancing One Norwest
Center and the $2.4 million real estate tax adjustment relating to Norwest
Center in 1996.
 
    The Company will seek to continue increasing FFO and the value of its
property portfolio by acquiring and developing additional properties that the
Company believes will produce favorable returns. As part of its ongoing
business, the Company periodically engages in discussions with public and
private real estate entities regarding possible portfolio or asset acquisitions
or business combinations.
 
MORTGAGE INDEBTEDNESS
 
    On August 2, 1996, the Company refinanced its $98.0 million Interest-Bearing
Notes, collateralized by One Norwest Center, by entering into a $98.0 million
Deed of Trust and Mortgage Notes with Massachusetts Mutual Life Insurance
Company, Connecticut General Life Insurance Company and American General Life
Insurance Company. The Mortgage Notes bear interest at a rate of 7.50% and
mature on July 1, 2001. Additionally, the Company is required to make payments
of principal based upon a 30-year amortization schedule. Upon the closing of the
mortgage debt, Cornerstone paid a prepayment penalty of approximately $2.0
million (extraordinary loss) to the Interest-Bearing Noteholders. Unamortized
Interest-Bearing Notes financing costs of approximately $0.2 million
(extraordinary loss) were written-off in connection with the refinancing. This
loan was refinanced on September 25, 1998 (as discussed below).
 
    Cornerstone was obligated to pay to Deutsche Bank New York Branch, for an
interest rate swap agreement used to fix the interest rates on the
Interest-Bearing Notes, an amount equal to 0.752% on a notional amount of $107.0
million throughout the term of the Interest-Bearing Notes. This amount was
treated as a yield adjustment on the long-term debt and has been included in
interest expense. On August 2, 1996, this swap was terminated at an approximate
cost of $1.5 million, which was treated as an extraordinary loss.
 
    As protection against market interest rates rising prior to the maturity of
the Interest-Bearing Notes, on September 29, 1993, Cornerstone entered into a
forward interest rate swap agreement with Deutsche Bank AG. The interest rate
swap agreement was revised as part of the refinancing of One Norwest Center. The
forward interest rate swap agreement was for a fixed rate of 7.14% on a notional
amount of $92.8 million for a period of five years beginning July 1, 2001.
Effective January 16, 1997, this forward swap was terminated.
 
    On October 27, 1997, the Company entered into three mortgage loans with PGGM
as purchase money financing for the PGGM Portfolio. The mortgages, which are
cross-collateralized, encumber TransPotomac Plaza 5, Charlotte Plaza, 527
Madison Avenue, One Lincoln Centre, 200 Galleria and the first mortgage note on
Market Square. These mortgages total $250.0 million and are interest only with
no prepayment rights. The first loan has a $65.0 million principal balance,
bears interest at a rate of 7.28% and matures in October 2000. Upon repayment of
this loan, PGGM will release the liens on TransPotomac Plaza 5 and Charlotte
Plaza. The second loan has a $65.0 million principal balance, bears interest at
a rate of 7.47% and matures in October 2004. Upon repayment of this loan, PGGM
will release the liens on 527 Madison Avenue and One Lincoln Centre. The third
loan has a $120.0 million principal balance, bears interest at a rate of 7.54%
and matures in October 2007. Upon repayment of this loan, PGGM will release the
liens on 200 Galleria and Market Square.
 
                                       44
<PAGE>
    On December 31, 1997, the Company purchased the second mortgage on Sixty
State Street in Boston, Massachusetts. The property has a first mortgage in the
amount of approximately $78.4 million, which matures in January 2005. The loan
requires amortization based on a 30-year schedule and bears interest at a rate
of 9.5%. While the face amount of the first mortgage is $77.9 million, and the
interest rate is 9.5%, the Company is carrying the debt at $87.6 million, which
is the market value of the loan at the time of the closing, less the
amortization of principal and premium since closing, based upon a market
interest rate for similar quality loans of 6.84%.
 
    On January 28, 1998, the Company entered into an $80.0 million first
mortgage on Corporate 500 Centre with Bankers Trust Company. The loan bears
interest at a rate of LIBOR plus 1.0% and matures in July 2002. The Company had
entered into a $80.0 million interest rate swap to protect it from interest rate
fluctuations that could have affected its floating rate debt on Corporate 500
Centre. The swap effectively fixed the interest rate on the $80.0 million loan
at 6.63%. This agreement was terminated in August 1998 at no cost to the
Company. On October 9, 1998, the Company completed the refinancing of the $80.0
million mortgage on Corporate 500 Centre with Teachers Insurance and Annuity
Association. As a result of the refinancing, the principal balance was increased
to $90.0 million, the term of the loan was extended from 4.5 years to 10 years
and the interest rate was increased by three basis points to 6.66%.
 
    On June 3, 1998, the Company assumed the mortgage on 201 California Street
in San Francisco, California. The loan requires amortization based on a 30-year
schedule and bears interest at a rate of 6.9%. While the face amount of the loan
is $32.8 million, and the interest rate is 6.9%, the Company is carrying the
debt at $33.1 million, which is the market value of the loan at the time of the
closing, less the amortization of principal and premium since closing, based
upon a market interest rate for similar quality loans of 6.7%.
 
    On June 3, 1998, the Company assumed the mortgage on Wilshire Palisades in
Santa Monica, California. The loan requires amortization based on a 22-year
schedule and bears interest at a rate of 8.04%. While the face amount of the
loan is $28.8 million, and the interest rate is 8.04%, the Company is carrying
the debt at $29.9 million, which is the market value of the loan at the time of
the closing, less the amortization of principal and premium since closing, based
upon a market interest rate for similar quality loans of 6.7%.
 
    On September 25, 1998, the Company completed the refinancing of the $96.1
million mortgage on One Norwest Center with the Connecticut General Life
Insurance Company ("CIGNA") and the Massachusetts Mutual Life Insurance Company
("Mass Mutual"). As a result of the refinancing, the principal balance was
increased to $98.5 million, the term of the loan was extended from three years
to ten years and the interest rate was reduced from 7.50% to 6.90%.
 
    On December 16, 1998, the Company assumed various mortgages totaling
approximately $760.0 million as part of the Wilson Acquisition. The loans have
various amortization periods and interest rates. Certain assumed loans were
prepaid subsequent to the closing but prior to year end. While the face amount
of the loans at December 31, 1998 is approximately $660.6 million, the Company
is carrying the debt at $674.3 million, which is the market value of the loans
at the time of the closing, less the amortization of principal and premium since
closing, based upon a market interest rate for similar quality loans of 6.9%.
 
OTHER INDEBTEDNESS
 
    On August 8, 1995, the existing $32.5 million term loan (the "Term Loan")
was extended through December 31, 2003 and assigned to Deutsche Bank AG London
at an interest rate of 5.0%. The Term Loan had a $32.5 million balance at
December 31, 1996. The loan was prepaid on March 18, 1997, since, under its
terms, it was required to be prepaid upon Cornerstone's initial public offering
in the United States.
 
                                       45
<PAGE>
    Effective January 1, 1996, in connection with the acquisition of the 10%
minority interest in Norwest Center, the Company entered into a $12.9 million
convertible promissory note payable to Hines Colorado Limited ("HCL"). The note
payable pays monthly interest only at the lesser of 8.11% or LIBOR plus 50 basis
points. The note is convertible at the option of HCL into shares of common stock
at $14.30 per share after January 1, 1997. At maturity of the note on January 1,
2001, Cornerstone has the right to redeem the note in exchange for common shares
of the Company at the lower of the market price or $14.30 per share.
 
    At December 31, 1996, Cornerstone had a $10.0 million revolving line of
credit with Bankers Trust Company. The line was available for general corporate
and acquisition purposes at a rate equivalent to an adjusted Eurodollar rate.
The line was also available for the issuance of standby letters of credit at a
rate of 0.15% and expired on November 7, 1997. At December 31, 1996, none of the
credit line had been drawn upon.
 
    On October 27, 1997, the Company entered into a three-year, $350.0 million
acquisition line of credit syndicated by Bankers Trust Company and The Chase
Manhattan Bank. The line bore interest at a rate of LIBOR plus 1.10% to 1.40%
depending on the Company's then current leverage ratio (as defined). Borrowings
under the facility at December 31, 1997 were $187.0 million at an average
interest rate of 8.12%. The line was also available for the issuance of standby
letters of credit. The facility was amended and restated on November 3,
1998--see below.
 
    On November 3, 1998, a syndicate of 17 banks led by Bankers Trust Company,
The Chase Manhattan Bank and NationsBank provided the Company with a $550.0
million line of credit for acquisitions and general working capital purposes
(the "Revolving Credit Facility"). The facility is also available for the
issuance of letters of credit. The interest rate on the Revolving Credit
Facility depends on the Company's ratio of total debt to total asset value (as
defined) at the time of borrowing and will be at a spread of 1.10% to 1.40% over
the applicable LIBOR rate. The facility contains the same terms as the Company's
previous $350.0 million facility, which was retired at the closing of the new
facility. The Revolving Credit Facility expires on November 3, 2001. Borrowings
under the facility at December 31, 1998 were $465.0 million at an average
interest rate of approximately 6.9%. In addition, at December 31, 1998, there
was a $5.0 million letter of credit outstanding at a rate of approximately
1.40%.
 
    The Company holds debt instruments that are sensitive to changes in interest
rates. The maturity, weighted average interest rates and fair values are
presented in the Consolidated Financial Statements which are part of this
report.
 
    In the normal course of business, the Company also faces risks that are
either non-financial or non-qualitative. Such risks principally include credit
risks and legal risks and are not included in the aforementioned notes.
 
STOCKHOLDERS' AND UNITHOLDERS' DISTRIBUTIONS
 
    Cornerstone intends to distribute at least 95.0% of its taxable income to
maintain its qualification as a REIT. The Company anticipates that cash flow
will exceed taxable income for the foreseeable future. Cornerstone's
distribution policy is to pay distributions based upon cash flow, less prudent
reserves. The Company paid distributions of $0.30 per share/unit to all
stockholders and unitholders on February 27, 1998 (to stockholders and
unitholders of record as of January 30, 1998). The Company paid distributions of
$0.30 per share/unit to all stockholders and unitholders on May 29, 1998 (to
stockholders and unitholders of record as of April 30, 1998). The Company paid
distributions of $0.30 per share/unit to all stockholders and unitholders on
August 31, 1998 (to stockholders and unitholders of record as of July 31, 1998).
The Company paid distributions of $0.30 per share/unit to all stockholders and
unitholders on November 30, 1998 (to stockholders and unitholders of record as
of October 30, 1998). On December 7, 1998, in connection with the Wilson
Acquisition, the Company declared a distribution of $0.15 per share/ unit to all
stockholders and unitholders of record as of December 15, 1998 and a
distribution of $0.15 per share/unit to all stockholders and unitholders of
record as of January 29, 1999. Both distributions were paid on February 26,
1999.
 
                                       46
<PAGE>
    The Revolving Credit Facility contains certain restrictive covenants
including a limitation on the Company's dividend to 90.0% of FFO and 110.0% of
funds available for distribution, both as defined in the agreement.
 
    At the present time, the Company is current in the payment of all preferred
dividends.
 
LIQUIDITY
 
    At December 31, 1998, the Company had approximately $61.9 million in cash
and cash equivalents and approximately $9.1 million in restricted cash.
Restricted cash includes security deposits for some of the Company's office
properties and escrow and reserve funds for real estate taxes, property
insurance, capital improvements, tenant improvements and leasing costs. These
funds were established pursuant to certain mortgage and construction financing
arrangements. Cornerstone also had available $80.0 million under its Revolving
Credit Facility for general corporate purposes. In addition, Cornerstone
anticipates it will receive distributions from its real estate partnerships,
rental income from its fee owned properties and interest income from its
mortgages on a monthly basis which will be used to cover normal operating
expenses and pay distributions to its stockholders and unitholders. Based upon
its cash reserves and other sources of funds including its $550.0 million
Revolving Credit Facility, management believes Cornerstone has sufficient
liquidity to meet its cash requirements for the remainder of 1999.
 
OTHER MATTERS
 
    General
 
    The Company is not aware of any environmental issues at any of its
Properties that would have a material adverse impact on the Company's operating
results or financial condition. The Company believes it has sufficient insurance
coverage at each of its Properties. A majority of the Company's leases with the
majority of its tenants require the tenants to pay most operating expenses and
increases in common area maintenance expenses, which reduces the Company's
exposure to increases in costs and operating expenses resulting from inflation.
 
    Concentration of Risk
 
    Approximately 6.3 million of the Company's 20.9 million rentable square feet
is located in the San Francisco metropolitan market, accounting for
approximately 30% of the Company's total assets at December 31, 1998. In
addition, five of the Company's 96 office Properties are located in the Downtown
Boston market, accounting for approximately 31.9% of the Company's office and
parking revenues for the year ended December 31, 1998. This concentration of
assets makes the Company particularly vulnerable to adverse changes in economic
conditions in the San Francisco and Boston metropolitan areas. A significant
decline in these economic conditions could have a material adverse effect on the
Company.
 
    Norwest Corporation and its subsidiary, Norwest Bank Denver N.A., tenants of
the Company, provided approximately 9.5%, 20.0% and 26.0% of office and parking
rental income for the years ended December 31, 1998, 1997 and 1996,
respectively. Included in deferred tenant receivables is approximately $33.9
million and $31.3 million due from Norwest Corporation at December 31, 1998 and
1997, respectively.
 
    Recently Issued Accounting Standards
 
    During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. SFAS 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. In addition, the Accounting Standards Executive Committee
of the American
 
                                       47
<PAGE>
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" ("SOP 98-5") and Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"), which are effective for fiscal years
beginning after December 15, 1998. SOP 98-5 requires that certain costs incurred
in conjunction with start-up and organizational activities be expensed. SOP 98-1
provides guidance on whether the costs of computer software developed or
obtained for internal use should be capitalized or expensed. Management believes
that when adopted, SFAS 133, SOP 98-5 and SOP 98-1 will not have a significant
effect on the Company's financial statements.
 
    During the first quarter of 1998, the Company adopted the FASB's Emerging
Issues Task Force's release Issue No. 97-11, "Accounting for Internal Costs
Relating to Real Estate Property Acquisitions" ("EITF 97-11"). EITF 97-11
requires that the internal pre-acquisition costs of identifying and acquiring
operating property be expensed as incurred. The adoption of EITF 97-11 did not
have a material effect on the Company's financial statements.
 
    During the first quarter of 1998, the Company also adopted the FASB's
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 specifies the presentation and disclosure
requirements for comprehensive income which includes those items which have been
formerly reported as a component of stockholders' equity. The adoption of SFAS
130 did not have a significant effect on the Company's financial statements.
 
