<PAGE>
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                                   FORM 10-Q

                                ---------------

                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
                                       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:

<TABLE>
<CAPTION>
TITLE OF EACH CLASS:                                  NAME OF EACH EXCHANGE ON WHICH REGISTERED:
----------------------------------------------------  ----------------------------------------------------
<S>                                                   <C>
Common Stock, no par value                            New York Stock Exchange
                                                      Dusseldorf Stock Exchange
                                                      Frankfurt Stock Exchange
</TABLE>

    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 / /

    Number of shares of Common Stock (no par value) outstanding as of August 12,
1999: 128,414,387.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                         PART I--FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                  CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                         (DOLLAR AMOUNTS IN THOUSANDS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                     DECEMBER 31,
                                                                                                         1998
                                                                                         JUNE 30,    ------------
                                                                                           1999
                                                                                        -----------
                                                                                        (UNAUDITED)
<S>                                                                                     <C>          <C>
ASSETS
Developments in progress:
  Land................................................................................   $  10,456    $   10,437
  Development costs...................................................................       6,725         2,519
Rental Property, at cost:
  Land................................................................................     661,579       702,840
  Buildings, leasehold interests and improvements.....................................   3,128,466     3,403,152
  Deferred lease costs................................................................     141,918       143,188
                                                                                        -----------  ------------
                                                                                         3,949,144     4,262,136
  Less: Accumulated depreciation and amortization.....................................     255,217       286,664
                                                                                        -----------  ------------
    Total Development and Rental Property.............................................   3,693,927     3,975,472

Assets held for sale..................................................................     350,016        77,568
Cash and cash equivalents.............................................................      32,756        61,869
Restricted cash.......................................................................       9,738         9,114
Investment in joint ventures..........................................................      31,878        31,500
Other deferred costs, net of accumulated amortization of $3,694 and $932..............      43,631        45,572
Deferred tenant receivables...........................................................      65,292        53,489
Tenant and other receivables, net.....................................................      12,497        10,326
Other assets..........................................................................      23,389        17,074
                                                                                        -----------  ------------
Total Assets..........................................................................   $4,263,124   $4,281,984
                                                                                        -----------  ------------
                                                                                        -----------  ------------
LIABILITIES
Long-term debt, inclusive of $21,078 and $25,031 of unamortized premium...............   $1,519,093   $1,532,474
Credit facility.......................................................................     467,500       465,000
Accrued interest......................................................................      11,085        10,933
Accrued real estate taxes.............................................................      22,636        16,395
Accounts payable and accrued expenses.................................................      38,854        51,454
Distributions payable.................................................................          --        38,163
Unearned revenue and other liabilities................................................      34,112        23,890
                                                                                        -----------  ------------
Total Liabilities.....................................................................   2,093,280     2,138,309
                                                                                        -----------  ------------
MINORITY INTEREST
Minority interest in operating partnership............................................     285,624       283,388
Minority interest in joint ventures...................................................      23,188        23,420
                                                                                        -----------  ------------
Total Minority Interest...............................................................     308,812       306,808
                                                                                        -----------  ------------
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;
  128,414,387 shares issued and outstanding...........................................          --            --
Paid-in capital.......................................................................   1,793,177     1,788,567
Retained earnings.....................................................................      16,309            --
Accumulated other comprehensive income................................................       4,267            --
Deferred compensation.................................................................      (2,721)       (1,700)
                                                                                        -----------  ------------
Total Stockholders' Equity............................................................   1,861,032     1,836,867
                                                                                        -----------  ------------
Total Liabilities and Stockholders' Equity............................................   $4,263,124   $4,281,984
                                                                                        -----------  ------------
                                                                                        -----------  ------------
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.

                                       2
<PAGE>
ITEM 1.  FINANCIAL STATEMENTS (CONTINUED)

                  CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
        FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
            (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                           THREE MONTHS   THREE MONTHS   SIX MONTHS   SIX MONTHS
                                                               ENDED          ENDED         ENDED        ENDED
                                                             JUNE 30,       JUNE 30,      JUNE 30,     JUNE 30,
                                                               1999           1998          1999         1998
                                                           -------------  -------------  -----------  -----------
<S>                                                        <C>            <C>            <C>          <C>
REVENUES
  Office and parking rentals.............................    $ 152,174      $  81,357     $ 301,650    $ 156,540
  Earnings (loss) in joint ventures......................           77         (1,763)          382       (2,688)
  Interest and other income..............................        1,378          6,896         3,362       14,194
                                                           -------------  -------------  -----------  -----------
    Total Revenues.......................................      153,629         86,490       305,394      168,046
                                                           -------------  -------------  -----------  -----------
EXPENSES
  Building operating expenses............................       32,521         16,962        63,598       34,051
  Real estate taxes......................................       18,154         11,689        37,678       22,866
  Interest expense.......................................       34,715         15,752        69,073       31,667
  Depreciation and amortization..........................       23,808         16,214        48,893       26,859
  General and administrative.............................        6,435          2,958        12,571        5,544
                                                           -------------  -------------  -----------  -----------
    Total Expenses.......................................      115,633         63,575       231,813      120,987
                                                           -------------  -------------  -----------  -----------
                                                                37,996         22,915        73,581       47,059
                                                           -------------  -------------  -----------  -----------
OTHER EXPENSES
  Carrying value in excess of market value of assets held
    for sale.............................................       (3,753)            --        (3,753)          --
  Loss on sale of real estate assets.....................           --         (1,985)           --       (2,197)
                                                           -------------  -------------  -----------  -----------
    Total Other expenses.................................       (3,753)        (1,985)       (3,753)      (2,197)
                                                           -------------  -------------  -----------  -----------
MINORITY INTEREST
  Minority interest in operating partnership.............       (3,864)          (510)       (8,337)        (646)
  Minority interest in joint ventures....................       (1,284)        (1,168)       (2,734)      (2,210)
                                                           -------------  -------------  -----------  -----------
    Total Minority interest..............................       (5,148)        (1,678)      (11,071)      (2,856)
                                                           -------------  -------------  -----------  -----------
Income before cumulative effect of a change in
                                                           -------------  -------------  -----------  -----------
  accounting principle and extraordinary loss............       29,095         19,252        58,757       42,006
                                                           -------------  -------------  -----------  -----------
Cumulative effect of a change in accounting principle....           --             --          (630)          --
Extraordinary loss.......................................       (3,355)            --        (3,355)          --
                                                           -------------  -------------  -----------  -----------
Net income...............................................    $  25,740      $  19,252     $  54,772    $  42,006
                                                           -------------  -------------  -----------  -----------
                                                           -------------  -------------  -----------  -----------
Income applicable to preferred stock.....................    $    (875)     $    (875)    $  (1,750)   $  (1,750)
                                                           -------------  -------------  -----------  -----------
Income applicable to common stock........................    $  24,865      $  18,377     $  53,022    $  40,256
                                                           -------------  -------------  -----------  -----------
                                                           -------------  -------------  -----------  -----------
Income before cumulative effect of a change in accounting
 principle and extraordinary loss per common share.......    $    0.22      $    0.18     $    0.44    $    0.42
                                                           -------------  -------------  -----------  -----------
                                                           -------------  -------------  -----------  -----------
Cumulative effect of a change in accounting principle and
 extraordinary loss per common share.....................    $   (0.03)     $      --     $   (0.03)   $      --
                                                           -------------  -------------  -----------  -----------
                                                           -------------  -------------  -----------  -----------
Basic income per common share............................    $    0.19      $    0.18     $    0.41    $    0.42
                                                           -------------  -------------  -----------  -----------
                                                           -------------  -------------  -----------  -----------
Diluted income per common share..........................    $    0.19      $    0.18     $    0.41    $    0.42
                                                           -------------  -------------  -----------  -----------
                                                           -------------  -------------  -----------  -----------
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.