    The Company has adopted Statement of Financial Accounting Standard No. 131
("SFAS 131"), which establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to stockholders. See the
Notes to the Consolidated Financial Statements which are part of this report for
further discussion.
 
    Year 2000 Compliance
 
    GENERAL
 
    The Year 2000 compliance issue concerns the inability of computerized
information systems to accurately calculate, store or use a date after December
31, 1999. This could result in a system failure or miscalculations causing
disruptions of operations. The Year 2000 issue affects virtually all companies
and all organizations. Management recognizes the importance of ensuring that its
business and operational systems are not disrupted as a result of Year 2000
issues.
 
    READINESS
 
    Cornerstone Properties Inc. has created a Year 2000 task force to evaluate
and take the appropriate actions regarding Year 2000 compliance. The Company's
plan is divided into three major sections: (i) compliance of information systems
at the corporate offices in New York and Atlanta ("Home Office"); (ii)
compliance of information and real estate operating systems at the corporate
offices in California and the Wilson Projects ("Wilson"); and (iii) assessment
of compliance of significant service providers including third party managers
and the buildings they manage, vendors and customers ("External Agents"). The
plan covers the following major tasks: (i) inventory of all systems; (ii)
analysis of inventory including assessment of risk; (iii) verification of
compliance of inventory with vendors; (iv) testing of critical equipment and
processes; and (v) replacement or modification of systems.
 
    The first section of the plan, Home Office, is complete. The Wilson and
External Agents sections of the plan are proceeding according to schedule with
expected completions before December 31, 1999. The plan also includes
questionnaires that will be sent to tenants in order to attempt to determine the
effect of Year 2000 on their businesses and ultimately the Company's income
stream.
 
                                       48
<PAGE>
    COST
 
    The total historical and anticipated remaining costs for the Year 2000
remediation are estimated to be immaterial to the Company's financial condition.
The costs to date consist of recurring systems upgrades and replacements,
immaterial internal staff costs and other expenses such as telephone and mailing
costs. The information and real estate operating systems that have thus far been
identified as non-compliant are at or approaching the end of their useful lives
and have been or will be replaced or upgraded as a part of the normal operations
of the Company.
 
    RISKS AND CONTINGENCY PLANS
 
    The Company does not anticipate significant delays in finalizing the first
two sections of its Year 2000 remediation plan. However, External Agents having
a material relationship with the Company (e.g., property managers, utilities,
financial institutions, governmental agencies, municipalities and major tenants)
may be a potential risk based on their individual Year 2000 preparedness, which
may not be within the Company's reasonable control. The Company is in the
process of identifying, reviewing and logging the Year 2000 preparedness of
critical External Agents.
 
    While the Company is not aware of any matters with regard to its major
tenants which could give rise to a material default, there may be a potential
risk with regard to their Year 2000 preparedness which may be outside the
Company's reasonable control. The Company is currently in the process of
surveying its tenants to try to predetermine the risk of defaults due to Year
2000 issues.
 
    Currently, there has been no indication or expectation of material risks in
the compliance of the first two sections of the plan. Pending unfavorable
results, the Company will determine what course of action and contingencies will
need to be made. There can be no assurance that external Year 2000 issues will
be resolved. Noncompliance of External Agents as well as the Company's major
tenants could have a material adverse impact on the Company's business,
operating results and financial condition.
 
    YEAR 2000 COMPLIANCE DETAIL
 
    Home Office
 
     I. Inventory of all systems: The Company has inventoried all information
        systems at its corporate offices in New York and Atlanta. The hardware
        systems primarily consist of desktop and laptop computers, server
        computers, printers, phone systems and local area and wide area network
        infrastructures. The software applications primarily consist of
        commercial off the shelf software ("COTS") products for spreadsheet
        analysis, word processing, accounting, cash flow analysis and other
        office automation tasks.
 
    II. Analysis of inventory and assessment of risk: The systems inventory has
        been analyzed as to its compliance via vendor certifications. All of the
        Home Office systems are Year 2000 compliant.
 
    III. Verification of compliance with vendors: The Company has verified
         compliance of systems through systems' documentation, mail
         correspondences and vendor web sites.
 
    IV. Testing of critical equipment and processes: The Home Office primarily
        uses COTS products and does not significantly rely on any proprietary or
        customized systems. The Company has performed no testing and has relied
        upon vendor certifications and vendor internal testing processes.
 
     V. Replacement or modification of systems: The Company has replaced or
        modified non-compliant systems in the ordinary course of business.
 
    Wilson
 
     I. Inventory of all systems: The Company continues to inventory all
        information and real estate operating systems at its offices and
        Properties, the majority of which are located in California. The
        information systems primarily consist of desktop and laptop computers,
        server computers,
 
                                       49
<PAGE>
        printers, phone systems, local area and wide area network
        infrastructures, and COTS products for spreadsheet analysis, word
        processing, accounting, cash flow analysis and other office automation
        tasks. The real estate operating systems primarily consist of heating
        ventilation and air conditioning ("HVAC") systems, elevator systems,
        electrical systems, fire and life safety systems and security control
        systems.
 
    II. Analysis of inventory and assessment of risk: The systems inventory has
        been analyzed as to its compliance via vendor certifications.
        Substantially all of the information and real estate operating systems
        are Year 2000 compliant. Those systems identified as non-compliant will
        be upgraded or replaced in the normal course of business by December 31,
        1999. A component of the accounting system used by Wilson has been
        identified as non-compliant. An upgrade has been purchased and will be
        installed by the end of the second quarter of 1999. The cost of the
        upgrade was approximately $10,000.
 
    III. Verification of compliance with vendors: The Company has verified
         compliance of systems through systems' documentation, mail
         correspondences and vendor web sites.
 
    IV. Testing of critical equipment and processes: Wilson primarily uses COTS
        products and does not significantly rely on any proprietary or
        customized systems. The Company has performed no testing and has relied
        upon vendor certifications and vendor internal testing processes.
 
     V. Replacement or modification of systems: The Company has and will
        continue to replace or modify non-compliant systems in the ordinary
        course of business.
 
    External Agents
 
    As part of the Company's Year 2000 compliance plan, significant service
providers, vendors and customers have been identified and steps are being
undertaken to reasonably ascertain their stage of Year 2000 readiness. Through
questionnaires, web sites, interviews, on site visits and other available means,
the Company is assessing the Year 2000 risk of its third party property
managers, financial institutions, significant tenants and other significant
business partners.
 
    Of the External Agents, the Company has focused attention on assessing the
Year 2000 risk of its third party property managers and the associated real
estate operating systems (HVAC systems, elevator systems, electrical systems,
fire and life safety systems and security control systems). Currently, through
the process of surveys, interviews and on site visits, there has been no
indication of material Year 2000 risks at the Company's third-party property
managers. Non-compliant systems will be upgraded or replaced in the normal
course of business before December 31, 1999 or will be addressed with a
contingency plan.
 
    There can be no assurance that external Year 2000 issues will be resolved.
Should non-compliance of External Agents not be discovered, such non-compliance
could have a material adverse impact on the Company's business, operating
results and financial condition. Where possible, the Company will terminate any
vendor relationships should it find any material Year 2000 issues with that
vendor.
 
    Development Project
 
    On April 15, 1998, the Company entered into an agreement to purchase a
927,000 square-foot Class A office building, currently under development, in
downtown Minneapolis, Minnesota. Approximately $36.9 million has been spent as
of December 31, 1998 on the construction. The project is scheduled to be
completed in the year 2000 and is approximately 50% pre-leased. The development
is being financed through a construction loan by U.S. Bank. Upon completion, the
Company will retire the construction loan and acquire the property from the
developer for an amount to be determined by applying a negotiated formula to
in-place net operating income.
 
                                       50
<PAGE>
SUBSEQUENT EVENTS
 
    On January 4, 1999, in connection with the Wilson Acquisition, the Company
prepaid the notes on Two ADP Plaza and Two Corporate Centre. The balances of the
two loans at the time of prepayment were $13.4 million and $18.6 million,
respectively.
 
    During January 1999, the Company entered into four interest rate swap
agreements with major financial institutions. The swaps effectively fix the
LIBOR rate on $250.0 million of the amount outstanding on the Company's credit
facility at approximately 5.1%. The swap agreements expire on November 3, 2001
coterminous with the Revolving Credit Facility.
 
    A cash dividend and unitholder distribution of $0.15 per share/unit was
declared for the first half of the fourth quarter of 1998 and paid on February
26, 1999, to common stockholders and unitholders of record as of December 15,
1998. A cash dividend and unitholder distribution of $0.15 per share/unit was
declared for the second half of the fourth quarter of 1998 and paid on February
26, 1999, to common stockholders and unitholders of record as of January 29,
1999.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
    As of December 31, 1998, the Company had approximately $649.1 million of
variable rate debt outstanding. The Company does not believe that the interest
rate risk represented by its floating rate debt is material as of that date in
relation to the approximately $2.0 billion of total debt outstanding and
approximately $4.2 billion market capitalization of the Company.
 
    The Company was not a party to any hedging agreements with respect to its
variable rate debt as of December 31, 1998. The Company will consider entering
into hedging agreements with respect to all or a portion of its floating rate
debt and during January 1999 entered into four hedging agreements with major
financial institutions for a total amount of approximately $250.0 million.
Although hedging agreements would enable the Company to convert variable rate
liabilities to fixed rate liabilities, they would expose the Company to the risk
that the counterparties to such hedge agreements may not perform, which could
increase the Company's exposure to rising interest rates. Generally, however,
the counterparties to hedging agreements that the Company would enter into would
be major financial institutions. The Company may borrow additional money with
variable rates in the future. Increases in interest rates, or loss of benefits
of any hedging agreements that the Company may enter into in the future, would
increase the Company's interest expense, which could affect cash flow and the
ability of the Company to service its debt. If the Company enters into any
hedging agreements in the future, decreases in interest rates thereafter would
increase the Company's interest expense as compared to the underlying variable
rate debt and could result in the Company making payments to unwind such
agreements.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
    See the Financial Statements included as a part hereof.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.
 
    None.
 
                                       51
<PAGE>
                                    PART III
 
    The information required to be included in Form 10-K in response to the
following items is to be included in the Company's Proxy Statement for its
Annual Meeting to be held on May 25, 1999, to be filed pursuant to Regulation
14A, and pursuant to applicable rules is incorporated herein by reference.
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
ITEM 11. EXECUTIVE COMPENSATION.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
 
    The following documents are filed as part of this annual report:
 
(A) FINANCIAL STATEMENTS:
 
<TABLE>
<CAPTION>
                                                                                  PAGE NUMBER
                                                                                 -------------
<S>                                                                              <C>
(i) The Company:                                                                           F-1
 
  The following financial statements and report of independent accountants are
    filed herewith at the pages indicated:
  Report of Independent Accountants............................................            F-2
  Consolidated Balance Sheets at December 31, 1998 and 1997....................            F-3
  Consolidated Statements of Income for the years ended December 31, 1998, 1997
    and 1996...................................................................            F-4
  Consolidated Statements of Stockholders' Equity for the years ended December
    31, 1998, 1997 and 1996....................................................            F-5
  Consolidated Statements of Cash Flows for the years ended December 31, 1998,
    1997 and 1996..............................................................            F-6
  Notes to Consolidated Financial Statements...................................    F-7 to F-26
</TABLE>
 
(B) REPORTS ON FORM 8-K:
 
           1. Form 8-K dated December 1, 1998
 
               Item 5-- Other Events. Cornerstone Properties Inc. closes $550.0
                       million Revolving Credit Facility.
 
               Item 7-- Financial Statements and Exhibits. Press release
                       announcing the closing of the $550.0 Revolving Credit
                       Facility. Second Amended and Restated Revolving Credit
                       Guaranty Agreement dated November 3, 1998.
 
           2. Form 8-K dated December 16, 1998
 
               Item 2-- Acquisition or Disposition of Assets. Cornerstone
                       Properties Inc. completes its acquisition of William
                       Wilson & Associates and its related entities.
 
               Item 5-- Other Events. Matters related to the Wilson Acquisition.
 
                                       52
<PAGE>
               Item 7-- Financial Statements, Pro Forma Financial Information
                       and Exhibits. The required pro forma financial statements
                       will be filed on Form 8-K/A within 60 days of this
                       filing.
 
           3. Form 8-K/A filed March 1, 1999
 
               Item 7-- Financial Statements, Pro Forma Financial Information
                       and Exhibits. Pro forma financial statements regarding
                       the Wilson Acquisition as of and for the period ending
                       September 30, 1998.
 
(C) EXHIBITS:
 
<TABLE>
<CAPTION>
  EXHIBIT
    NO.                                                   DESCRIPTION
-----------  -----------------------------------------------------------------------------------------------------
<C>          <S>
       2.4   Contribution Agreement and Agreement and Plan of Merger, dated as of June 22, 1998, as amended, by
             and among Cornerstone Properties Inc., Cornerstone Properties Limited Partnership, William Wilson &
             Associates and the entities listed on Schedule 1 thereto, incorporated by reference to Annex A of the
             Company's definitive Proxy Statement on Schedule 14A dated November 13, 1998.
 
       3.1(a) Restated Articles of Incorporation of Cornerstone Properties, Inc., as of March 12, 1996,
             incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the year
             ended December 31, 1996.
 
       3.1(b) Certificate of Amendment of Restated Articles of Incorporation of the Company, dated October 27,
             1997, incorporated by reference to Exhibit 4.2(b) of the Company's Registration Statement on Form S-3
             filed March 2, 1998 (Registration Statement No. 333-47149).
 
       3.5   Amended and Restated Bylaws of Cornerstone Properties Inc., incorporated by reference to Exhibit 3.1
             of the Company's Current Report on Form 8-K dated December 16, 1998.
 
       4.1   Specimen Common Stock Certificate, incorporated by reference to Exhibit 4.1 of the Company's
             Registration Statement on Form S-3 filed March 2, 1998 (Registration Statement No. 333-47149).
 
       4.2   Certificate of Voting Powers, Designations, Preferences, Limitations, Restrictions and Relative
             Rights of 7% Cumulative Convertible Preferred Stock of the Company, incorporated by reference to
             Exhibit 10.57 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995.
 
      10.1   Loan Sale Agreement, dated as of November 21, 1995, between The Sakura Bank, LTD. and Cornerstone
             Properties Inc., incorporated by reference to Exhibit 10.56 of the Company's Annual Report on Form
             10-K for the year ended December 31, 1995.
 
      10.2   Convertible Promissory Note dated January 1, 1996 made by Cornerstone Properties Inc., with Hines
             Colorado Limited in the amount of $12,925,976.48, incorporated by reference to Exhibit 10.63 of the
             Company's Annual Report on Form 10-K for the year ended December 31, 1996.
 
      10.3   Stock Purchase Agreement between DIHC, as seller, and Cornerstone Properties Inc., as purchaser,
             dated as of August 18, 1997, incorporated by reference to Annex I to the Company's definitive Proxy
             Statement on Schedule 14A, filed September 23, 1997.
 
      10.4   Loan Purchase Agreement between PGGM, as seller, and Cornerstone Properties Inc., as purchaser, dated
             August 18, 1997, incorporated by reference to Annex II to the Company's definitive Proxy Statement on
             Schedule 14A, filed September 23, 1997.
</TABLE>
 
                                       53
<PAGE>
<TABLE>
<CAPTION>
  EXHIBIT
    NO.                                                   DESCRIPTION
-----------  -----------------------------------------------------------------------------------------------------
<C>          <S>
      10.5   Agreement of Limited Partnership of Cornerstone Properties Limited Partnership dated as of December
             23, 1997, incorporated by reference to Exhibit 10.118 of the Company's Annual Report on Form 10-K for
             the year ended December 31, 1997.
 
      10.6*  First Amendment to Agreement of Limited Partnership of Cornerstone Properties Limited Partnership.
 
      10.7*  Second Amendment to Agreement of Limited Partnership of Cornerstone Properties Limited Partnership.
 
      10.8*  Third Amendment to Agreement of Limited Partnership of Cornerstone Properties Limited Partnership.
 
      10.9*  Fourth Amendment to Agreement of Limited Partnership of Cornerstone Properties Limited Partnership.
 
     10.10*  Employment Agreement dated December 16, 1998 between Cornerstone Properties Inc. and Cornerstone
             Properties Limited Partnership and William Wilson III.
 
     10.11*  Employment Agreement dated December 16, 1998 between Cornerstone Properties Inc. and Cornerstone
             Properties Limited Partnership and John S. Moody.
 
     10.12   Amended and Restated Cornerstone Properties Inc. 1998 Long-Term Incentive Plan, incorporated by
             reference to Annex D of the Company's definitive Proxy Statement on Schedule 14A dated November 13,
             1998.
 
     10.13*  Form of Retention Agreement for executive officers of the Company.
 
     10.14   Second Amended and Restated Revolving Credit and Guaranty Agreement dated November 3, 1998 among
             Cornerstone Properties Inc. and Cornerstone Properties Limited Partnership (the "Borrowers"), the
             subsidiaries of the Borrowers (the "Guarantors"), the Lenders, Bankers Trust Company and The Chase
             Manhattan Bank and NationsBank, N.A., incorporated by reference to Exhibit 99.2 of the Company's
             Current Report on Form 8-K dated December 1, 1998.
 
     10.15   Stockholders' Agreement, dated as of November 22, 1996, by and among Cornerstone Properties Inc., and
             the New York State Teachers' Retirement System together with any other purchasers of 8% Preferred
             Stock, incorporated by reference to Exhibit 20.1 of the Company's Report on Form 8-K as of December
             12, 1996, incorporated by reference to Exhibit 20.1 of the Company's Annual Report on Form 10-K for
             the year ended December 31, 1996.
 
     10.16   Stockholders' Agreement, dated as of November 7, 1996, by and between Cornerstone Properties Inc. and
             Hexalon Real Estate, Inc., and together with any other purchasers of 8% Preferred Stock, Series A,
             incorporated by reference to Exhibit 20.2 of the Company's Report on Form 8-K as of December 12,
             1996, incorporated by reference to Exhibit 20.2 of the Company's Annual Report on Form 10-K for the
             year ended December 31, 1996.
 
     10.17*  Amended and Restated Registration Rights and Voting Agreement dated as of December 16, 1998 among
             PGGM, DIHC and Cornerstone Properties Inc.
 
     10.18   Registration Rights and Lockup Agreement dated as of December 16, 1998 by and among Cornerstone
             Properties Inc. and the investors listed therein, incorporated by reference to Annex B of the
             Company's definitive Proxy Statement on Schedule 14A dated November 13, 1998.
</TABLE>
 
                                       54
<PAGE>
<TABLE>
<CAPTION>
  EXHIBIT
    NO.                                                   DESCRIPTION
-----------  -----------------------------------------------------------------------------------------------------
<C>          <S>
      12.1*  Statement of Computation of Earnings to Fixed Charges and Preferred Stock Dividend Requirements.
 
        21*  List of Subsidiaries.
 
        23*  Consent of PricewaterhouseCoopers LLP.
 
      24.1*  Powers of Attorney.
 
        27*  For EDGAR filing purposes only, this report contains Exhibit 27, Financial Data Schedule.
</TABLE>
 
------------------------
 
*   Filed herewith.
 
    Pursuant to the requirements of Section 13 or 15(d) 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.
 
                                        CORNERSTONE PROPERTIES INC.
                                        (Registrant)
 
                                        /s/ JOHN S. MOODY
                ----------------------------------------------------------------
                                        John S. Moody, President & CEO
 
DATED: March 24, 1999
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
 
<TABLE>
<C>                             <S>
    /s/ WILLIAM WILSON III
------------------------------  Chairman of the Board and
      William Wilson III          Director
 
                                Chief Executive Officer,
      /s/ JOHN S. MOODY           President and Director
------------------------------    (Principal Executive
        John S. Moody             Officer)
 
     /s/ RODNEY C. DIMOCK
------------------------------  Chief Operating Officer
       Rodney C. Dimock           and Director
 
     /s/ KEVIN P. MAHONEY       Chief Financial Officer
------------------------------    (Principal Financial and
       Kevin P. Mahoney           Accounting Officer)
 
     */s/ CECIL D. CONLEE
------------------------------  Director
       Cecil D. Conlee
 
       */s/ BLAKE EAGLE
------------------------------  Director
         Blake Eagle
 
------------------------------  Director
   Dr. Karl-Ludwig Hermann
 
     */s/ HANS C. MAUTNER
------------------------------  Director
       Hans C. Mautner
</TABLE>
 
                                       55
<PAGE>
<TABLE>
<C>                             <S>
   */s/ DR. LUTZ MELLINGER
------------------------------  Director
      Dr. Lutz Mellinger
 
   */s/ CRAIG R. STAPLETON
------------------------------  Director
      Craig R. Stapleton
 
------------------------------  Director
     Michael J.G. Topham
 
------------------------------  Director
       Dick van den Bos
 
------------------------------  Director
      Jan van der Vlist
 
    */s/ DONALD G. FISHER
------------------------------  Director
       Donald G. Fisher
 
     */s/ RANDALL A. HACK
------------------------------  Director
       Randall A. Hack
</TABLE>
 
------------------------
 
*   By John S. Moody, as Attorney-in-Fact for the persons indicated
 
DATED: March 24, 1999
 
                                       56
<PAGE>
                          CORNERSTONE PROPERTIES INC.
                                AND SUBSIDIARIES
 
                       CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 1998 AND 1997
                            AND FOR THE YEARS ENDED
                        DECEMBER 31, 1998, 1997 AND 1996
 
                                      F-1
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors and Stockholders of
Cornerstone Properties Inc.
 
    In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(i) of this Form 10-K present fairly, in all material
respects, the financial position of Cornerstone Properties Inc. and Subsidiaries
at December 31, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
 
/s/ PRICEWATERHOUSECOOPERS LLP
 
PricewaterhouseCoopers LLP
 
New York, New York
February 24, 1999, except for Notes 8 and 20 for which the
  date is February 26, 1999
 
                                      F-2
<PAGE>
                  CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
                           DECEMBER 31, 1998 AND 1997
 
                         (DOLLAR AMOUNTS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                              1998       1997
                                                                                            ---------  ---------
<S>                                                                                         <C>        <C>
ASSETS
Investments, at cost:
  Land....................................................................................  $ 729,323  $ 260,542
  Buildings, leasehold interests and improvements.........................................  3,466,288  1,559,085
  Investment in real estate joint ventures................................................     31,500    240,253
  Deferred lease costs....................................................................    144,838    127,645
                                                                                            ---------  ---------
                                                                                            4,371,949  2,187,525
  Less: Accumulated depreciation and amortization.........................................    288,448    229,652
                                                                                            ---------  ---------
    Total investments.....................................................................  4,083,501  1,957,873
 
Cash and cash equivalents.................................................................     61,869     24,730
Restricted cash...........................................................................      9,114      1,903
Other deferred costs, net of accumulated amortization of $762 and $1,998..................      6,153      5,728
Deferred tenant receivables...............................................................     53,802     38,531
Tenant and other receivables, net.........................................................     10,557      7,584
Note receivable...........................................................................        134      1,652
Other assets, net.........................................................................     56,854     13,480
                                                                                            ---------  ---------
TOTAL ASSETS..............................................................................  $4,281,984 $2,051,481
                                                                                            ---------  ---------
                                                                                            ---------  ---------
 
LIABILITIES
Long-term debt, inclusive of $25,031 and $11,209 of unamortized premium...................  $1,532,474 $ 706,178
Credit facility...........................................................................    465,000    187,000
Accrued interest..........................................................................     10,933      4,134
Accrued real estate taxes.................................................................     16,395     13,401
Accounts payable and accrued expenses.....................................................     51,454     18,363
Common stockholders' distributions payable................................................     38,163         --
Unearned revenue and other liabilities....................................................     23,890     10,986
                                                                                            ---------  ---------
TOTAL LIABILITIES.........................................................................  2,138,309    940,062
                                                                                            ---------  ---------
 
MINORITY INTEREST
Minority interest in operating partnership................................................    283,388         --
Minority interest in real estate joint ventures...........................................     23,420     15,420
                                                                                            ---------  ---------
TOTAL MINORITY INTEREST...................................................................    306,808     15,420
                                                                                            ---------  ---------
 
Commitments and contingencies
 
Redeemable preferred stock; 344,828 shares authorized;
  0 shares issued and outstanding.........................................................         --         --
 
STOCKHOLDERS' EQUITY
7% Cumulative convertible preferred stock, $16.50 stated value; 65,000,000 shares
  authorized; 3,030,303 shares issued and outstanding.....................................     50,000     50,000
Common stock, no par value; 250,000,000 shares authorized; (1998-128,210,784;
  1997-83,191,819) shares issued and outstanding
Paid-in capital...........................................................................  1,788,567  1,048,187
Retained earnings (deficit)...............................................................         --         --
Deferred compensation.....................................................................     (1,700)    (2,188)
                                                                                            ---------  ---------
TOTAL STOCKHOLDERS' EQUITY................................................................  1,836,867  1,095,999
                                                                                            ---------  ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................................  $4,281,984 $2,051,481
                                                                                            ---------  ---------
                                                                                            ---------  ---------
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-3
<PAGE>
                  CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
 