                                       3
<PAGE>
ITEM 1.  FINANCIAL STATEMENTS (CONTINUED)

                  CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
           FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                           THREE MONTHS   THREE MONTHS   SIX MONTHS   SIX MONTHS
                                                               ENDED          ENDED         ENDED        ENDED
                                                             JUNE 30,       JUNE 30,      JUNE 30,     JUNE 30,
                                                               1999           1998          1999         1998
                                                           -------------  -------------  -----------  -----------
<S>                                                        <C>            <C>            <C>          <C>
Net income...............................................    $  25,740      $  19,252     $  54,772    $  42,006
                                                           -------------  -------------  -----------  -----------
                                                           -------------  -------------  -----------  -----------
Other comprehensive income:
  Unrealized gain on interest rate swaps during the
    period...............................................        2,182             --         4,267           --
                                                           -------------  -------------  -----------  -----------
  Other comprehensive income.............................        2,182             --         4,267           --
                                                           -------------  -------------  -----------  -----------
Comprehensive income.....................................    $  27,922      $  19,252     $  59,039    $  42,006
                                                           -------------  -------------  -----------  -----------
                                                           -------------  -------------  -----------  -----------
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.

                                       4
<PAGE>
ITEM 1.  FINANCIAL STATEMENTS (CONTINUED)

                  CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                          SIX MONTHS   SIX MONTHS
                                                                                             ENDED        ENDED
                                                                                           JUNE 30,     JUNE 30,
                                                                                             1999         1998
                                                                                          -----------  -----------
<S>                                                                                       <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income............................................................................   $  54,772    $  42,006
  Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation and amortization.......................................................      47,995       26,921
    Deferred compensation amortization..................................................         739          510
    Share of net (income) loss in real estate joint ventures............................        (381)       2,688
    Cumulative effect of a change in accounting principle...............................         630           --
    Extraordinary loss..................................................................       3,355           --
    Unbilled rental revenue.............................................................     (13,692)      (6,433)
    Increase in accrued interest........................................................         152        2,904
    Minority interest share of income...................................................      11,071        2,856
    Loss on sale of real estate assets..................................................          --        2,197
    Carrying value in excess of market value of assets held for sale....................       3,753           --
    Increase in tenant and other receivables and other assets...........................      (4,846)        (233)
    Increase in accounts payable, accrued expenses and other liabilities................       2,600        7,563
                                                                                          -----------  -----------
    Total adjustments...................................................................      51,376       38,973
                                                                                          -----------  -----------
    Net cash provided by operating activities...........................................     106,148       80,979
                                                                                          -----------  -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to investment property......................................................     (38,366)    (195,658)
  Repayment of notes receivable.........................................................         134          739
  Repayment of mortgage notes receivable................................................          --          940
  Investment in notes receivable........................................................          --      (78,600)
  Investments in real estate joint ventures.............................................          --       (5,065)
  Proceeds from sale of real estate assets..............................................          --       45,538
                                                                                          -----------  -----------
    Net cash used in investing activities...............................................     (38,232)    (232,106)
                                                                                          -----------  -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from common stock offering...................................................          --      262,344
  Borrowings under mortgage loans.......................................................     180,000       80,000
  Borrowings under credit facility......................................................      72,000      126,000
  Repayments under credit facility......................................................     (69,500)    (238,000)
  Repayments under mortgage loans.......................................................    (189,427)        (921)
  Proceeds from dividend reinvestment plan..............................................       1,230        3,771
  Debt prepayment costs.................................................................      (4,915)          --
  Increase in restricted cash...........................................................        (624)      (4,721)
  Stock and debt issuance costs.........................................................      (1,926)     (14,751)
  Option exercise.......................................................................       1,827           --
  Distributions to minority partners....................................................     (12,739)      (3,124)
  Distributions to common stockholders..................................................     (72,955)     (55,483)
                                                                                          -----------  -----------
    Net cash (used in) provided by financing activities.................................     (97,029)     155,115
                                                                                          -----------  -----------
(Decrease) increase in cash and cash equivalents........................................     (29,113)       3,988
Cash and cash equivalents, beginning of period..........................................      61,869       24,730
                                                                                          -----------  -----------
Cash and cash equivalents, end of period................................................   $  32,756    $  28,718
                                                                                          -----------  -----------
                                                                                          -----------  -----------
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.

                                       5
<PAGE>
ITEM 1.  FINANCIAL STATEMENTS (CONTINUED)

                  CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 1999

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 June 30,
1999, Cornerstone owned, directly or indirectly, approximately 86.3% of the
common units of partnership interest ("UPREIT Units") in the Operating
Partnership.

GENERAL

    The unaudited condensed consolidated financial statements included herein
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in consolidated financial statements prepared in accordance
with generally accepted accounting principles ("GAAP") have been omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. In
the opinion of management of the Company, all adjustments, consisting only of
normal recurring accruals, necessary to summarize fairly the unaudited results
of operations for the three and six month periods presented have been included.
Results for the three and six months ended June 30, 1999 are not necessarily
indicative of results which may be expected for any other interim periods or for
the year as a whole. These condensed consolidated financial statements should be
read in conjunction with the audited financial statements and notes thereto
included in the Company's latest annual report on Form 10-K.

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

                                       6
<PAGE>
investments in the One Post Property and WCP Services, Inc. are accounted for as
equity investments (see Note 3). All significant intercompany balances and
transactions have been eliminated in consolidation.

ASSETS HELD FOR SALE

    Included in Assets held for sale are 12 properties, which are currently held
for sale by the Company. The Properties are valued at approximately $350,016
million, the lower of the carrying amount or the fair value less estimated costs
to sell. The Company has recorded a $3.7 million write down on four of these
assets which represents the difference between the carrying value of these
assets and their expected selling price less costs to sell. The Company
discontinues the recognition of depreciation on the assets when the property is
considered held for sale.

RECLASSIFICATIONS

    Certain prior period amounts have been reclassified to conform to the June
30, 1999 financial statement presentation.

OTHER DEFERRED COSTS

    Costs incurred in the underwriting and issuance of long-term debt and
revolving lines of credit are being amortized over the term of the debt. As part
of the acquisition of the DIHC 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. Included in Other
Deferred Costs is the purchase price for the intangible management and
development company assets that were acquired as part of the Wilson Acquisition
which are being amortized over a term of ten years (see Note 2).

OTHER ASSETS

    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, the
Company expenses all internal acquisition costs.

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 June 30,
1999 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 June 30, 1999, 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 redeemed 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

                                       7
<PAGE>
respective partnership and joint venture agreements. Realizability of the debit
balances is continually monitored by calculating pro forma sales proceeds under
the respective agreements.

RECENTLY ISSUED ACCOUNTING STANDARDS

    During the first quarter of 1999, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). 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. During 1999, the
Company entered into and subsequently amended swaps that effectively fixed the
rate on $250.0 million of the amount outstanding on the Company's Revolving
Credit Facility at 6.47% for 1999 and 5.41% through the maturity of the swaps in
December 2000. The swaps have been designated as "cash flow hedges" within the
meaning defined in SFAS 133. Per the applicable requirements of SFAS 133, the
swaps were marked to fair value and recorded as assets on the Company's balance
sheet. A corresponding adjustment was posted to a separate component of
stockholder's equity through Other Comprehensive Income as defined in Statement
of Financial Accounting Standards No. 130. These swaps are considered hedges for
federal income tax purposes.

    During the first quarter of 1999, the Company also adopted Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP
98-5 requires that certain costs incurred in conjunction with start-up and
organizational activities be expensed. Pursuant to the requirements of SOP 98-5,
the Company has written off all unamortized organizational costs and has
recorded a cumulative effect of a change in accounting principle of $630,044.