                       CONSOLIDATED STATEMENTS OF INCOME
 
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                                  1998        1997        1996
                                                                               ----------  ----------  ----------
<S>                                                                            <C>         <C>         <C>
REVENUES
  Office and parking rentals.................................................  $  338,515  $  159,828  $  111,494
  Earnings in real estate joint ventures.....................................      11,420          --          --
  Interest and other income..................................................       9,551      14,083       5,414
                                                                               ----------  ----------  ----------
    TOTAL REVENUES...........................................................     359,486     173,911     116,908
                                                                               ----------  ----------  ----------
EXPENSES
  Building operating expenses................................................      75,663      35,962      24,578
  Real estate taxes..........................................................      46,760      25,560      19,610
  Interest expense...........................................................      67,533      33,977      31,734
  Depreciation and amortization..............................................      59,278      30,978      24,317
  General and administrative.................................................      12,939       7,564       6,407
                                                                               ----------  ----------  ----------
    TOTAL EXPENSES...........................................................     262,173     134,041     106,646
                                                                               ----------  ----------  ----------
                                                                                   97,313      39,870      10,262
                                                                               ----------  ----------  ----------
OTHER INCOME (EXPENSES)
  Loss on sale of real estate assets.........................................      (2,076)         --          --
  Minority interest..........................................................      (7,469)     (2,368)     (1,519)
  Net gain on interest rate swaps............................................          --          99       4,278
                                                                               ----------  ----------  ----------
Income before extraordinary item.............................................      87,768      37,601      13,021
Extraordinary loss...........................................................      (4,303)        (54)     (3,925)
                                                                               ----------  ----------  ----------
NET INCOME...................................................................  $   83,465  $   37,547  $    9,096
                                                                               ----------  ----------  ----------
                                                                               ----------  ----------  ----------
INCOME APPLICABLE TO PREFERRED STOCK.........................................  $   (3,500) $  (10,160) $   (5,153)
                                                                               ----------  ----------  ----------
INCOME APPLICABLE TO COMMON STOCK............................................  $   79,965  $   27,387  $    3,943
                                                                               ----------  ----------  ----------
                                                                               ----------  ----------  ----------
INCOME BEFORE EXTRAORDINARY ITEM PER COMMON SHARE............................  $     0.84  $     0.63  $     0.39
                                                                               ----------  ----------  ----------
                                                                               ----------  ----------  ----------
EXTRAORDINARY LOSS PER COMMON SHARE..........................................  $    (0.04) $       --  $    (0.20)
                                                                               ----------  ----------  ----------
                                                                               ----------  ----------  ----------
BASIC NET INCOME PER COMMON SHARE............................................  $     0.80  $     0.63  $     0.19
                                                                               ----------  ----------  ----------
                                                                               ----------  ----------  ----------
DILUTED NET INCOME PER COMMON SHARE..........................................  $     0.80  $     0.63  $     0.19
                                                                               ----------  ----------  ----------
                                                                               ----------  ----------  ----------
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-4
<PAGE>
                  CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                COMMON STOCK          PREFERRED STOCK
                                           ----------------------  ----------------------   RETAINED
                                           OUTSTANDING   PAID-IN   OUTSTANDING   PAID-IN    EARNINGS       DEFERRED
                                             SHARES      CAPITAL     SHARES      CAPITAL    (DEFICIT)    COMPENSATION      TOTAL
                                           -----------  ---------  -----------  ---------  -----------  ---------------  ---------
<S>                                        <C>          <C>        <C>          <C>        <C>          <C>              <C>
BALANCE, JANUARY 1, 1996.................  19,959,515   $ 181,477   3,030,303   $  50,000   $ (39,885)     $  (2,236)    $ 189,356
Common stock issued for 10% partnership
  purchase...............................     349,650       5,000          --          --          --             --         5,000
Restricted stock grant vesting...........          --          --          --          --          --            988           988
Net income...............................          --          --          --          --       9,096             --         9,096
Dividend reinvestment, net of $212 in
  stock issuance costs...................     300,589       3,804          --          --          --             --         3,804
Preferred stock distributions............          --      (5,153)         --          --          --             --        (5,153)
Common stock distributions ($1.20/shr)...          --     (24,551)         --          --          --             --       (24,551)
                                           -----------  ---------  -----------  ---------  -----------       -------     ---------
BALANCE, DECEMBER 31, 1996...............  20,609,754   $ 160,577   3,030,303   $  50,000   $ (30,789)     $  (1,248)    $ 178,540
Common stock proceeds, net of $17,204 in
  stock issuance costs...................  16,100,000     208,196          --          --          --             --       208,196
Preferred stock conversion...............  11,482,760     162,515          --          --          --             --       162,515
Dividend reinvestment, net of $296 in
  stock issuance costs...................     696,013      10,808          --          --          --             --        10,808
PGGM stock...............................  34,185,500     547,000          --          --          --             --       547,000
Restricted stock grants..................     107,292       1,761          --          --          --         (1,868)         (107)
Restricted stock grant vesting...........          --          --          --          --          --            928           928
Net income...............................          --          --          --          --      37,547             --        37,547
Option exercise..........................      10,500         150          --          --          --             --           150
Preferred stock distributions............          --      (3,402)         --          --      (6,758)            --       (10,160)
Common stock distributions ($1.04/shr)...          --     (39,418)         --          --          --             --       (39,418)
                                           -----------  ---------  -----------  ---------  -----------       -------     ---------
BALANCE, DECEMBER 31, 1997...............  83,191,819   $1,048,187  3,030,303   $  50,000   $      --      $  (2,188)    $1,095,999
Common stock proceeds, net of $14,463 in
  stock issuance costs...................  25,969,203     447,881          --          --          --             --       447,881
Dividend reinvestment, net of $410 in
  stock issuance costs...................     397,404       6,294          --          --          --             --         6,294
Tower 56 residual purchase...............     307,692       5,500          --          --          --             --         5,500
Restricted stock grants..................      31,678         577          --          --          --           (577)           --
Restricted stock grant vesting...........          --          --          --          --          --          1,065         1,065
Net income...............................          --          --          --          --      83,465             --        83,465
Minority adjustment......................          --      49,219          --          --          --             --        49,219
Preferred stock distributions............          --          --          --                  (3,500)            --        (3,500)
Common stock distributions ($1.50/shr)...          --     (70,963)         --          --     (79,965)            --      (150,928)
One Memorial acquisition.................   3,428,571      60,000          --          --          --             --        60,000
Wilson Acquisition.......................  14,884,417     241,872          --          --          --             --       241,872
                                           -----------  ---------  -----------  ---------  -----------       -------     ---------
BALANCE, DECEMBER 31, 1998...............  128,210,784  $1,788,567  3,030,303   $  50,000   $      --      $  (1,700)    $1,836,867
                                           -----------  ---------  -----------  ---------  -----------       -------     ---------
                                           -----------  ---------  -----------  ---------  -----------       -------     ---------
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-5
<PAGE>
                  CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
                         (DOLLAR AMOUNTS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                1998         1997         1996
                                                                             -----------  -----------  ----------
<S>                                                                          <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income...............................................................  $    83,465  $    37,547  $    9,096
  Adjustments to reconcile net income to net cash provided by operating
    activities:
    Depreciation and amortization..........................................       58,980       31,826      24,801
    Deferred compensation amortization.....................................        1,065          928         988
    Share of net loss in real estate joint ventures........................        5,670           --          --
    Net gain on interest rate swap.........................................           --          (99)     (4,278)
    Extraordinary loss.....................................................        4,303           54       3,925
    Unbilled rental revenue................................................      (13,712)      (3,015)     (1,408)
    Increase (decrease) in accrued interest................................        6,799        3,052      (3,245)
    Minority interest share of income......................................        7,469        2,368       1,519
    Loss on sale of real estate assets.....................................        2,076           --          --
    Increase in tenant and other receivables and other assets..............       (6,833)     (16,920)     (2,461)
    Increase in accounts payable, accrued expenses and other liabilities...       33,515       10,181       5,585
                                                                             -----------  -----------  ----------
    Total adjustments......................................................       99,332       28,375      25,426
                                                                             -----------  -----------  ----------
    Net cash provided by operating activities..............................      182,797       65,922      34,522
                                                                             -----------  -----------  ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to investment property.........................................     (797,181)    (464,096)    (58,501)
  Other investments........................................................      (41,893)          --          --
  Repayment of note receivable.............................................        1,518        1,259       1,242
  Investments in real estate joint ventures................................      (31,391)          --          --
  Proceeds from sale of real estate assets.................................       45,865           --          --
                                                                             -----------  -----------  ----------
    Net cash used in investing activities..................................     (823,082)    (462,837)    (57,259)
                                                                             -----------  -----------  ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from common stock offering......................................      462,344      225,400          --
  Proceeds from preferred stock offering...................................           --           --     140,000
  Borrowings under mortgage loans..........................................       92,377           --     116,000
  Borrowings under credit facility.........................................      567,500      187,000          --
  Repayments under credit facility.........................................     (289,500)          --          --
  Repayment of term loan...................................................           --      (32,500)         --
  Repayments under mortgage loans..........................................       (3,426)      (1,094)    (98,384)
  Proceeds from dividend reinvestment plan.................................        6,704       11,104       4,016
  Net payments for swap terminations and debt prepayment costs.............       (1,762)        (216)     (6,804)
  (Increase) decrease in restricted cash...................................       (7,211)       2,524         (33)
  Stock and debt issuance costs............................................      (20,813)     (20,715)     (5,154)
  Distributions to minority partners.......................................      (12,524)      (2,717)     (2,503)
  Distributions to preferred stockholders..................................       (3,500)     (10,160)     (5,153)
  Distributions to common stockholders.....................................     (112,765)     (51,784)    (12,185)
                                                                             -----------  -----------  ----------
    Net cash provided by financing activities..............................      677,424      306,842     129,800
                                                                             -----------  -----------  ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...........................       37,139      (90,073)    107,063
CASH AND CASH EQUIVALENTS, beginning of period.............................       24,730      114,803       7,740
                                                                             -----------  -----------  ----------
CASH AND CASH EQUIVALENTS, end of period...................................  $    61,869  $    24,730  $  114,803
                                                                             -----------  -----------  ----------
                                                                             -----------  -----------  ----------
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-6
<PAGE>
                  CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
 
1. NATURE OF COMPANY'S BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
 
NATURE OF THE COMPANY'S BUSINESS
 
    Cornerstone Properties Inc. (together with its subsidiaries, "Cornerstone"
or the "Company") is a self-administered equity real estate investment trust
("REIT") which owns, through subsidiaries, interests in 96 Class A office
buildings comprising nearly 21 million rentable square feet, a shopping center,
a hotel and developable land (collectively, the "Properties," and each interest,
a "Property"). The Properties are primarily located in twelve major metropolitan
areas throughout the United States: Atlanta, Boston, Charlotte, suburban
Chicago, Denver, Minneapolis, New York City, Phoenix, San Francisco Bay Area,
Seattle, Southern California and Washington, D.C. and surrounding suburbs. The
Company's strategy is to own Class A office properties in prime Central Business
District locations and major suburban office markets in U.S. metropolitan areas.
Class A office properties are generally considered to be those that have the
most favorable locations and physical attributes, command premium rents and
experience the highest tenant retention rates within their markets. In January
1998, Cornerstone converted its corporate structure into an umbrella limited
partnership REIT ("UPREIT"). Under the UPREIT structure, Cornerstone owns all of
its properties and conducts all of its business through Cornerstone Properties
Limited Partnership, a Delaware limited partnership (the "Operating
Partnership"), of which the Company is the sole general partner. As of December
31, 1998, Cornerstone owned, directly or indirectly, approximately 86.3% of the
common units of partnership interest ("UPREIT Units") in the Operating
Partnership.
 
PRINCIPLES OF CONSOLIDATION
 
    The accompanying financial statements include the accounts of Cornerstone,
its wholly-owned qualified REIT subsidiary, the Operating Partnership and
controlled partnerships. The Company has consolidated the following partnerships
because it has a majority interest in the economic benefits and is or has the
right to become the managing general partner at its sole discretion: the
Operating Partnership; NWC Limited Partnership ("NWC"); Third and University
Limited Partnership ("Third Partnership"); Two Twenty Two Berkeley Venture ("222
Berkeley"); Five Hundred Boylston West Venture ("500 Boylston"); One Ninety One
Peachtree Associates ("191 Peachtree"); Avenue Associates Limited Partnership
("Market Square"); and 120 Montgomery Associates, LLC ("120 Montgomery"). The
Company's investments in the One Post Property and WCP Services, Inc. are
accounted for as equity investments (see Note 4). All significant intercompany
balances and transactions have been eliminated in consolidation.
 
INVESTMENT PROPERTY
 
    The costs of the buildings, garages, leasehold interests and improvements
are being depreciated using the straight-line method over their estimated useful
lives, ranging from 20 years for electrical and mechanical installations to 40
years for structural components. Tenant improvements are being amortized over
the terms of the related leases.
 
    Cornerstone and the controlled partnerships hold the Properties for
long-term investment and such investments are carried at cost less accumulated
depreciation. Whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable (such as a significant adverse
action by a regulator or a significant physical change in the property), the
Company's policy is to assess any impairment in value by making a comparison of
the current and projected cash flows of each property over its remaining useful
life (undiscounted and without interest charges) to the carrying amount of each
property. Such carrying amount would be adjusted, if necessary, to estimated
fair value to reflect the
 
                                      F-7
<PAGE>
impairment in value of the property. No significant adjustments have been made
in the accompanying financial statements.
 
    Costs directly related to the acquisition and development of rental
properties are capitalized. Capitalized development costs include interest,
property taxes, insurance and other project costs incurred during the period of
construction. Ordinary repairs and maintenance are expensed as incurred; major
replacements and betterments, which improve or extend the life of the asset, are
capitalized and depreciated over their estimated useful lives.
 
REAL ESTATE HELD FOR SALE
 
    Included in Investments is Charlotte Plaza, which was held for sale by the
Company as of November 1, 1998. The Property is valued at approximately $77.6
million, the lower of the carrying amount or the fair value less estimated cost
to sell. Beginning on November 1, 1998, the Company discontinued the recognition
of depreciation on Charlotte Plaza.
 
CASH AND CASH EQUIVALENTS
 
    For purposes of reporting cash flows, cash and cash equivalents include
investments with original maturities of three months or less from the date of
purchase. At December 31, 1998 and 1997, Cornerstone had on deposit with major
financial institutions substantially all of its cash and cash equivalents which
balances at times exceed federally insurable limits. Cornerstone believes it
mitigates its risk by investing in or through major financial institutions.
Recoverability of investments is dependent upon the performance of the issuer.
 
DEFERRED LEASE COSTS
 
    As an inducement to execute a lease, incentives are sometimes offered which
may include cash and/or other allowances. These incentives and other lease
costs, such as commissions, which are directly related to specific leases, are
deferred and amortized over the terms of the related leases.
 
OTHER DEFERRED COSTS
 
    Costs incurred in the underwriting and issuance of long-term debt, revolving
lines of credit and investigating investments in real estate partnerships have
been deferred. The costs incurred in connection with the long-term debt are
being amortized over the term of the debt. As part of the acquisition of the
PGGM Portfolio (see Note 2), the Company purchased several management contracts
to which Stichting Pensioenfonds Voor de Gezondheid Geestelijke en
Maatschappelijke Belangen ("PGGM") was a party. The price paid for these
contracts is being amortized over four years.
 
OTHER ASSETS
 
    Included in Other Assets is the purchase price for the intangible management
and development company assets that were acquired as part of the Wilson
Acquisition (see Note 2). These assets are being amortized over 10 years.
Accumulated amortization was $170,000 and $0 as of December 31, 1998 and 1997,
respectively.
 
    The Company records costs incurred for potential investments as Other
Assets. Upon consummation of an investment, the Company capitalizes all such
costs as an adjustment to the purchase price and depreciates these costs over
the useful life of the asset. All such costs are expensed at the time it is
determined that a potential investment will not be consummated. In addition,
during the first quarter of 1998, the Company adopted EITF 97-11 and in
accordance therewith, the Company expenses all internal acquisition costs.
 
                                      F-8
<PAGE>
MINORITY INTEREST
 
    Minority interest in the Operating Partnership relates to the interest in
the Operating Partnership that the Company does not own, which as of December
31, 1998 amounted to 13.7%. The Company allocates income to the minority
interest in the Operating Partnership based on the weighted-average percentage
ownership in the Operating Partnership through the year. Persons who contributed
assets to the Operating Partnership received UPREIT Units, shares of
Cornerstone's common stock (the "Common Stock"), cash or a combination thereof.
At the request of a unitholder, the Company will be obligated to redeem each
UPREIT Unit held by such unitholder for one share of Common Stock or, at the
option of the Company, cash equal to the fair market value of one share of
Common Stock at the time of redemption. Such redemptions will cause the
Company's percentage ownership in the Operating Partnership to increase. As of
December 31, 1998, the number of issued and outstanding UPREIT Units held by
unitholders other than the Company was 20,333,607 and as of such date, no UPREIT
Units have been exchanged for shares of Common Stock.
 
    Minority interest in real estate joint ventures represents the minority
partner's or venturer's capital account balances in NWC, Third Partnership, 222
Berkeley, 500 Boylston, 191 Peachtree, Market Square and 120 Montgomery. Debit
balances in certain of these capital accounts originated through special cash
distributions in excess of the partner's share of income in accordance with
certain provisions of the respective partnership and joint venture agreements.
Realizability of the debit balances is continually monitored by calculating pro
forma sales proceeds under the respective agreements.
 
REVENUE RECOGNITION
 
    Rental revenue is recognized ratably as earned over the terms of the leases.
Deferred tenant receivables result from rental revenues which have been earned
but will be received in future periods as a result of rent concessions provided
to tenants and scheduled future rent increases. Deferred tenant receivables were
approximately $53,802,000 and $38,531,000 at December 31, 1998 and 1997,
respectively. Expense reimbursement and escalation income for the years ended
December 31, 1998, 1997 and 1996 was approximately $77,821,000, $36,990,000 and
$28,230,000, respectively.
 
    An allowance for doubtful accounts of approximately $253,000 and $268,000
has been recorded at December 31, 1998 and 1997, respectively, relating to
tenant and other receivables. Bad debt expense totaled approximately $232,000
and $221,000 during 1998 and 1997, respectively.
 