    In addition, during the first quarter of 1999, the Company adopted Statement
of Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance on whether
the costs of computer software developed or obtained for internal use should be
capitalized or expensed. The adoption of SOP 98-1 did not have a significant
effect on the Company's financial statements.

                                       8
<PAGE>
ESTIMATES AND RISKS

    The preparation of financial statements in conformity with 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.

2. PROPERTIES

    The following table summarizes Cornerstone's interest in real estate
investments at June 30, 1999:

<TABLE>
<CAPTION>
                                                        TOTAL      CORNERSTONE
MARKET NAME                                           RENTABLE      INTEREST       YEAR
  PROPERTY                                           SQUARE FEET       (A)      CONSTRUCTED   OCCUPANCY     NOTES
--------------------------------------------------  -------------  -----------  -----------  -----------  ---------
<S>                                                 <C>            <C>          <C>          <C>          <C>
BOSTON, MASSACHUSETTS
  Sixty State Street..............................       823,014       100.0%      1979            100%           B
  500 Boylston Street.............................       714,513        91.5%      1988            100%           D
  222 Berkeley Street.............................       530,884        91.5%      1991            100%           D
  125 Summer Street...............................       463,691       100.0%      1989             94%
  One Memorial Drive..............................       352,764       100.0%      1985            100%           C
                                                    -------------                            -----------
  MARKET TOTAL....................................     2,884,866                                    99%

SAN MATEO COUNTY, CALIFORNIA
  Bayhill (4 buildings)...........................       514,704       100.0%    1982-1987          84%           E
  Peninsula Office Park (7 buildings).............       492,044       100.0%    1971-1998          98%           E
  Seaport Centre..................................       463,418       100.0%      1988            100%           E
  Bay Park Plaza (2 buildings)....................       257,058       100.0%    1985-1998         100%           E
  One Bay Plaza...................................       176,533       100.0%      1979             90%           E
  Belmont Shores..................................       141,643       100.0%      1983             97%           E
  1300 South El Camino............................        84,441       100.0%      1986             98%           E
  66 Bovet........................................        43,968       100.0%      1968             97%           E
                                                    -------------                            -----------
  MARKET TOTAL....................................     2,173,809                                    95%

EAST BAY, CALIFORNIA
  Corporate Centre (2 buildings)..................       329,357       100.0%    1985-1987          97%           E
  ADP Plaza (2 buildings).........................       299,627       100.0%    1987-1989          99%           E
  PeopleSoft Plaza................................       277,502       100.0%      1984            100%           E
  Norris Tech Center (3 buildings)................       260,513       100.0%    1984-1990          97%           E
  Golden Bear Center..............................       160,587       100.0%      1986            100%           E
  2700 Ygnacio Valley Road........................       103,214       100.0%      1984             96%           E
  Park Plaza......................................        87,040       100.0%      1986            100%           E
  1600 South Main.................................        83,277       100.0%      1983            100%           E
  Foothill Corporate Center.......................        70,355       100.0%      1982             97%           E
                                                    -------------                            -----------
  MARKET TOTAL....................................     1,671,472                                    98%

ATLANTA, GEORGIA
  191 Peachtree Street............................     1,215,288        80.0%      1991             97%         D,F
  200 Galleria....................................       432,698       100.0%      1985             95%           D
                                                    -------------                            -----------
  MARKET TOTAL....................................     1,647,986                                    97%
</TABLE>

                                       9
<PAGE>
<TABLE>
<CAPTION>
                                                        TOTAL      CORNERSTONE
MARKET NAME                                           RENTABLE      INTEREST       YEAR
  PROPERTY                                           SQUARE FEET       (A)      CONSTRUCTED   OCCUPANCY     NOTES
--------------------------------------------------  -------------  -----------  -----------  -----------  ---------
<S>                                                 <C>            <C>          <C>          <C>          <C>
SEATTLE, WASHINGTON
  Washington Mutual Tower (3 buildings)...........     1,154,560        50.0%      1988             99%           G
  110 Atrium Place................................       215,172       100.0%      1981            100%           E
  Island Corporate Center.........................       100,075       100.0%      1987             89%           E
                                                    -------------                            -----------
  MARKET TOTAL....................................     1,469,807                                    99%

SANTA CLARA COUNTY, CALIFORNIA
  Pruneyard Office (3 buildings)..................       354,360       100.0%    1971-1999          98%         E,H
  10 Almaden......................................       293,526       100.0%      1989            100%           E
  Pruneyard Shopping Center.......................       252,210       100.0%      1970s            89%           E
  Embarcadero Place (4 buildings).................       192,081       100.0%      1984            100%           E
  Pruneyard Inn...................................        94,500       100.0%      1989                         E,I
  First American Plaza............................        82,596       100.0%      1971             96%           E
  490 California..................................        24,539       100.0%      1985            100%           E
                                                    -------------                            -----------
  MARKET TOTAL....................................     1,293,812                                    97%

DENVER, COLORADO
  One Norwest Center..............................     1,187,852       100.0%      1983             97%
                                                    -------------                            -----------
  MARKET TOTAL....................................     1,187,852                                    97%

SAN FRANCISCO, CALIFORNIA
  120 Montgomery Street...........................       418,751        66.7%      1955             96%           E
  One Post........................................       388,055        50.0%      1969            100%           E
  201 California Street...........................       240,230       100.0%      1980            100%           J
  188 Embarcadero.................................        85,183       100.0%      1985             99%           E
                                                    -------------                            -----------
  MARKET TOTAL....................................     1,132,219                                    98%

MINNEAPOLIS, MINNESOTA
  Norwest Center..................................     1,117,439        50.0%      1988            100%           K
                                                    -------------                            -----------
  MARKET TOTAL....................................     1,117,439                                   100%

WASHINGTON, D.C./ALEXANDRIA, VIRGINIA
  Market Square (2 buildings).....................       688,709        70.0%      1990             99%         D,L
  99 Canal Center.................................       137,945       100.0%      1986             98%           D
  TransPotomac Plaza 5............................        96,278       100.0%      1983             92%           D
  11 Canal Center.................................        70,365       100.0%      1986             96%           D
                                                    -------------                            -----------
  MARKET TOTAL....................................       993,297                                    98%

SUBURBAN CHICAGO, ILLINOIS
  Corporate 500 Centre (4 buildings)..............       679,039       100.0%    1986/1990          98%           M
  One Lincoln Centre..............................       297,040       100.0%      1986             92%
                                                    -------------                            -----------
  MARKET TOTAL....................................       976,079                                    96%

SANTA MONICA/WEST LOS ANGELES, CALIFORNIA
  West Wilshire (2 buildings).....................       235,787       100.0%    1960-1976          94%           E
  Wilshire Palisades..............................       186,714       100.0%      1981            100%           J
  Janss Court.....................................       125,709       100.0%      1989            100%         E,N
  Searise Office Tower............................       122,292       100.0%      1975             97%           E
  Commerce Park...................................        94,367       100.0%      1977             78%         E,O
  429 Santa Monica................................        82,284       100.0%      1982             67%           E
                                                    -------------                            -----------
  MARKET TOTAL....................................       847,153                                    92%
</TABLE>

                                       10
<PAGE>
<TABLE>
<CAPTION>
                                                        TOTAL      CORNERSTONE
MARKET NAME                                           RENTABLE      INTEREST       YEAR
  PROPERTY                                           SQUARE FEET       (A)      CONSTRUCTED   OCCUPANCY     NOTES
--------------------------------------------------  -------------  -----------  -----------  -----------  ---------
<S>                                                 <C>            <C>          <C>          <C>          <C>
ORANGE COUNTY, CALIFORNIA
  Bixby Ranch.....................................       277,289       100.0%      1987             98%           E
  18301 Von Karman................................       219,508       100.0%      1991             89%           E
  2677 North Main.................................       213,318       100.0%      1987             91%           E
                                                    -------------                            -----------
  MARKET TOTAL....................................       710,115                                    93%