INTEREST RATE SWAP AGREEMENTS
 
    The Company accounts for its interest rate swap agreements as hedges if the
swap is designated as a hedge and effectively reduces the Company's exposure to
market interest rate changes. Changes in the market value of these interest rate
swap agreements are deferred and recognized in income at the expiration or
termination of the underlying debt. Forward interest rate swap agreements that
do not meet hedge criteria are accounted for using mark-to-market accounting,
recognizing any unrealized gain or loss on the instrument in the period in which
it is outstanding. When swaps are extinguished at the same time as the
underlying debt instrument, the cost to extinguish the swap is treated as
extraordinary gain or loss. When a swap remains in place after the underlying
instrument matures, it is accounted for on a mark-to-market basis. The swap
termination is accounted for as ordinary gain or loss when it is extinguished
with no underlying debt instrument in place.
 
                                      F-9
<PAGE>
FEDERAL INCOME TAXES
 
    No provision for United States Federal income taxes has been made in the
accompanying financial statements. Cornerstone has elected to be taxed as a REIT
under Sections 856-859 of the United States Internal Revenue Code (the "Code").
Under these sections of the Code, Cornerstone is permitted to deduct dividends
paid to stockholders in computing its taxable income. All taxable earnings and
profits of Cornerstone since inception have been distributed to the
stockholders.
 
RECLASSIFICATIONS
 
    Certain prior year amounts have been reclassified to conform to the 1998
financial statement presentation.
 
RECENTLY ISSUED ACCOUNTING STANDARDS
 
    During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. SFAS 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. In addition, the Accounting Standards Executive Committee
of the American Institute of Certified Public Accountants issued Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5") and
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"), which are effective for
fiscal years beginning after December 15, 1998. SOP 98-5 requires that certain
costs incurred in conjunction with start-up and organizational activities be
expensed. SOP 98-1 provides guidance on whether the costs of computer software
developed or obtained for internal use should be capitalized or expensed.
Management believes that when adopted, SFAS 133, SOP 98-5 and SOP 98-1 will not
have a significant effect on the Company's financial statements.
 
    During the first quarter of 1998, the Company adopted the FASB's Emerging
Issues Task Force's release Issue No. 97-11, "Accounting for Internal Costs
Relating to Real Estate Property Acquisitions" ("EITF 97-11"). EITF 97-11
requires that the internal pre-acquisition costs of identifying and acquiring
operating property be expensed as incurred. The adoption of EITF 97-11 did not
have a material effect on the Company's financial statements.
 
    During the first quarter of 1998, the Company also adopted the FASB's
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 specifies the presentation and disclosure
requirements for comprehensive income which includes those items which have been
formerly reported as a component of stockholders' equity. The adoption of SFAS
130 did not have a significant effect on the Company's financial statements.
 
ESTIMATES AND RISKS
 
    The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The most significant risks, estimates and assumptions are
related to the recoverability and depreciable lives of investment property, the
recoverability of deferred tenant receivables, unforeseen Year 2000 risks and
the qualification of the Company as a REIT. Actual results could differ from
those estimates.
 
                                      F-10
<PAGE>
2. PROPERTIES
 
    The following table summarizes Cornerstone's interest in real estate
investments at December 31, 1998:
 
<TABLE>
<CAPTION>
                                                           TOTAL      CORNERSTONE
MARKET NAME                                              RENTABLE      INTEREST
  PROPERTY                                              SQUARE FEET       (A)      YEAR CONSTRUCTED   OCCUPANCY     NOTES
-----------------------------------------------------  -------------  -----------  ----------------  -----------  ---------
<S>                                                    <C>            <C>          <C>               <C>          <C>
                                                        (UNAUDITED)                  (UNAUDITED)     (UNAUDITED)
BOSTON, MASSACHUSETTS
  Sixty State Street.................................       823,014        100.0%        1978                99%          B
  500 Boylston Street................................       714,636         91.5%        1988               100%          D
  222 Berkeley Street................................       531,184         91.5%        1991               100%          D
  125 Summer Street..................................       463,691        100.0%        1989                97%
  One Memorial Drive.................................       352,764        100.0%        1985               100%          C
                                                       -------------                                 -----------
  MARKET TOTAL.......................................     2,885,289                                          99%
 
SAN MATEO COUNTY, CALIFORNIA
  Bayhill (4 buildings)..............................       513,910        100.0%     1982-1987              88%          E
  Peninsula Office Park (7 buildings)................       493,214        100.0%     1971-1998              98%          E
  Seaport Centre.....................................       463,142        100.0%        1988                65%          E
  Bay Park Plaza (2 buildings).......................       257,058        100.0%     1985-1998              97%          E
  One Bay Plaza......................................       176,533        100.0%        1979                93%          E
  Belmont Shores.....................................       141,643        100.0%        1983                97%          E
  1300 South El Camino...............................        84,441        100.0%        1986               100%          E
  66 Bovet...........................................        43,968        100.0%        1968                87%          E
                                                       -------------                                 -----------
  MARKET TOTAL.......................................     2,173,909                                          88%
 
EAST BAY, CALIFORNIA
  Corporate Centre (2 buildings).....................       329,604        100.0%     1985-1987              97%          E
  ADP Plaza (2 buildings)............................       299,591        100.0%     1987-1989              93%          E
  PeopleSoft Plaza...................................       279,931        100.0%        1984                99%          E
  Norris Tech Center (3 buildings)...................       260,513        100.0%     1984-1998              96%          E
  Golden Bear Center.................................       160,587        100.0%        1986                96%          E
  2700 Ygnacio Valley Road...........................       103,214        100.0%        1984                96%          E
  Park Plaza.........................................        87,040        100.0%        1986                86%          E
  1600 South Main....................................        83,277        100.0%        1983                95%          E
  Foothill Corporate Center..........................        70,355        100.0%        1982                98%          E
                                                       -------------                                 -----------
  MARKET TOTAL.......................................     1,674,112                                          96%
 
ATLANTA, GEORGIA
  191 Peachtree Street...............................     1,215,288         80.0%        1991                98%        D,F
  200 Galleria.......................................       432,698        100.0%        1985                95%          D
                                                       -------------                                 -----------
  MARKET TOTAL.......................................     1,647,986                                          97%
 
SEATTLE, WASHINGTON
  Washington Mutual Tower (3 buildings)..............     1,154,560         50.0%        1988                99%          G
  110 Atrium Place...................................       213,854        100.0%        1981                97%          E
  Island Corporate Center............................       100,075        100.0%        1987                96%          E
                                                       -------------                                 -----------
  MARKET TOTAL.......................................     1,468,489                                          99%
</TABLE>
 
                                      F-11
<PAGE>
<TABLE>
<CAPTION>
                                                           TOTAL      CORNERSTONE
MARKET NAME                                              RENTABLE      INTEREST
  PROPERTY                                              SQUARE FEET       (A)      YEAR CONSTRUCTED   OCCUPANCY     NOTES
-----------------------------------------------------  -------------  -----------  ----------------  -----------  ---------
                                                        (UNAUDITED)                  (UNAUDITED)     (UNAUDITED)
<S>                                                    <C>            <C>          <C>               <C>          <C>
SANTA CLARA COUNTY, CALIFORNIA
  Pruneyard Office (3 buildings).....................       354,005        100.0%     1971-1999              99%        E,H
  10 Almaden.........................................       293,685        100.0%        1989               100%          E
  Pruneyard Shopping Center..........................       252,210        100.0%       1970s                95%          E
  Embarcadero Place (4 buildings)....................       192,108        100.0%        1984               100%          E
  Pruneyard Inn......................................        90,000        100.0%        1989                           E,I
  First American Plaza...............................        82,596        100.0%        1971                98%          E
  490 California.....................................        24,539        100.0%        1985               100%          E
                                                       -------------                                 -----------
  MARKET TOTAL.......................................     1,289,143                                          99%
 
DENVER, COLORADO
  One Norwest Center.................................     1,187,752        100.0%        1983                97%
                                                       -------------                                 -----------
MARKET TOTAL.........................................     1,187,752                                          97%
 
SAN FRANCISCO, CALIFORNIA
  120 Montgomery Street..............................       410,902         66.7%        1955                95%          E
  One Post...........................................       389,660         50.0%        1969                99%          E
  201 California Street..............................       240,230        100.0%        1980               100%          J
  188 Embarcadero....................................        85,209        100.0%        1985                99%          E
                                                       -------------                                 -----------
  MARKET TOTAL.......................................     1,126,001                                          98%
 
MINNEAPOLIS, MINNESOTA
  Norwest Center.....................................     1,118,062         50.0%        1988               100%          K
                                                       -------------                                 -----------
  MARKET TOTAL.......................................     1,118,062                                         100%
 
WASHINGTON, D.C./ALEXANDRIA, VIRGINIA
  Market Square (2 buildings)........................       688,709         70.0%        1990                96%        D,L
  99 Canal Center....................................       137,945        100.0%        1986                98%          D
  TransPotomac Plaza 5...............................        92,980        100.0%        1983                96%          D
  11 Canal Center....................................        70,365        100.0%        1986                95%          D
                                                       -------------                                 -----------
  MARKET TOTAL.......................................       989,999                                          96%
 
SUBURBAN CHICAGO, ILLINOIS
  Corporate 500 Centre (4 buildings).................       678,885        100.0%     1986/1990              97%          M
  One Lincoln Centre.................................       297,067        100.0%        1986                90%
                                                       -------------                                 -----------
  MARKET TOTAL.......................................       975,952                                          95%
 
SANTA MONICA/WEST LOS ANGELES, CALIFORNIA
  West Wilshire (2 buildings)........................       235,781        100.0%     1960-1976              90%          E
  Wilshire Palisades.................................       186,714        100.0%        1981                99%          J
  Janss Court........................................       125,556        100.0%        1989                97%        E,N
  Searise Office Tower...............................       122,292        100.0%        1975                94%          E
  Commerce Park......................................        94,252        100.0%        1977                79%        E,O
  429 Santa Monica...................................        81,414        100.0%        1982                81%          E
                                                       -------------                                 -----------
  MARKET TOTAL.......................................       846,009                                          92%
</TABLE>
 
                                      F-12
<PAGE>
<TABLE>
<CAPTION>
                                                           TOTAL      CORNERSTONE
MARKET NAME                                              RENTABLE      INTEREST
  PROPERTY                                              SQUARE FEET       (A)      YEAR CONSTRUCTED   OCCUPANCY     NOTES
-----------------------------------------------------  -------------  -----------  ----------------  -----------  ---------
                                                        (UNAUDITED)                  (UNAUDITED)     (UNAUDITED)
<S>                                                    <C>            <C>          <C>               <C>          <C>
ORANGE COUNTY, CALIFORNIA
  Bixby Ranch........................................       277,289        100.0%        1987                98%          E
  18301 Von Karman...................................       219,537        100.0%        1991                64%          E
  2677 North Main....................................       212,542        100.0%        1987                81%          E
                                                       -------------                                 -----------
  MARKET TOTAL.......................................       709.368                                          82%
 
CHARLOTTE, NORTH CAROLINA
  Charlotte Plaza....................................       612,728        100.0%        1982                99%          D
                                                       -------------                                 -----------
  MARKET TOTAL.......................................       612,728                                          99%
 
ARIZONA
  Gateway (2 buildings)..............................       212,222        100.0%     1984-1985              92%          E
  Scottsdale Centre..................................       164,469        100.0%        1985                94%          E
  Biltmore Lakes.....................................       207,489        100.0%        1982                96%          E
                                                       -------------                                 -----------
  MARKET TOTAL.......................................       584,180                                          94%
 
SAN DIEGO, CALIFORNIA
  Centerside II......................................       286,941        100.0%        1987                94%          E
  Crossroads.........................................       133,950        100.0%        1983                99%          E
                                                       -------------                                 -----------
  MARKET TOTAL.......................................       420,891                                          95%
 
LOS ANGELES, CALIFORNIA
  700 North Brand....................................       202,785        100.0%        1981                94%          E
  Tri-Center Plaza...................................       141,946        100.0%        1990                96%          E
  Warner Park Center.................................        58,798        100.0%        1986                98%          E
                                                       -------------                                 -----------
  MARKET TOTAL.......................................       403,529                                          95%
 
NEW YORK CITY, NEW YORK
  527 Madison Avenue.................................       215,332        100.0%        1986                94%
  Tower 56...........................................       163,633        100.0%        1983                99%          P
                                                       -------------                                 -----------
  MARKET TOTAL.......................................       378,965                                          96%
 
CONEJO VALLEY (VENTURA), CALIFORNIA
  Westlake Spectrum (2 buildings)....................       118,990        100.0%        1990               100%          E
  Agoura Hills.......................................       115,265        100.0%        1987                88%          E
                                                       -------------                                 -----------
  MARKET TOTAL.......................................       234,255                                          94%
 
OTHER REGIONS
  U.S. West (Murray, Utah)...........................       136,608        100.0%        1985                86%          E
  Exposition Centre (Sacramento, California).........        72,547        100.0%        1984                65%          E
                                                       -------------                                 -----------
  MARKET TOTAL.......................................       209,155                                          79%
                                                       -------------                                 -----------
  TOTAL PORTFOLIO....................................    20,935,774                                          96%
  Minority Interest Adjustment (Q)...................      (684,784)
                                                       -------------                                 -----------
  CORNERSTONE PORTFOLIO..............................    20,250,990                                          95%
                                                       -------------                                 -----------
                                                       -------------                                 -----------
</TABLE>
 
------------------------
 
(A) Unless noted below, cash flow and residual proceeds will be distributed to
    Cornerstone according to its percentage interest.
 
                                      F-13
<PAGE>
(B) On December 31, 1997, the Company purchased the second mortgage on Sixty
    State Street. The mortgage is a cash flow mortgage through which all the
    economic benefits/risks (subject to the first mortgage) inure to the
    Company. The Company controls all major decisions regarding management and
    leasing. The total purchase price for the second mortgage was $131.5 million
    and is consolidated in buildings due to the above factors. The $78.4 million
    first mortgage on the Property was originally recorded by the Company as an
    $89.6 million liability due to its above-market interest rate.
 
    The second mortgage, which the Company holds, is collateralized only by the
    improvements on Sixty State Street. Title to the improvements is owned by
    Sixty State Street Trust, the ground lessee under a ground lease that
    expires on December 28, 2067. The lease payments on the ground lease are
    $398,896 per annum throughout the term.
 
(C) On April 28, 1998, the Company purchased One Memorial Drive in Cambridge,
    Massachusetts. The total purchase price for the Property was approximately
    $112.5 million, approximately $23.5 million of which was paid in cash,
    approximately $29.0 million of which was paid in UPREIT Units valued at
    $17.50 per unit and approximately $60.0 million of which was paid in Common
    Stock valued at $17.50 per share.
 