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          97%           E
  Biltmore Lakes..................................       207,434       100.0%      1982             98%           E
  Scottsdale Centre...............................       166,382       100.0%      1985             94%           E
                                                    -------------                            -----------
  MARKET TOTAL....................................       586,038                                    96%

SAN DIEGO, CALIFORNIA
  Centerside II...................................       287,029       100.0%      1987             88%           E
  Crossroads......................................       133,553       100.0%      1983            100%           E
                                                    -------------                            -----------
  MARKET TOTAL....................................       420,582                                    92%

LOS ANGELES, CALIFORNIA
  700 North Brand.................................       202,531       100.0%      1981             94%           E
  Tri-Center Plaza................................       141,732       100.0%      1990             99%           E
  Warner Park Center..............................        57,366       100.0%      1986            100%           E
                                                    -------------                            -----------
  MARKET TOTAL....................................       401,629                                    97%

NEW YORK CITY, NEW YORK
  527 Madison Avenue..............................       215,332       100.0%      1986            100%
  Tower 56........................................       163,633       100.0%      1983            100%           P
                                                    -------------                            -----------
  MARKET TOTAL....................................       378,965                                   100%

CONEJO VALLEY (VENTURA), CALIFORNIA
  Westlake Spectrum (2 buildings).................       118,990       100.0%      1990             88%           E
  Agoura Hills....................................       115,265       100.0%      1987             90%           E
                                                    -------------                            -----------
  MARKET TOTAL....................................       234,255                                    89%

OTHER REGIONS
  U.S. West (Murray, Utah)........................       136,608       100.0%      1985             78%           E
  Exposition Centre (Sacramento, California)......        72,971       100.0%      1984             70%           E
                                                    -------------                            -----------
  MARKET TOTAL....................................       209,579                                    75%
                                                    -------------                            -----------

  TOTAL PORTFOLIO                                     20,949,682                                    97%
  Minority Interest Adjustment (Q)................      (726,317)
                                                    -------------                            -----------
  CORNERSTONE PORTFOLIO...........................    20,223,365                                    97%
  Adjustment For Pruneyard Inn....................       (94,500)
                                                    -------------
  CORNERSTONE OFFICE PORTFOLIO....................    20,128,865
                                                    -------------
                                                    -------------
</TABLE>

------------------------

    (A) Unless noted below, cash flow and residual proceeds will be distributed
       to Cornerstone according to its percentage interest.

                                       11
<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 collarteralized 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 DIHC
       Portfolio"). The Company acquired the DIHC 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 94,500 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 1998, the
       partner in the transaction, CH Associates, Ltd., received an annual
       Incentive Distribution (as defined) of $250,000, which the

                                       12
<PAGE>
       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 $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 six months ended June 30, 1999, the
       Company received 100% of the cash distributions from the partnership that
       owns Washington Mutual Tower.

    (H) Pruneyard Place construction was completed and occupied on April 1,
       1999. The building was entirely pre-leased.

    (I) The Pruneyard Inn is a three-story hotel. An expansion was completed in
       May 1999, increasing the number of rooms from 118 to 172.

    (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 six months ended June 30, 1999, the Company's share of
       earnings and cash distributions from the partnership that owns Norwest
       Center was 74.3%.

    (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
       six months ended June 30, 1999, the Company received 100% of the cash
       flow from the Property. On November 14, 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.

                                       13
<PAGE>
    (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 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 DIHC
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.

3. 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 interest in WCP Services, Inc. The
Company owns 1% of the voting common stock and 100% of the non-voting common
stock of WCP Services, Inc. The remaining shares of voting common stock of WCP
Services, Inc. are owned by certain executive officers of the Company. The
Company's ownership of voting and nonvoting common stock together represents a
95% economic interest in the earnings of WCP Services, Inc. WCP Services, Inc.
provides property management, development and tenant construction supervision
services to third parties. WCP Services, Inc. also provides tenant construction
supervision services to tenants in Properties owned by Cornerstone.

                                       14
<PAGE>
4. LONG-TERM DEBT

    The following table sets forth certain information regarding the
consolidated debt obligations of the Company as of June 30, 1999, 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 (Dollar amounts in thousands).

<TABLE>
<CAPTION>
PROPERTY                          AMORTIZATION     INTEREST RATE (A)   MATURITY DATE    6/30/99       12/31/98
------------------------------  ----------------  -------------------  -------------  ------------  ------------
<S>                             <C>               <C>                  <C>            <C>           <C>
One and Two Gateway...........  25 year                         6.90%      Dec-1999   $      8,529  $      8,679
Seaport Centre................  Interest only        LIBOR plus 1.50%      Dec-1999         58,000        58,000
The Pruneyard.................  24 year              LIBOR plus 2.00%      Mar-2000         58,974        49,384
Scottsdale Centre.............  25 year                         6.90%      Jul-2000          7,649         7,745
TransPotomac Plaza 5 and......  Interest only                   7.28%      Oct-2000         65,000        65,000
  Charlotte Plaza (B)
Convertible Promissory Note...  Interest only            8.11%max (D)      Jan-2001         12,926        12,926
  due 2001 (C)
Searise Office Tower..........  25 year                         6.90%      Jan-2002         11,737        11,864
West Wilshire Office..........  25 year                         6.90%      Jan-2002         17,117        17,301
  and Medical
Exposition Centre.............  25 year                         6.90%      May-2002          5,145         5,200
Wilshire Palisades............  22 year                         6.70%      Jul-2002         29,479        29,902
120 Montgomery Street.........  24 year              LIBOR plus 1.40%      Nov-2002         47,756        46,930
1300 South El Camino..........  23 year                         6.90%      Dec-2002          3,954         4,007
125 Summer Street (E).........  Interest only                   7.20%      Jan-2003         50,000        50,000
                                (F)
Tower 56 (E)..................  30 year                         7.67%      May-2003         17,463        17,548
Norris Tech Center............  25 year              LIBOR plus 1.65%      Dec-2003         16,239        16,392
Peninsula Office Park 4 (E)...  25 year                         6.90%      Feb-2004          5,380         5,436
Peninsula Office Park.........  25 year                         6.90%      Feb-2004         55,616        54,806
  1, 3, 5, 6, 8 & 9 (E)
110 Atrium Place..............  30 year                         6.90%      Mar-2004         21,689        21,838
Embarcadero Place (E).........  20 year                         6.90%      Apr-2004         25,680        26,061
10 Almaden (E)................  25 year                         6.90%      Apr-2004         33,550        33,885
527 Madison Avenue and........  Interest only                   7.47%      Oct-2004         65,000        65,000
  One Lincoln Centre (B)
Sixty State Street............  30 year                         6.84%      Jan-2005         86,573        87,627
201 California Street.........  30 year                         6.70%      Mar-2005         32,865        33,071
Island Corporate Center.......  30 year                         6.90%      Apr-2005         13,239        13,294
Washington Mutual Tower.......  Interest only                   7.53%      Nov-2005         79,100        79,100
Agoura Hills..................  25 year                         6.90%      Dec-2005         12,168        12,328
Janss Court...................  30 year                         6.90%      Dec-2005         18,543        18,723
Norwest Center................  Interest only                   8.74%      Dec-2005        110,000       110,000
Bayhill 4, 5, 6 & 7...........  25 year                         6.90%      Dec-2006         58,429        59,071
66 Bovet......................  22 year                         6.90%      Apr-2007          3,888         3,939
Market Square (G) and.........  Interest only                   7.54%      Oct-2007        120,000       120,000
  200 Galleria (B)
One Norwest Center............  30 year                         6.90%      Oct-2008         97,827        98,252
Corporate 500 Centre..........  25 year                         6.66%      Nov-2008         89,166        89,765
188 Embarcadero (H)...........  25 year                         7.26%      Aug-2009         15,700         9,135
Golden Bear Center (H)........  25 year                         7.26%      Aug-2009         20,600        15,753
Centerside II (H).............  25 year                         7.26%      Aug-2009         24,400        13,818
700 North Brand (H)...........  25 year                         7.26%      Aug-2009         27,100        18,108
Bixby Ranch (H)...............  25 year                         7.26%      Aug-2009         28,700        20,243
</TABLE>