(D) On October 27, 1997, the Company acquired interests in nine Class A office
    properties comprising approximately 4.5 million rentable square feet in
    Alexandria, Virginia (3 properties), Atlanta (2 properties), Boston (2
    properties), Charlotte and Washington, D.C., as well as an undeveloped
    parcel of land in Chicago (collectively, "the PGGM Portfolio"). The Company
    acquired the PGGM Portfolio for a purchase price of approximately $1.06
    billion, consisting of approximately 34.2 million shares of Common Stock
    valued and recorded at $16.00 per share, approximately $260.0 million in
    cash and $250.0 million in promissory notes. The cash portion of the
    acquisition was financed with proceeds from the Company's Initial Public
    Offering in April 1997 and $54.0 million from its Revolving Credit Facility.
 
(E) Property was acquired as a result of the Wilson Acquisition in December
    1998. After receiving stockholder approval on December 14, 1998, the Company
    acquired substantially all of the properties and real estate operations of
    William Wilson & Associates and related entities ("WW&A") (the "Wilson
    Acquisition"). As part of the Wilson Acquisition, the Company acquired
    interests in 69 Class A office Properties, comprising approximately 9.2
    million rentable square feet primarily in the San Francisco Bay Area and in
    Southern California, a shopping center consisting of approximately 252,000
    rentable square feet in Santa Clara, California, a hotel consisting of
    90,000 square feet in Santa Clara, California and 12.8 acres of developable
    land.
 
    The Company acquired WW&A for a purchase price of approximately $1.8
    billion, consisting of approximately 14.9 million shares of Common Stock
    valued at $17.25 per share (recorded at $16.25 per share for GAAP purposes),
    approximately 16.2 million UPREIT Units valued at $17.25 per unit (recorded
    at $16.25 per unit for GAAP purposes), approximately $465.0 million in cash
    and the assumption of approximately $760.0 million of property and
    construction related debt (recorded at $773.7 million for GAAP purposes).
    The price of $16.25 represents the fair value based upon the market price
    for a reasonable period before and after the date the terms of the
    acquisition were agreed to and announced. The cash portion of the
    transaction was financed primarily from the Company's Revolving Credit
    Facility and the sale of $200.0 million of Common Stock to PGGM, an
    approximate 33.6% stockholder prior to the Wilson Acquisition, priced at
    $17.25 per share.
 
(F) While the Company's stated interest in the partnership that owns 191
    Peachtree Street is 80.0%, its economic interest is significantly larger
    since it has acquired the first mortgage note on the Property in the amount
    of $145.0 million, which earns interest at 9.375% and will receive a
    priority distribution on its acquired capital base. In 1997 and 1998, the
    partner in the transaction, CH Associates, Ltd., received an annual
    Incentive Distribution (as defined) of $250,000, which the Company expects
    it will continue to receive under the partnership agreement through February
    28, 2000, with the Company receiving the remainder of the cash flow of the
    Property.
 
                                      F-14
<PAGE>
    The partnership that owns 191 Peachtree Street leases a portion of the land
    upon which the project is located pursuant to a ground lease agreement. The
    agreement requires annual payments of $5,000 through January 31, 1998,
    $45,000 through January 31, 2002 and $75,000 through January 31, 2008.
    Thereafter, the annual rent increases $2,500 per year until the expiration
    date of January 31, 2087. The partnership records ground rental expense
    relating to this agreement on a straight-line basis. The ground lease is
    renewable for an additional 99 years.
 
(G) While the Company's stated interest in the partnership that owns Washington
    Mutual Tower is 50.0%, its economic interest in the Property is
    significantly larger due to priority distributions it receives on its
    invested capital base. For the year ended December 31, 1998, the Company
    received 100% of the cash distributions from the partnership that owns
    Washington Mutual Tower.
 
(H) Pruneyard Place is under construction with an expected completion date of
    April 1999. The building is 100% pre-leased. The building will be six
    stories and contain approximately 120,000 square feet of net rentable area.
    The Company has commitments for approximately $8.2 million related to this
    construction.
 
(I) The Pruneyard Inn is a 118-room, three-story hotel. The Property is
    currently undergoing a 25,000-square foot expansion, which will add 54 new
    rooms. The Company has commitments for approximately $3.2 million related to
    this construction.
 
(J) On June 3, 1998, the Company purchased 201 California Street and Wilshire
    Palisades. The total purchase price for the Properties was approximately
    $121.5 million, approximately $29.5 million of which was paid in cash,
    approximately $29.1 million of which was paid in UPREIT Units valued at
    $17.50 per unit and approximately $62.9 million of assumed debt (recorded at
    $64.6 million for GAAP purposes).
 
(K) While the Company's stated interest in the partnership that owns Norwest
    Center is 50.0%, its economic interest in the Property is significantly
    larger due to priority distributions it receives on its invested capital
    base. For the year ended December 31, 1998, the Company's share of earnings
    and cash distributions from the partnership that owns Norwest Center was
    77.9%.
 
(L) During 1998, through a series of transactions, the Company acquired
    partnership interests with a stated interest of approximately 70.0% in the
    partnerships that own Market Square. The Company's economic interest is
    significantly larger since it has acquired the first mortgage note on the
    Property in the amount of $181.0 million which earns interest at 9.75% and
    will receive a priority distribution on its acquired capital base. In
    addition, the Company acquired a "buffer loan", with accrued principal and
    interest of $49.0 million at purchase, which accrues interest at a rate of
    Prime plus 1.25% and is payable from cash flow, refinancing or sales
    proceeds in excess of the first mortgage. During the year ended December 31,
    1998, the Company received 100% of the cash flow from the Property. On
    November 4, 1998, the Company purchased an additional interest in the
    partnerships that own Market Square which enabled it to gain sufficient
    control in order to consolidate the investment.
 
(M) On January 28, 1998, the Company purchased Corporate 500 Centre in
    Deerfield, Illinois. This Property consists of four Class A office buildings
    with approximately 679,000 rentable square feet. The consideration paid for
    this Property was approximately $135.0 million in cash and approximately
    $15.0 million in UPREIT Units valued at $18.50 per unit, for a total
    purchase price of approximately $150.0 million. The Company financed a
    portion of the purchase price with an $80.0 million mortgage loan from
    Bankers Trust Company; this mortgage was subsequently refinanced in October
    1998.
 
(N) Janss Court is a seven-story, 125,000-square foot Class A mixed-use
    building. In addition to 92,000 square feet of retail and office space,
    Janss Court offers 32 apartments for a total of 33,000 rentable square feet
    of residential space.
 
                                      F-15
<PAGE>
(O) The Property is subject to a ground lease agreement. The agreement requires
    annual payments of $115,000 through March 31, 2002 and $121,000 from April
    1, 2002 through March 31, 2007. The lease payment increases every ten years
    thereafter according to a formula based on the Consumer Price Index. The
    ground lease expires on March 31, 2041.
 
(P) On January 5, 1998, the Company purchased for approximately $5.5 million,
    the remaining participation rights in the cash flow and residual value of
    Tower 56 from the former participants for 307,692 shares of Common Stock. As
    a result, all of the cash flow and the residual value of Tower 56 inure to
    the Company.
 
(Q) Rentable square feet includes an adjustment for the interest of a joint
    venture or minority partner. Calculations are based on the partners'
    percentage interest in the cash flows of the property.
 
    On March 31, 1998, the Company sold the Dearborn Land (an undeveloped parcel
of land in Chicago that was acquired as part of the acquisition of the PGGM
Portfolio in October 1997) for gross proceeds of approximately $19,000,000,
resulting in a loss of $212,228.
 
    On April 29, 1998, the Company sold the Frick Building, located in
Pittsburgh, Pennsylvania, for gross proceeds of approximately $26,748,000,
resulting in a loss of $2,111,540.
 
    On December 29, 1998, Avenue Associates Limited Partnership sold a
condominium unit in Market Square, located in Washington D.C., for gross
proceeds of $326,154, resulting in a gain of $247,972.
 
    The future minimum lease payments to be received by the Company under
noncancellable operating leases as of December 31, 1998 are as follows (Dollar
amounts in thousands):
 
<TABLE>
<S>                                                               <C>
1999............................................................  $ 399,589
2000............................................................    376,413
2001............................................................    352,484
2002............................................................    302,511
2003............................................................    242,140
Thereafter......................................................    957,109
                                                                  ---------
Total...........................................................  $2,630,246
                                                                  ---------
                                                                  ---------
</TABLE>
 
3. RESTRICTED CASH
 
    Restricted cash includes security deposits for some of the Company's office
properties and escrow and reserve funds for real estate taxes, property
insurance, capital improvements, tenant improvements and leasing costs. These
funds were established pursuant to certain mortgage and construction financing
arrangements.
 
4. INVESTMENT IN REAL ESTATE JOINT VENTURES
 
    Investment in real estate joint ventures represents the Company's two
investments that are accounted for using the equity method of accounting. The
first investment is the Company's 50.0% interest in a co-tenancy agreement with
Crocker Plaza Company for One Post, a 38-story, Class A office tower in San
Francisco, California. The Company and Crocker co-manage and lease the Property.
The second equity investment is the Company's 5.0% interest in WCP Services,
Inc., which provides property management and tenant construction supervision
services to third parties. WCP Services, Inc. also provides tenant construction
supervision services to tenants in Properties owned by Cornerstone.
 
                                      F-16
<PAGE>
5. LONG-TERM DEBT
 
    The following table sets forth certain information regarding the
consolidated debt obligations of the Company as of December 31, 1998, including
mortgage obligations relating to the Company's Properties. All of this debt,
with the exception of the Convertible Promissory Note due 2001, is nonrecourse
to the Company. However, notwithstanding the nonrecourse indebtedness, the
lender may have the right to recover deficiencies from the Company in certain
circumstances, including fraud, misappropriation of funds and environmental
liabilities (Dollar amounts in thousands).
 
<TABLE>
<CAPTION>
                                                                                  MATURITY
PROPERTY                                AMORTIZATION        INTEREST RATE (A)       DATE     12/31/98   12/31/97
-----------------------------------  -------------------  ----------------------  ---------  ---------  ---------
<S>                                  <C>                  <C>                     <C>        <C>        <C>
188 Embarcadero....................  25 year                               6.90%   Jun-1999  $   9,135  $      --
One and Two Gateway................  25 year                               6.90%   Dec-1999      8,679         --
Seaport Centre.....................  Interest only              LIBOR plus 1.50%   Dec-1999     58,000         --
The Pruneyard......................  24 year                    LIBOR plus 2.00%   Mar-2000     49,384         --
18301 Von Karman...................  25 year                               6.90%   Apr-2000     10,647         --
Centerside II......................  25 year                               6.90%   Jun-2000     13,818         --
Scottsdale Centre..................  25 year                               6.90%   Jul-2000      7,745         --
TransPotomac Plaza 5 and Charlotte
  Plaza (B)........................  Interest only                         7.28%   Oct-2000     65,000     65,000
1600 South Main....................  25 year                               6.90%   Dec-2000      5,038         --
Convertible Promissory Note due
  2001 (C).........................  Interest only                  8.11%max (D)   Jan-2001     12,926     12,926
Biltmore Lakes.....................  25 year                               6.90%   Apr-2001     11,468         --
Belmont Shores.....................  25 year                               6.90%   Apr-2001      9,839         --
700 North Brand....................  25 year                               6.90%   May-2001     18,108         --
2677 North Main....................  25 year                               6.90%   May-2001     10,774         --
2700 Ygnacio Valley Road...........  25 year                               6.90%   Aug-2001      5,035         --
Westlake Spectrum..................  25 year                               6.90%   Aug-2001      3,993         --
Park Plaza.........................  25 year                               6.90%   Oct-2001      4,940         --
Warner Park Center.................  25 year                               6.90%   Dec-2001      5,213         --
West Wilshire Office and Medical...  25 year                               6.90%   Jan-2002     17,301         --
Searise Office Tower...............  25 year                               6.90%   Jan-2002     11,864         --
Golden Bear Center.................  25 year                               6.90%   Mar-2002     15,753         --
Exposition Centre..................  25 year                               6.90%   May-2002      5,200         --
Bixby Ranch........................  25 year                               6.90%   May-2002     20,243         --
Wilshire Palisades.................  22 year                               6.70%   Jul-2002     29,902         --
120 Montgomery Street..............  24 year                    LIBOR plus 1.40%   Nov-2002     46,930         --
1300 South El Camino...............  23 year                               6.90%   Dec-2002      4,007         --
125 Summer Street..................  Interest only (E)                     7.20%   Jan-2003     50,000     50,000
429 Santa Monica...................  25 year                               6.90%   Mar-2003     10,176         --
Crossroads.........................  25 year                               6.90%   Mar-2003      7,339         --
Westlake Spectrum II...............  25 year                               6.90%   Mar-2003      5,284         --
Tower 56...........................  30 year                               7.67%   May-2003     17,548     17,742
Two ADP Plaza......................  Interest only                         6.90%   Dec-2003     13,400         --
Two Corporate Centre...............  Interest only                         6.90%   Dec-2003     18,600         --
Norris Tech Center.................  25 year                    LIBOR plus 1.65%   Dec-2003     16,392         --
Peninsula Office Park 4............  25 year                               6.90%   Feb-2004      5,436         --
Peninsula Office Park 1,3,5,6,8 &
  9................................  25 year                               6.90%   Feb-2004     54,806         --
110 Atrium Place...................  30 year                               6.90%   Mar-2004     21,838         --
10 Almaden.........................  25 year                               6.90%   Apr-2004     33,885         --
Embarcadero Place..................  20 year                               6.90%   Apr-2004     26,061         --
527 Madison Avenue and One Lincoln
  Centre (B).......................  Interest only                         7.47%   Oct-2004     65,000     65,000
Sixty State Street.................  30 year                               6.84%   Jan-2005     87,627     89,630
201 California Street..............  30 year                               6.70%   Mar-2005     33,071         --
Island Corporate Center............  30 year                               6.90%   Apr-2005     13,294         --
Washington Mutual Tower............  Interest only                         7.53%   Nov-2005     79,100     79,100
Norwest Center.....................  Interest only                         8.74%   Dec-2005    110,000    110,000
Agoura Hills.......................  25 year                               6.90%   Dec-2005     12,328         --
Janss Court........................  30 year                               6.90%   Dec-2005     18,723         --
Bayhill 4,5,6 & 7..................  25 year                               6.90%   Dec-2006     59,071         --
66 Bovet...........................  22 year                               6.90%   Apr-2007      3,939         --
Market Square (F) and 200 Galleria
  (B)..............................  Interest only                         7.54%   Oct-2007    120,000    120,000
</TABLE>
 
                                      F-17
<PAGE>
<TABLE>
<CAPTION>
                                                                                  MATURITY
PROPERTY                                AMORTIZATION        INTEREST RATE (A)       DATE     12/31/98   12/31/97
-----------------------------------  -------------------  ----------------------  ---------  ---------  ---------
<S>                                  <C>                  <C>                     <C>        <C>        <C>
One Norwest Center (G).............  30 year                               6.90%   Oct-2008     98,252     96,780
Corporate 500 Centre (H)...........  25 year                               6.66%   Nov-2008     89,765         --
Other loans........................  Various                             Various    Various        597         --
                                                          ----------------------  ---------  ---------  ---------
Total Debt.........................                                         7.20(I)  6.7 yrs.(I) $1,532,474 $ 706,178
                                                          ----------------------  ---------  ---------  ---------
                                                          ----------------------  ---------  ---------  ---------
</TABLE>
 
------------------------------
(A) The interest rate is the stated interest rate (for Cornerstone originated
    debt) or the prevailing market rate at the time of acquisition (for debt
    assumed as part of an acquisition).
 