                                       15
<PAGE>
<TABLE>
<CAPTION>
PROPERTY                          AMORTIZATION     INTEREST RATE (A)   MATURITY DATE    6/30/99       12/31/98
------------------------------  ----------------  -------------------  -------------  ------------  ------------
<S>                             <C>               <C>                  <C>            <C>           <C>
One Memorial (H)..............  25 year                         7.26%      Aug-2009         63,500             0
Other loans...................  Various                       Various       Various            412           597
18301 Von Karman (I)..........                --                   --            --             --        10,647
1600 South Main (I)...........                --                   --            --             --         5,038
Biltmore Lakes (I)............                --                   --            --             --        11,468
Belmont Shores (I)............                --                   --            --             --         9,839
2677 North Main (I)...........                --                   --            --             --        10,774
2700 Ygnacio Valley Road (I)..                --                   --            --             --         5,035
Westlake Spectrum (I).........                --                   --            --             --         3,993
Park Plaza (I)................                --                   --            --             --         4,940
Warner Park Center (I)........                --                   --            --             --         5,213
429 Santa Monica (I)..........                --                   --            --             --        10,176
Crossroads (I)................                --                   --            --             --         7,339
Westlake Spectrum II (I)......                --                   --            --             --         5,284
Two ADP Plaza (J).............                --                   --            --             --        13,400
Two Corporate Centre (J)......                --                   --            --             --        18,600
                                                  -------------------  -------------  ------------  ------------
Total Debt....................                               7.18%(K)   5.93 yrs(K)   $  1,519,093  $  1,532,474
                                                                                      ------------  ------------
                                                                                      ------------  ------------
</TABLE>

--------------------------

    (A) The interest rate is the stated interest rate (for Cornerstone
       originated debt) or the mark to 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 in
       the DIHC Portfolio 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) During June 1999 the Company entered into an agreement to restructure
       approximately $220.6 million of the individual property related debt with
       Northwestern Mutual Life Insurance Company. The restructuring involves
       retiring the individual property related debt and creating a single
       $275.0 million loan which will be cross-collateralized by five of the
       Company's properties. The loan will have a ten year term and will bear
       interest at 7.23%.

    (F) Interest only payments through January 1, 2001, with a 25-year
       amortization schedule thereafter.

    (G) 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.

    (H) The six notes arising from the restructuring of certain debt with
       Prudential Insurance of America and Northwestern Mutual Life Insurance
       Company are cross-collateralized, having the effect of forming a
       "collateral pool" for the underlying notes.

    (I) These 12 notes were prepaid as part of the Prudential Insurance of
       America and Northwestern Mutual Life Insurance Company restructuring, see
       note (H) above. All the notes had a mark to market interest rate of 6.9%
       and maturity dates ranging from April 2000 to March 2003.

    (J) On January 4, 1999, in connection with the Wilson Acquisition, the
       Company prepaid the notes on Two ADP Plaza and Two Corporate Centre.

    (K) 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 $66,529,000, $131,623,000, $12,926,000, $115,188,000 and
$83,702,000, respectively.

                                       16
<PAGE>
    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.

5. 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 1.80%
over the applicable LIBOR 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 June 30, 1999,
$467.5 million of the facility was outstanding at a rate of approximately 6.4%.
Of this amount, approximately $250.0 million is fixed with interest rate swaps,
which effectively fix the rate at 6.47%. In addition, at June 30, 1999, there
were two letters of credit totaling $10.5 million ($5.5 million of which is with
Summit Bank) 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 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 60.0%; (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 2.22 to 1.00. The above terms reflect an amendment to the
Revolving Credit Facility that occurred during 1999. The amendment allowed the
Company to increase its leverage from 55.0% to 60.0% in (ii) above. The Company
also increased its ability to enter into mortgage debt under (v) above by
decreasing the ratio from 2.5 to 2.22 to 1.00.

                                       17
<PAGE>
6. 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 position, results of operations
or cash flows 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. Through June 30, 1999, approximately $66.5 million has been spent on
the construction. The project is scheduled to be completed in the year 2000 and
is approximately 40.0% 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.

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 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 employees of the Company as of June 30, 1999:

STOCK OPTIONS

<TABLE>
<CAPTION>
                            OPTIONS GRANTED  EXERCISE PRICE                         OPTIONS      OPTIONS      OPTIONS
      DATE OF GRANT         (NO. OF SHARES)    (PER SHARE)         VESTING         EXERCISED    FORFEITED   EXERCISABLE
--------------------------  ---------------  ---------------  ------------------  -----------  -----------  -----------
<S>                         <C>              <C>              <C>                 <C>          <C>          <C>
August, 1995..............       637,500                        33.3%/yr, 10yr
                                                $   14.30            term             75,000                   562,500
October, 1995.............       150,000                        33.3%/yr, 10yr
                                                $   14.30            term             10,500                   139,500
March, 1997...............       880,000                        33.3%/yr, 10yr
                                                $   14.50            term             52,000                   534,666
November, 1997............        70,000                        33.3%/yr, 10yr
                                                $   18.44            term                  0                    23,333
February, 1998............        70,000                        33.3%/yr, 10yr
                                                $   18.13            term                  0                    23,333
February, 1998............       595,000                        33.3%/yr, 10yr
                                                $   18.25            term                  0       26,667      198,333
March, 1998...............       200,000                        33.3%/yr, 10yr
                                                $   18.25            term                  0      133,334       66,666
December, 1998............     3,000,000                        33.3%/yr, 10yr
                                                $   17.25            term                  0       22,933            0
January, 1999.............        20,000                        33.3%/yr, 10yr
                                                $   17.25            term                  0                         0
February, 1999............        10,000                        33.3%/yr, 10yr
                                                $   17.25            term                  0                         0
June, 1999................        10,000                        33.3%/yr, 10yr
                                                $   17.25            term                  0                         0
</TABLE>

                                       18
<PAGE>
RESTRICTED STOCK GRANTS

<TABLE>
<CAPTION>
                 SHARES GRANTED    VALUE AT GRANT
 DATE OF GRANT   (NO. OF SHARES)  DATE (PER SHARE)                             VESTING (A)
---------------  ---------------  -----------------  ---------------------------------------------------------------
<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,              12,500         $   18.44      The grant will fully vest with respect to 13.333% on June 30,
1997...........                                      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 and with respect to 86.667% on December 31, 1999.
February,             113,550         $   15.50      The grant will fully vest on February 1, 2004.
1999...........
</TABLE>

------------------------------

(A) Deferred compensation of approximately $6,252,000 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.

8. STOCKHOLDERS' AND UNITHOLDERS' DISTRIBUTIONS

    A cash dividend and Unitholder distribution of $0.30 per share was declared
for the second quarter of 1999 and paid on May 28, 1999, to Common Stockholders
and Unitholders of record as of April 30, 1999.

9. NET INCOME PER COMMON SHARE

    The table below sets forth the calculation of net income per common share
for the three and six months ended June 30, 1999 and 1998 (Dollar amounts in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                                 THREE MONTHS ENDED
                                                                        JUNE 30,1999           JUNE 30, 1998
                                                                   ----------------------  ----------------------
                                                                     BASIC      DILUTED      BASIC      DILUTED
                                                                   ----------  ----------  ----------  ----------
<S>                                                                <C>         <C>         <C>         <C>
Proceeds upon exercise of options................................  $       --  $   22,045  $       --  $   40,940
Market price of shares
  Average for the respective period..............................  $       --  $    16.06  $       --  $    17.58
Treasury shares that could be Repurchased (options)..............          --       1,373          --       2,329
Option shares outstanding........................................          --       1,530          --       2,592
Weighted common stock equivalent shares (excess shares under
 option over Treasury shares that could be repurchased)..........          --         157          --         299
Weighted average common shares Outstanding.......................     128,260     128,260     100,462     100,462
                                                                   ----------  ----------  ----------  ----------
Adjusted weighted average common Shares outstanding..............     128,260     128,417     100,462     100,761

Net income for the period........................................  $   25,740  $   25,740  $   19,252  $   19,252
Income applicable to Preferred stock.............................  $     (875) $     (875) $     (875) $     (875)
                                                                   ----------  ----------  ----------  ----------
Net income applicable to Common shares...........................  $   24,865  $   24,865  $   18,377  $   18,377
Income per common share..........................................  $     0.19  $     0.19  $     0.18  $     0.18
</TABLE>

                                       19
<PAGE>

<TABLE>
<CAPTION>
                                                                                  SIX MONTHS ENDED
                                                                        JUNE 30,1999           JUNE 30, 1998
                                                                   ----------------------  ----------------------
                                                                     BASIC      DILUTED      BASIC      DILUTED
                                                                   ----------  ----------  ----------  ----------
<S>                                                                <C>         <C>         <C>         <C>
Proceeds upon exercise of options................................  $       --  $   22,045  $       --  $   40,940
Market price of shares
  Average for the respective period..............................  $       --  $    15.66  $       --  $    18.00
Treasury shares that could be Repurchased (options)..............          --       1,408          --       2,274
Option shares outstanding........................................          --       1,530          --       2,592
Weighted common stock equivalent shares (excess shares under
 option over Treasury shares that could be repurchased)..........          --         122          --         331
Weighted average common shares Outstanding.......................     128,260     128,260      96,653      96,653
                                                                   ----------  ----------  ----------  ----------
Adjusted weighted average common Shares outstanding..............     128,260     128,382      96,653      96,984

Net income for the period........................................  $   54,772  $   54,772  $   42,006  $   42,006
Income applicable to Preferred stock.............................  $   (1,750) $   (1,750) $   (1,750) $   (1,750)
                                                                   ----------  ----------  ----------  ----------
Net income applicable to Common shares...........................  $   53,022  $   53,022  $   40,256  $   40,256
Income per common share..........................................  $     0.41  $     0.41  $     0.42  $     0.42
</TABLE>

    The stock options issued in November 1997, February 1998, March 1998,
December 1998 January 1999, February 1999 and June 1999 were not included in the
calculation of diluted earnings per share as such options were anti-dilutive
during the three and six month periods. 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 three and six month periods. 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.

10. SUPPLEMENTAL CASH FLOW INFORMATION

    Cash paid for interest was approximately $72,641,000 and $28,792,000 for the
six months ended June 30, 1999 and 1998, respectively.

NON-CASH INVESTING AND FINANCING ACTIVITIES

    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, an office tower
in Cambridge, Massachusetts. 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 priced at $17.50.

    On June 3, 1998, the Company purchased 201 California Street in San
Francisco, California, and Wilshire Palisades in Santa Monica, California. 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 priced at $17.50 per unit.

                                       20
<PAGE>
    On June 23, 1999, in conjunction with the restructuring of property-related
debt with Prudential Insurance of America and Northwestern Mutual Life Insurance
Company, the Company incurred an extraordinary loss of approximately $3,355,000,
of which approximately $1,560,000 represents the unamortized premium/discounts
associated with various debt instruments that were assumed as part of the Wilson
Acquisition.

11. SEGMENT REPORTING

    The Company has one reportable segment--real estate. The Company does not
have any foreign operations. The accounting policies of the segment are the same
as those described in Note 1.

    The Company evaluates performance based on net operating income from the
individual properties in the segment. Selected results of operations for the
three and six months ended June 30, 1999 and 1998 and selected asset information
as of June 30, 1999 and December 31, 1998 regarding the Company's operating
segment are as follows (Dollar amounts in thousands):

<TABLE>
<CAPTION>
                                                                                        CORPORATE &     COMPANY
                                                                         TOTAL SEGMENT    OTHER(A)       TOTAL
                                                                         -------------  ------------  ------------
<S>                                                                      <C>            <C>           <C>
TOTAL REVENUES (B):
Three months ended:
  June 30, 1999........................................................   $   153,128    $      501   $    153,629
  June 30, 1998........................................................        79,952         6,538         86,490
Six months ended:
  June 30, 1999........................................................       303,914         1,480        305,394
  June 30, 1998........................................................       155,626        12,420        168,046

TOTAL OPERATING AND INTEREST EXPENSE (C):
Three months ended:
  June 30, 1999........................................................   $    52,588    $   39,237   $     91,825
  June 30, 1998........................................................        28,651        18,710         47,361
Six months ended:
  June 30, 1999........................................................       104,446        78,474        182,920
  June 30, 1998........................................................        56,917        37,211         94,128

NET OPERATING INCOME (D):
Three months ended:
  June 30, 1999........................................................   $   100,540    $  (38,736)  $     61,804
  June 30, 1998........................................................        51,301       (12,172)        39,129
Six months ended:
  June 30, 1999........................................................       199,468       (76,994)       122,474
  June 30, 1998........................................................        98,709       (24,791)        73,918

TOTAL LONG-LIVED ASSETS (E):
  June 30, 1999........................................................   $ 4,141,114    $   47,780   $  4,188,894
  December 31, 1998....................................................     4,137,302        54,782      4,192,084

TOTAL ASSETS:
  June 30, 1999........................................................   $ 4,148,989    $  114,135   $  4,263,124
  December 31, 1998....................................................     4,198,099        83,885      4,281,984
</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.

                                       21
<PAGE>
(B) Total revenues represents all revenues during the period (including the
    Company's earnings (loss) 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 expenses. 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 $23,808,000 and $16,214,000 and $48,893,000 and
    $26,859,000 for the three and six months ended June 30, 1999 and 1998,
    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 rental property, assets held for
    sale, investments in joint ventures, other deferred costs, deferred tenant
    receivables and certain other assets.

12. SUBSEQUENT EVENTS

    On July 9, 1999, the Company declared a distribution of $0.30 per share/unit
to be paid to all stockholders and unitholders on August 31, 1999 (to
stockholders and unitholders of record as of July 30, 1999).

    On August 4, 1999, the Company paid a dividend of $1.155 per share to all
preferred stockholders of record as of July 30, 1999.

                                       22
<PAGE>
ITEM 2

    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999

    Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Condensed 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".
The Company intends such forward-looking statements to be covered by the safe
harbor provisions in Section 21E of the Securities Exchange Act of 1934, as
amended. 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 ("Market Square")
(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
Market Square (from February 1, 1998 through October 31, 1998) and One Post
using the equity method of accounting because it did or does not have sufficient
control of the day to day operations of the investment.