(B) The three notes arising from the acquisition of several properties from PGGM
    (a major stockholder and related party) are cross-collateralized, having the
    effect of forming a "collateral pool" for the underlying notes.
 
(C) The lender, Hines Colorado Limited, has the right to convert the note into
    Common Stock at a conversion price of $14.30 per share. At maturity, the
    Company is entitled to repay the principal of the note with Common Stock
    priced at the lesser of $14.30 per share or the then existing share price.
 
(D) Lesser of 30-day LIBOR plus 0.5% or 8.11%.
 
(E) Interest only payments through January 1, 2001, with a 25-year amortization
    schedule thereafter.
 
(F) The collateral for this loan is a pledge of the $181.0 million first
    mortgage loan on Market Square that the Company purchased from PGGM.
 
(G) On September 25, 1998, the Company completed the refinancing of the $96.1
    million mortgage on One Norwest Center with Connecticut General Life
    Insurance Company and Massachusetts Mutual Life Insurance Company. As a
    result of the refinancing, the principal balance was increased to $98.5
    million, the term of the loan was extended from three years to ten years and
    the interest rate was reduced from 7.50% to 6.90%.
 
(H) On October 9, 1998, the Company completed the refinancing of the $80.0
    million mortgage on Corporate 500 Centre with Teachers Insurance and Annuity
    Association. As a result of the refinancing, the principal balance was
    increased to $90.0 million, the term of the loan was extended from 4.5 years
    to ten years and the interest rate was increased by three basis points to
    6.66%.
 
(I) Weighted-average interest rate and maturity of the Company's long-term debt.
 
    The combined aggregate amount of maturities for all long-term borrowings for
1999 through 2003 are $75,814,000, $151,632,000, $82,296,000, $151,200,000 and
$138,739,000, respectively.
 
    Since most of the long-term debt is property related, there are restrictive
covenants that limit the total amount of indebtedness that can be placed on
individual properties.
 
6. REVOLVING CREDIT FACILITY
 
    The Company has a $550.0 million Revolving Credit Facility with a syndicate
of 17 banks led by Bankers Trust Company, The Chase Manhattan Bank and
NationsBank for acquisitions and general working capital purposes as well as the
issuance of letters of credit (the "Revolving Credit Facility"). The interest
rate on the facility depends on the Company's ratio of total debt to asset value
(as defined) at the time of borrowing and will be at a spread of 1.10% to 1.40%
over the applicable LIBOR rate or the Prime Rate at the borrower's option. The
letters of credit will be priced at the applicable Eurodollar credit spread. The
Revolving Credit Facility expires on November 3, 2001. As of December 31, 1998,
$465.0 million of the facility was outstanding at a rate of approximately 6.9%.
In addition, at December 31, 1998 there was a $5.0 million letter of credit
outstanding at a rate of 1.40%. The Revolving Credit Facility contains certain
restrictive covenants including: (i) a limitation on the Company's dividend to
90.0% of funds from operations and 110.0% of cash available for distribution,
both as defined in the agreement; (ii) the percentage of total liabilities to
total property asset value (as defined) cannot exceed 55.0%; (iii) the ratio of
adjusted EBITDA to interest expense may not be less than 2.00 to 1.00 through
July 1, 1999 and 2.25 to 1.00 thereafter; (iv) the fixed charge coverage ratio
may not be less than 1.75 to 1.00; and (v) the ratio of total property asset
value (as defined) to secured indebtedness may not be less than 2.50 to 1.00.
Through an amendment and restatement, this Revolving Credit Facility replaces
the Company's $350.0 million facility entered into during 1997.
 
                                      F-18
<PAGE>
7. STOCKHOLDERS' EQUITY
 
    The 7% Cumulative Convertible Preferred Stock is convertible into Common
Stock at $16.50 per share at any time after August 4, 2000.
 
    On April 21, 1997, Cornerstone completed its initial public offering in the
United States of 16,100,000 shares of Common Stock at a price of $14.00 per
share. The shares were listed on the New York Stock Exchange through
underwriters led by Merrill Lynch & Co.
 
    On February 6, 1998, Cornerstone completed a secondary public offering of
14,375,000 shares of Common Stock at a price of $18.25 per share. The shares
were placed in the U.S. through a syndicate of seven investment banks led by
Merrill Lynch & Co. Net proceeds to the Company were approximately $247.9
million (approximately $262.3 million gross proceeds less an underwriting
discount of approximately $13.7 million and expenses of approximately $0.7
million). The net proceeds were used to repay outstanding borrowings under the
Revolving Credit Facility and for working capital purposes.
 
    The following tables summarize the stock options and restricted stock grants
for certain officers of the Company as of December 31, 1998:
 
STOCK OPTIONS
 
<TABLE>
<CAPTION>
                                                     EXERCISE
                                  OPTIONS GRANTED      PRICE                                 OPTIONS      OPTIONS
         DATE OF GRANT            (NO. OF SHARES)   (PER SHARE)         VESTING (A)        EXERCISABLE   EXERCISED
--------------------------------  ---------------  -------------  -----------------------  -----------  -----------
<S>                               <C>              <C>            <C>                      <C>          <C>
August, 1995....................        637,500      $   14.30        33.3%/yr, 10yr term     637,500            0
October, 1995...................        150,000      $   14.30        33.3%/yr, 10yr term     150,000       10,500
March, 1997.....................        880,000      $   14.50        33.3%/yr, 10yr term     293,333            0
November, 1997..................         70,000      $   18.44        33.3%/yr, 10yr term      23,333            0
February, 1998..................         70,000      $   18.13        33.3%/yr, 10yr term           0            0
February, 1998..................        595,000      $   18.25        33.3%/yr, 10yr term           0            0
March, 1998.....................        200,000      $   18.25        33.3%/yr, 10yr term           0            0
December, 1998..................      3,000,000      $   17.25        33.3%/yr, 10yr term           0            0
</TABLE>
 
    The weighted average fair value of options granted during 1998 and 1997 was
$0.28 per share and $2.00 per share, respectively. There were no options granted
during 1996. The weighted average life of options outstanding at December 31,
1998 was approximately 9.1 years.
 
RESTRICTED STOCK GRANTS
 
<TABLE>
<CAPTION>
                    SHARES GRANTED
                       (NO. OF      VALUE AT GRANT DATE
DATE OF GRANT          SHARES)          (PER SHARE)                             VESTING (B)
------------------  --------------  -------------------  ---------------------------------------------------------
<S>                 <C>             <C>                  <C>
August, 1995......       167,622         $   14.30       The grant will fully vest with respect to 13.333% on June
                                                             30, 1996, 1997, 1998, 1999 and with respect to
                                                             46.668% on June 30, 2000.
March, 1997.......       100,000         $   16.40       The grant will fully vest with respect to 13.333% on June
                                                             30, 1998, 1999, 2000, 2001 and with respect to
                                                             46.668% on June 30, 2002.
November, 1997....        12,500         $   18.44       The grant will fully vest with respect to 13.333% on June
                                                             30, 1998, 1999, 2000, 2001 and with respect to
                                                             46.668% on June 30, 2002.
March, 1998.......        12,500         $   18.13       The grant will fully vest with respect to 13.333% on
                                                             March 15, 1999, 2000, 2001, 2002 and with respect to
                                                             46.668% on March 15, 2003.
March, 1998.......        19,178         $   18.25       The grant will fully vest with respect to 13.333% on
                                                             March 15, 1999, 2000, 2001, 2002 and with respect to
                                                             46.668% on March 15, 2003.
</TABLE>
 
------------------------
    (A) The vesting schedule for the options was amended from 20%/yr, 10yr term
       to 33.3%/yr, 10yr term on February 4, 1998.
 
    (B) Deferred compensation of approximately $4,842,000 is being amortized
       according to the respective amortization schedule for each vesting period
       noted above, with the unamortized balance shown as a deduction from
       stockholders' equity. Regular distributions are paid on restricted stock.
 
                                      F-19
<PAGE>
    The Company has adopted the disclosure-only provision of Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"). Accordingly, no compensation cost has been recognized for the
options described above since the exercise price equaled the fair value at the
grant date. Had compensation cost for these options been determined based on the
fair value at the grant date consistent with the provisions of SFAS 123, the
Company's net income and net income per common share would have been reduced to
the following pro forma amounts (Dollar amounts in thousands, except per share
amounts):
 
<TABLE>
<CAPTION>
                                                                                                   BASIC AND DILUTED
                                                                                                    NET INCOME PER
                                                                                     NET INCOME      COMMON SHARE
                                                                                     -----------  -------------------
<S>                                                                                  <C>          <C>
Year ended December 31, 1998.......................................................   $  81,561        $    0.78
Year ended December 31, 1997.......................................................   $  36,887        $    0.61
Year ended December 31, 1996.......................................................   $   8,673        $    0.17
</TABLE>
 
    The Company has computed the value of all stock options using the
Black-Scholes option pricing model with the following weighted average
assumptions:
 
<TABLE>
<CAPTION>
ASSUMPTIONS                                                                1998       1997       1996
-----------------------------------------------------------------------  ---------  ---------  ---------
<S>                                                                      <C>        <C>        <C>
Risk-free interest rate................................................       5.31%      6.56%      6.31%
Assumed dividend yield.................................................       7.50%      7.50%      7.50%
Expected term..........................................................    6 years    6 years    6 years
Assumed volatility.....................................................      10.00%     10.00%     10.00%
</TABLE>
 
8. STOCKHOLDERS' AND UNITHOLDERS' DISTRIBUTIONS
 
    A cash dividend and unitholder distribution of $0.30 per share/unit was
declared for the first quarter of 1998 and paid on February 27, 1998, to
stockholders and unitholders of record as of January 30, 1998. A cash dividend
and unitholder distribution of $0.30 per share/unit was declared for the second
quarter of 1998 and paid on May 29, 1998, to stockholders and unitholders of
record as of April 30, 1998. A cash dividend and unitholder distribution of
$0.30 per share/unit was declared for the third quarter of 1998 and paid on
August 31, 1998, to stockholders and unitholders of record as of July 31, 1998.
A cash dividend and unitholder distribution of $0.30 per share/unit was declared
for the fourth quarter of 1998 and paid on November 30, 1998, to stockholders
and unitholders of record as of October 30, 1998.
 
    On December 7, 1998, in connection with the Wilson Acquisition, the Company
declared a distribution of $0.15 per share/unit to all stockholders and
unitholders of record as of December 15, 1998 and a distribution of $0.15 per
share/unit to all stockholders and unitholders of record as of January 29, 1999.
Both dividends were paid on February 26, 1999.
 
9. EXTRAORDINARY LOSS
 
    Extraordinary loss represents the write off of the unamortized deferred
financing costs and prepayment fees paid in connection with the refinancing of
the One Norwest Center mortgage in the amount of approximately $2,269,000; the
write off of the unamortized balance of Corporate 500 Centre mortgage deferred
financing costs at the time of the refinancing of that Property's mortgage in
the amount of approximately $354,000; and the write off of the unamortized
balance of deferred financing costs related to the $350.0 million Revolving
Credit Facility at the time that the new $550.0 million Revolving Credit
Facility was entered into in the amount of approximately $1,680,000. See Notes 5
and 17 for more information about the two mortgage refinancings.
 
                                      F-20
<PAGE>
10. NET INCOME PER COMMON SHARE
 
    The table below sets forth the calculation of income per common share for
1998, 1997 and 1996 (Dollar amounts in thousands, except per share amounts):
 
<TABLE>
<CAPTION>
                                                                1998                    1997                   1996
                                                       ----------------------  ----------------------  --------------------
                                                         BASIC      DILUTED      BASIC      DILUTED      BASIC     DILUTED
                                                       ----------  ----------  ----------  ----------  ---------  ---------
<S>                                                    <C>         <C>         <C>         <C>         <C>        <C>
Proceeds upon exercise of options....................      --      $   23,871      --      $   25,162     --      $  12,334
Market price of shares average for the respective
  year...............................................      --      $    16.80      --      $    17.13     --      $   14.36
Treasury shares that could be repurchased
  (options)..........................................      --           1,421      --           1,469     --            859
Option shares outstanding............................      --           1,657      --           1,727     --            863
Weighted common stock equivalent shares (excess
  shares under option over treasury shares that could
  be repurchased)....................................      --             236      --             236     --              4
Weighted average common shares outstanding...........     100,319     100,319      43,572      43,572     20,411     20,411
                                                       ----------  ----------  ----------  ----------  ---------  ---------
Adjusted weighted average common shares
  outstanding........................................     100,319     100,555      43,572      43,808     20,411     20,415
Net income for the period............................  $   83,465  $   83,465  $   37,547  $   37,547  $   9,096  $   9,096
Income applicable to preferred stock.................  $   (3,500) $   (3,500) $  (10,160) $  (10,160) $  (5,153) $  (5,153)
                                                       ----------  ----------  ----------  ----------  ---------  ---------
Net income applicable to common stock................  $   79,965  $   79,965  $   27,387  $   27,387  $   3,943  $   3,943
Net income per common share..........................  $     0.80  $     0.80  $     0.63  $     0.63  $    0.19  $    0.19
</TABLE>
 
    The stock options issued in November 1997, February 1998, March 1998 and
December 1998 were not included in the calculation of diluted earnings per share
as such options were anti-dilutive during the period. The 7% Cumulative
Preferred Stock issued in August 1995 and the Convertible Promissory Note due
2001 entered into January 1996 were not included in the calculation of diluted
earnings per share as such instruments were anti-dilutive during the period. In
addition, the Company will be obligated to redeem each UPREIT Unit held by such
unitholder for one share of Common Stock or, at the option of the Company, cash
equal to the fair market value of one share of Common Stock at the time of
redemption.
 
11. RETIREMENT PLANS
 
    Effective July 1, 1995, the eligible employees of the Company participate in
a noncontributory age-weighted profit sharing plan. The Company's cash
contribution to such plan was approximately $100,000 and $91,400 for the years
ended December 31, 1998 and 1997, respectively.
 
    Effective July 1, 1995, the eligible employees of the Company also
participate in a 401(k) contributory savings plan. Under the plan, the Company
matches contributions made by eligible employees based on a percentage of the
employee's salary. The Company will match 100% of contributions up to 5.0% of
such employee's salary with an annual maximum matching contribution of $4,000
per employee. The Company's matching contribution was approximately $69,600 and
$52,600 for the years ended December 31, 1998 and 1997, respectively.
 
    The Company has adopted the Cornerstone Properties Inc. 1998 Long-Term
Incentive Plan (the "Incentive Plan") to provide incentives to attract and
retain officers and key employees. Under the Incentive Plan as amended and
restated on December 14, 1998, the number of shares available for option grant
are approximately 7,400,000. As of December 31, 1998, options on approximately
3,000,000 shares of Common Stock at an exercise price of $17.25 per share have
been granted under the plan.
 
                                      F-21
<PAGE>
12. CONCENTRATION OF RISK
 
    Approximately 6.3 million of the Company's 20.9 million rentable square feet
is located in the San Francisco metropolitan market, accounting for
approximately 30% of the Company's total assets at December 31, 1998. In
addition, five of the Company's 96 office Properties are located in the Downtown
Boston market, accounting for approximately 31.9% of the Company's office and
parking revenues for the year ended December 31, 1998. This concentration of
assets makes the Company particularly vulnerable to adverse changes in economic
conditions in the San Francisco and Boston metropolitan areas. A significant
decline in these economic conditions could have a material adverse effect on the
Company.
 
    Norwest Corporation and its subsidiary, Norwest Bank Denver N.A., tenants of
the Company, provided approximately 9.5%, 20.0% and 26.0% of office and parking
rental income for the years ended December 31, 1998, 1997 and 1996,
respectively. Included in deferred tenant receivables is approximately $33.9
million and $31.3 million due from Norwest Corporation at December 31, 1998 and
1997, respectively.
 
13. RELATED PARTY TRANSACTIONS
 
    The Company has entered into $250.0 million of mortgage debt with one of its
major stockholders, PGGM, as further described in Note 5. Certain key employees
of the Company own an interest in third-party properties for which WCP Services,
Inc. provides property management, development and tenant construction services.
 
14. COMMITMENTS AND CONTINGENCIES
 
    In the ordinary course of business, the Company is subject to tenant and
property related claims and other litigation. It is the opinion of management,
after consultation with outside counsel, that the resolution of these claims
will not have a material effect on the financial statements of the Company.
 
    The Company has entered into an agreement to purchase a 927,000 square-foot
Class A office building, currently under development, in downtown Minneapolis,
Minnesota. Approximately $36.9 million has been spent on the construction. The
project is scheduled to be completed in the year 2000 and is approximately 50.0%
pre-leased. The development is being financed through a construction loan by
U.S. Bank. Upon completion, the Company will retire the construction loan and
acquire the property from the developer for an amount to be determined by
applying a negotiated formula to in-place net operating income.
 
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
 
    Cornerstone is required to disclose the fair value of financial instruments
for which it is practicable to estimate that value. Except for the items noted
below, the fair value of the Company's financial instruments approximates their
carrying values at December 31, 1998 and 1997:
 
NOTES RECEIVABLE
 
    The fair value of the note receivable at December 31, 1997 is approximately
$1,564,000 based on the present value of expected future note payments using a
market discount rate of 6.57%.
 
                                      F-22
<PAGE>
LONG-TERM DEBT
 
    The Company determines the fair value based on discounting future cash flows
at a rate that approximates the Company's effective current borrowing rate (see
also Note 5) (Dollar amounts in thousands):
 
<TABLE>
<CAPTION>
                                                            12/31/98      12/31/98      12/31/97      12/31/97
                                                           FAIR VALUE  CARRYING VALUE  FAIR VALUE  CARRYING VALUE
                                                           ----------  --------------  ----------  --------------
<S>                                                        <C>         <C>             <C>         <C>
TransPotomac Plaza 5 and Charlotte Plaza.................  $   65,775   $     65,000   $   66,671   $     65,000
Wilshire Palisades.......................................      29,722         29,902           --             --
125 Summer Street........................................      50,529         50,000       50,842         50,000
Tower 56.................................................      18,046         17,548       18,507         17,742
527 Madison Avenue and One Lincoln Centre................      67,057         65,000       68,070         65,000
Sixty State Street.......................................      87,495         87,627       89,630         89,630
201 California Street....................................      32,751         33,171           --             --
Washington Mutual Tower..................................      81,834         79,100       82,423         79,100
Norwest Center...........................................     121,986        110,000      123,701        110,000
Market Square and 200 Galleria...........................     125,500        120,000      127,915        120,000
One Norwest Center.......................................      98,335         98,252       99,504         96,780
Corporate 500 Centre.....................................      88,468         89,765           --             --
</TABLE>
 
16. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
 
    The following consolidated pro forma financial information of the Company
shown below gives effect to (i) the Wilson Acquisition; (ii) the acquisition of
the PGGM Portfolio; (iii) the public offerings of Common Stock in April 1997 and
February 1998; (iv) the conversion of 8% Preferred Stock into Common Stock in
July 1997; (v) the Company's repayment of a $32.5 million term loan from
Deutsche Bank in March 1997; and (vi) the acquisition of 527 Madison, Tower 56,
Corporate 500 Centre, One Memorial Drive, 201 California Street and Wilshire
Palisades and sale of the Frick building in 1997 and 1998 as if they occurred on
January 1, 1998 and 1997, respectively. The pro forma financial information is
presented for informational purposes only and may not be indicative of results
that would have actually occurred had the aforementioned transactions been
consummated at the dates indicated. Also, they may not be indicative of the
results that may be achieved in the future.
 
<TABLE>
<CAPTION>
DECEMBER 31,                                                        1998            1997
-------------------------------------------------------------  --------------  --------------
<S>                                                            <C>             <C>
Pro forma total revenues.....................................  $  580,905,000  $  544,753,000
Pro forma net income before extraordinary items..............      96,616,000      83,986,000
Pro forma net income.........................................      92,313,000      83,932,000
Pro forma basic and diluted net income per common share......  $         0.69  $         0.63
</TABLE>
 
                                      F-23
<PAGE>
17. SUPPLEMENTAL CASH FLOW INFORMATION
 
    Cash paid for interest was approximately $60,992,000, $30,204,000 and
$34,590,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
 
NON-CASH INVESTING AND FINANCING ACTIVITIES
 
    On October 27, 1997, the Company acquired the PGGM Portfolio for a purchase
price of approximately $1.06 billion, consisting of approximately 34.2 million
shares of Common Stock valued and recorded at $16.00 per share, approximately
$260.0 million in cash and $250.0 million in promissory notes. The Company also
recorded a minority interest of $33.2 million in connection with this
acquisition.
 
    On January 5, 1998, the Company purchased for approximately $5.5 million,
the participation rights in the cash flow and residual value of Tower 56 from
the former participants for 307,692 shares of Common Stock.
 
    On January 28, 1998, the Company purchased Corporate 500 Centre. As part of
the total purchase price of approximately $150.0 million, the Company issued
822,794 UPREIT Units valued at $18.50 per unit.
 
    On April 28, 1998, the Company purchased One Memorial Drive. As part of the
total purchase price of approximately $112.5 million, the Company issued
3,428,571 shares of common stock and 1,657,426 UPREIT Units, both valued at
$17.50.
 
    On June 3, 1998, the Company purchased 201 California Street and Wilshire
Palisades. As part of the total purchase price for the Properties of
approximately $121.5 million, the Company assumed $64.6 million in debt and
issued 1,665,663 UPREIT Units valued at $17.50 per unit.
 
    On September 25, 1998, in conjunction with the refinancing of the One
Norwest Center mortgage, the Company incurred an extraordinary loss of
approximately $2,269,000, which represents the unamortized deferred financing
costs and prepayment fees on the previous One Norwest Center mortgage at the
time of the refinancing.
 
    On October 9, 1998, in conjunction with the refinancing of the Corporate 500
Centre mortgage, the Company incurred an extraordinary loss of $354,717, which
represents the unamortized deferred financing costs on the previous Corporate
500 Centre mortgage at the time of the refinancing.
 
    On November 3, 1998, the Company obtained a $550.0 million Revolving Credit
Facility from a syndicate of 17 banks led by Bankers Trust Company, The Chase
Manhattan Bank and NationsBank. In conjunction with obtaining this new Revolving
Credit Facility, the Company incurred an extraordinary loss of $1,680,016, which
represents the unamortized deferred financing costs related to the previous
$350.0 million facility, which was extinguished at the time that the new
Revolving Credit Facility was obtained.
 
    On December 16, 1998, the Company consummated the Wilson Acquisition for a
purchase price of approximately $1.8 billion, consisting of approximately 14.9
million shares of Common Stock valued at $17.25 per share (recorded at $16.25
per share for GAAP purposes), approximately 16.2 million UPREIT Units valued at
$17.25 per unit (recorded at $16.25 for GAAP purposes), approximately $465.0
million in cash and the assumption of approximately $760.0 million of property
and construction related debt (recorded at $773.7 million for GAAP purposes).
The Company also recorded a minority interest of $241.0 million in connection
with this acquisition.
 
                                      F-24
<PAGE>
18. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
 
    (Dollar amounts in thousands except per share amounts):
 
<TABLE>
<CAPTION>
                                                                                   QUARTER ENDED
                                                                 --------------------------------------------------
                                                                 DECEMBER 31   SEPTEMBER 30   JUNE 30    MARCH 31
                                                                 ------------  ------------  ---------  -----------
<S>                                                              <C>           <C>           <C>        <C>
1998
Revenues.......................................................   $  102,402    $   89,038   $  86,490   $  81,556
Income before extraordinary item...............................       24,535        21,227      19,252      22,754
Extraordinary loss.............................................       (2,034)       (2,269)         --          --
Net income.....................................................       22,501        18,958      19,252      22,754
Per share data:
  Income before extraordinary item.............................         0.22          0.20        0.18        0.24
  Basic and diluted net income per common share................         0.20          0.18        0.18        0.24
 
1997
Revenues.......................................................   $   62,242    $   38,414   $  38,268   $  34,987
Income before extraordinary item...............................       15,881         8,076       8,008       5,636
Extraordinary loss.............................................           --            --         (28)        (26)
Net income.....................................................       15,881         8,076       7,980       5,610
Per share data:
  Income before extraordinary item.............................         0.26          0.18        0.12        0.07
  Basic and diluted net income per common share................         0.26          0.18        0.12        0.07
</TABLE>
 
19. SEGMENT REPORTING
 
    The Company has adopted Statement of Financial Accounting Standard No. 131
("SFAS 131"), which establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to stockholders.
 
    The Company has one reportable segment--real estate. The Company provides
leasing, management, acquisition, development, construction and tenant-related
services for its portfolio. The Company does not have any foreign operations.
The accounting policies of the segment are the same as those described in Note
1. See Note 12 for information regarding concentration of risk.
 
                                      F-25
<PAGE>
    The Company evaluates performance based on net operating income from the
individual properties in the segment.
 
<TABLE>
<CAPTION>
                                                                    CORPORATE &     COMPANY
                                                     TOTAL SEGMENT    OTHER(A)       TOTAL
                                                     -------------  ------------  ------------
<S>                                                  <C>            <C>           <C>
Total revenues (B):
1998...............................................   $   354,145    $    5,341   $    359,486
1997...............................................       160,490        13,421        173,911
1996...............................................       112,109         4,799        116,908
Total operating and interest expense (C):
1998...............................................   $   122,423    $   80,472   $    202,895
1997...............................................        61,522        41,541        103,063
1996...............................................        44,188        38,141         82,329
Net operating income (D):
1998...............................................   $   231,722    $  (75,131)  $    156,591
1997...............................................        98,968       (28,120)        70,848
1996...............................................        67,921       (33,342)        34,579
Total long-lived assets (E):
1998...............................................   $ 4,137,302    $   54,782   $  4,192,084
1997...............................................     1,996,404         9,147      2,005,551
1996...............................................       635,723         3,819        639,542
Total assets:
1998...............................................   $ 4,198,099    $   83,885   $  4,281,984
1997...............................................     1,757,372       294,109      2,051,481
1996...............................................       623,934       142,245        766,179
</TABLE>
 
------------------------------
(A) Corporate and Other represents all corporate-level items (including interest
    income, interest expense and general and administrative expenses) as well as
    intercompany eliminations necessary to reconcile to consolidated Company
    totals.
 
(B) Total revenues represents all revenues during the period (including the
    Company's earnings in real estate joint ventures). All interest income is
    excluded from the segment amounts and is classified in Corporate and Other
    for all periods.
 
(C) Total operating and interest expense represents the sum of building
    operating expenses, real estate taxes, interest expense and general and
    administrative. All interest expense (including property level mortgages) is
    excluded from the segment amounts and is classified in Corporate and Other
    for all periods. Amounts presented exclude depreciation and amortization of
    $59,278,000, $30,978,000 and $24,317,000 in 1998, 1997 and 1996,
    respectively.
 
(D) Net operating income represents total revenues (as defined in note (B)
    above) less total operating and interest expense (as defined in note (C)
    above) for the period.
 
(E) Long-lived assets is composed of total investments, other deferred costs,
    deferred tenant receivables and certain other assets.
 
20. SUBSEQUENT EVENTS
 
    On January 4, 1999, in connection with the Wilson Acquisition, the Company
prepaid the notes on Two ADP Plaza and Two Corporate Centre. The balances of the
two loans at the time of prepayment were $13.4 million and $18.6 million,
respectively.
 
    During January 1999, the Company entered into four interest rate swap
agreements with major financial institutions. The swaps effectively fix the
LIBOR rate on $250.0 million of the amount outstanding on the Company's credit
facility at approximately 5.1%. The swap agreements expire on November 3, 2001
coterminous with the Revolving Credit Facility.
 
    A cash dividend and unitholder distribution of $0.15 per share/unit was
declared for the first half of the fourth quarter of 1998 and paid on February
26, 1999, to common stockholders and unitholders of record as of December 15,
1998. A cash dividend and unitholder distribution of $0.15 per share/unit was
declared for the second half of the fourth quarter of 1998 and paid on February
26, 1999, to common stockholders and unitholders of record as of January 29,
1999.
 
                                      F-26