    PROPERTY RESULTS.  For the three and six months ended June 30, 1999 and
1998, property results can be summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                        FOR THE THREE  FOR THE THREE   FOR THE SIX    FOR THE SIX
                                                        MONTHS ENDED   MONTHS ENDED   MONTHS ENDED   MONTHS ENDED
                                                        JUNE 30, 1999  JUNE 30, 1998  JUNE 30, 1999  JUNE 30, 1998
                                                        -------------  -------------  -------------  -------------
<S>                                                     <C>            <C>            <C>            <C>
Office and Parking Rentals............................   $   152,174    $    81,357    $   301,650    $   156,540
Less:
  Building Operating Expenses.........................        32,521         16,962         63,598         34,051
  Real Estate Taxes...................................        18,154         11,689         37,678         22,866
  Depreciation and Amortization.......................        23,808         16,214         48,893         26,859
                                                        -------------  -------------  -------------  -------------
Total Operating Expenses..............................        74,483         44,865        150,169         83,776
                                                        -------------  -------------  -------------  -------------
Total Property Income.................................   $    77,691    $    36,492    $   151,481    $    72,764
                                                        -------------  -------------  -------------  -------------
                                                        -------------  -------------  -------------  -------------
</TABLE>

    The increase in property income of $41.2 million for the three months ended
June 30, 1999 as compared to the same period in 1998 was due to $31.2 million
derived from the interests in 69 properties acquired as part of the Wilson
Acquisition on December 16, 1998; $4.1 million from Market Square, which

                                       23
<PAGE>
was consolidated starting November 1998; $2.9 million increase from 60 State
Street due to increased rental rates and other adjustments; $1.8 million from
three properties acquired in the second quarter of 1998 (One Memorial Drive,
$0.3 million; Wilshire Palisades, $0.9 million; and 201 California Street, $0.6
million); and a $1.2 million increase in income from One Norwest Center due to
increased rental rates.

    The increase in property income of $78.7 million for the six months ended
June 30, 1999 as compared to the same period in 1998 was due to $60.4 million
derived from the interests in 69 properties acquired as part of the Wilson
Acquisition on December 16, 1998; $8.1 million from Market Square, which was
consolidated starting November 1998; $5.5 million from three properties acquired
in the second quarter of 1998 (Wilshire Palisades, $2.2 million; One Memorial
Drive, $2.1 million; and 201 California Street, $1.2 million); a $1.6 million
increase in income from Washington Mutual Tower due to increased rental rates; a
$1.6 million increase in income from Corporate 500 Centre, which was purchased
at the end of January 1998; a $1.4 million increase in income from One Norwest
Center due to increased rental rates; and a $0.9 million increase caused by
slight variances in property income at the remaining properties. These amounts
were offset by a $0.8 million decrease in income from the Frick Building, which
was sold in April 1998.

    EARNINGS (LOSS) IN JOINT VENTURES.

    The earnings in joint ventures of $0.1 million and $0.4 million for the
three and six months ended June 30, 1999, respectively, is comprised of the
Company's investments in One Post and WCP Services, Inc., which were acquired as
part of the Wilson Acquisition.

    The loss in joint ventures of $1.8 million and $2.7 million for the three
and six months ended June 30, 1998 was 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.

    INTEREST AND OTHER INCOME.

    Interest and other income decreased to approximately $1.4 million for the
three months ended June 30, 1999 from approximately $6.9 million for the three
months ended June 30, 1998. The decrease was due to a $5.6 million decrease in
interest income from the mortgage loan and "buffer loan" on Market Square, a
$0.3 million decrease in tenant alteration income, and a $0.2 million decrease
in interest earned from short-term investment. These decreases were offset by a
$0.6 million increase in management and other income.

    Interest and other income decreased to approximately $3.4 million for the
six months ended June 30, 1999 from approximately $14.2 million for the six
months ended June 30, 1998. The decrease was due to a $10.8 million decrease in
interest income from the mortgage loan and "buffer loan" on Market Square and a
$1.2 million decrease in tenant alteration income. These decreases were offset
by a $1.0 million increase in other income and $0.2 million increase in
management fee income.

    INTEREST EXPENSE.

    Interest expense incurred by Cornerstone was $34.7 million and $15.7 million
for the three months ended June 30, 1999 and 1998, respectively. The increase in
interest expense was due to an increase of $11.0 million from the property
mortgages assumed as part of the Wilson Acquisition; an increase of $7.1 million
on the Revolving Credit Facility due to increased borrowings; an increase of
$0.6 million on the 201 California Street and Wilshire Palisades loans due to
these properties being acquired on June 3, 1998; an increase of $0.2 in
amortization of deferred financing costs; an increase of $0.1 million on the

                                       24
<PAGE>
Corporate 500 Centre loan due to the $10.0 million that was added to the
principal balance as a result of the refinancing in October 1998; and an
increase of $0.1 million related to One Memorial Drive, which is included in the
new $180.0 million loan that was completed in May 1999 (see "Mortgage
Indebtedness" below). One Memorial Drive was unencumbered during the three
months ended June 30, 1998. These increases were offset by a $0.1 million
decrease in One Norwest Center interest expense, due to the lower interest rate
negotiated as part of the refinancing of this loan that occurred in September
1998.

    Interest expense incurred by Cornerstone was $69.1 million and $31.7 million
for the six months ended June 30, 1999 and 1998, respectively. The increase in
interest expense was due to an increase of $21.6 million from the property
mortgages assumed as part of the Wilson Acquisition; an increase of $13.2
million on the Revolving Credit Facility due to increased borrowings; an
increase of $1.6 million on the 201 California Street and Wilshire Palisades
loans due to these properties being acquired on June 3, 1998; an increase of
$0.7 million on the Corporate 500 Centre loan due mainly to the Property being
acquired on January 28, 1998; an increase of $0.3 in the amortization of
deferred financing costs; an increase of $0.2 million on the DIHC Portfolio
loans due to the sale of the Dearborn land in March 1998; and a $0.1 million
increase in interest expense related to One Memorial Drive (as explained above).
These increases were offset by a $0.3 million decrease in interest on the One
Norwest Center loan due to the refinancing of this loan in September 1998.

    GENERAL AND ADMINISTRATIVE.

    The aggregate amount of Cornerstone's general and administrative expenses
increased to $6.4 million for the three months ended June 30, 1999 from $3.0
million for the three months ended June 30, 1998. The increase in 1999 from 1998
of $3.4 million is due to the additional employees, space, systems and other
support necessary to manage the substantial growth in the Company since June 30,
1998, especially the increase in employees due to the Wilson Acquisition.

    The aggregate amount of Cornerstone's general and administrative expenses
increased to $12.6 million for the six months ended June 30, 1999 from $5.5
million for the six months ended June 30, 1998. The increase in 1999 from 1998
of $7.1 million is due to the additional employees, space, systems and other
support necessary to manage the substantial growth in the Company since June 30,
1998, especially the increase in employees due to the Wilson Acquisition.

    CARRYING VALUE IN EXCESS OF MARKET VALUE OF ASSETS HELD FOR SALE.

    The Company has 12 properties held for sale which are valued at
approximately $350.0 million, the lower of the carrying amount or the fair value
less estimated cost to sell. The Company has recorded a $3.7 million write down
on four of these assets which represents the difference between the carrying
value of these assets and their expected selling price less costs to sell.

    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 DIHC
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 $2.0 million.

    MINORITY INTEREST.

    The minority interest increased to $5.1 million for the three months ended
June 30, 1999 from $1.7 million for the three months ended June 30, 1998 due to
the allocation of the Company's income to

                                       25
<PAGE>
the unitholders due to the UPREIT Units issued subsequent to March 1998 for the
purchase of properties as well as part of the Wilson Acquisition.

    The minority interest increased to $11.1 million for the six months ended
June 30, 1999 from $2.9 million for the six months ended June 30, 1998 due to
the allocation of the Company's income to the unitholders due to the UPREIT
Units issued subsequent to June 1998 for the purchase of properties as well as
part of the Wilson Acquisition.

    CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE.

    During the first quarter of 1999, the Company adopted Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5
requires that certain costs incurred in conjunction with start-up and
organizational activities be expensed. Pursuant to the requirements of SOP 98-5,
the Company has written off all unamortized organizational costs and has
recorded a cumulative effect of a change in accounting principle of $0.6
million.

    EXTRAORDINARY LOSS.

    Extraordinary loss represents the net of prepayment fees paid offset by the
unamortized portion of the associated debt premium/discount in connection with
the property debt restructuring that was completed during June 1999 (see
"Mortgage Indebtedness" below).

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOW (DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                           FOR THE SIX MONTHS  FOR THE SIX MONTHS
                                                                             ENDED JUNE 30,      ENDED JUNE 30,
CASH FLOW PROVIDED BY (USED IN):                                                  1999                1998
-------------------------------------------------------------------------  ------------------  ------------------
<S>                                                                        <C>                 <C>
Operating activities.....................................................      $  106,148         $     80,979
Investing activities.....................................................         (38,232)            (232,106)
Financing activities.....................................................         (97,029)             155,115
Earnings to fixed charges ratio..........................................            1.73                 2.20
</TABLE>

    Cash provided by operating activities increased to approximately $106.1
million for the six months ended June 30, 1999 from $81.0 million for the six
months ended June 30, 1998. The increase is primarily due to the cash flows from
the interests in 69 properties acquired since the end of the second quarter of
1998.

    Cash used in investing activities decreased to approximately $38.2 million
for the six months ended June 30, 1999 from $232.1 million for the six months
ended June 30, 1998. The decrease was primarily due to the acquisition of
Corporate 500 Centre for $135.0 million, One Memorial Drive for $23.5 million
and 201 California Street and Wilshire Palisades for $28.1 million during the
six months of 1998. Further adding to the decrease was the acquisition of the
partnership interest in Market Square for $5.1 million and a loan receivable of
$78.6 million in 1998. These amounts were offset by $18.8 million and $30.4
million in net proceeds received from the sale of the Dearborn land and the
Frick Building, respectively; an increase in additions to existing properties of
$25.7 million; a $0.9 million decrease in the repayment of mortgage notes
receivable; and a $0.6 million decrease in the repayment of a notes receivable
from a related party (the note was paid off in January 1999).

    Cash used in financing activities was $97.0 million during the six months
ended June 30, 1999, whereas $155.1 million of cash was provided by financing
activities for the six months ended June 30, 1998. The net decrease in cash
provided by financing activities of $252.1 million is due to the following: in
the first quarter of 1998, the Company's secondary offering provided net cash of
$247.6 million; mortgage loan repayments increased by $188.5 million; credit
facility borrowings decreased by $54.0 million; distributions

                                       26
<PAGE>
to stockholders increased by $27.1 million; and the proceeds received by the
Company from a dividend reinvestment plan decreased by $2.5 million. These
decreases were offset by an increase in mortgage loan borrowing of $100.0
million; a decrease in credit facility repayments of $168.5 million; a decrease
in restricted cash of $4.1 million; and the Company paid $5.0 million in debt
prepayment costs in the second quarter of 1999.

    The ratio of earnings to fixed charges and dividends on preferred stock
decreased to 1.73 at June 30, 1999 from 2.20 at June 30, 1998 due to the
increase in the Company's leverage ratio.

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.

    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 Condensed Consolidated Statements of Cash Flows
included in the Condensed 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 the three months ended June 30, 1999 and 1998 is
approximately $6,602,000 and $3,763,000, respectively, for free and deferred
rental income (after adjustment for minority interest). Included in FFO for the
six months ended June 30, 1999 and 1998 is an increase of approximately
$13,472,000 and $6,909,000, respectively, for free and deferred rental income
(after adjustment for minority interest).

                                       27
<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 three and six-month periods
ended June 30, 1999 and 1998, respectively (in thousands):

                           FUNDS FROM OPERATIONS (1)

<TABLE>
<CAPTION>
                                                        THREE MONTHS   THREE MONTHS    SIX MONTHS     SIX MONTHS
                                                            ENDED          ENDED          ENDED          ENDED
                                                        JUNE 30, 1999  JUNE 30, 1998  JUNE 30, 1999  JUNE 30, 1998
                                                        -------------  -------------  -------------  -------------
<S>                                                     <C>            <C>            <C>            <C>
Net income............................................   $    25,740    $    19,252    $    54,772    $    42,006

NAREIT adjustments:
  Depreciation and amortization(2)....................        23,808         16,214         48,893         26,859
  Minority adjustments................................          (688)          (541)        (1,365)        (1,008)
  Unconsolidated depreciation(3)......................           374          1,311            747          2,174
  Cumulative effect of a change in accounting
    principle.........................................            --             --            630             --
  Impairment costs....................................         3,753             --          3,753             --
  Loss on sale of assets..............................            --          1,985             --          2,197
  Extraordinary losses................................         3,355             --          3,355             --

Other adjustments:
  Amortization on rent notes..........................            --            378             --            746
  Severance payments..................................            --             --            247             --
  Minority interest allocated to unitholders..........         3,864            510          8,337            646
                                                        -------------  -------------  -------------  -------------
FUNDS FROM OPERATIONS.................................        60,206         39,109        119,369         73,620
                                                        -------------  -------------  -------------  -------------
                                                        -------------  -------------  -------------  -------------
Interest expense on convertible note..................           176            199            376            404
                                                        -------------  -------------  -------------  -------------
FUNDS FROM OPERATIONS (ADJUSTED FOR CONVERTIBLE
  DEBT)...............................................   $    60,382    $    39,308    $   119,745    $    74,024
                                                        -------------  -------------  -------------  -------------
                                                        -------------  -------------  -------------  -------------
</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. For the three and six months ended
    June 30, 1999, depreciation and amortization includes $971,000 and
    $1,974,000, respectively, of amortization relating to the intangible
    management and development company assets purchased as part of the Wilson
    Acquisition.

(3) For the three and six months ended June 30, 1999, the unconsolidated
    depreciation adjustment includes $169,000 and $338,000, respectively, of
    amortization relating to the intangible management and development company
    assets that were acquired as part of the Wilson Acquisition.

    The increase in FFO for the three and six month periods ending June 30, 1999
as compared to the same periods in 1998 is primarily due to the acquisition of
interests in 69 properties as part of the Wilson Acquisition and the acquisition
of three additional properties (One Memorial Drive, 201 California Street and
Wilshire Palisades) subsequent to the first quarter of 1998.

                                       28
<PAGE>
CAPITAL STOCK TRANSACTIONS

    On May 12, 1999, the Company received proceeds of approximately $1.8 million
and issued an additional 127,000 shares of Common Stock due to the exercise of
certain stock options.

    On May 28, 1999, through a dividend reinvestment plan, the Company received
proceeds of approximately $1.2 million and issued an additional 76,603 shares of
Common Stock.

MORTGAGE INDEBTEDNESS

    During June 1999, the Company restructured approximately $163.0 million of
property-related debt with Prudential Insurance of America and Northwestern
Mutual Life Insurance Company. The restructuring involved retiring 17 of the
individual property-related debts and creating a single $180.0 million loan
which is cross-collateralized by six of the Company's properties. The loan has a
ten-year term and bears interest at 7.26% per annum.

    During June 1999, the Company entered into an agreement to restructure
approximately $220.6 million on six properties with Northwestern Mutual Life
Insurance Company. The restructuring involves retiring the individual property
related debt and creating a single $275.0 million loan which will be cross-
collateralized by five of the Company's properties. The loan will have a ten
year term and will bear interest at 7.23%.

OTHER INDEBTEDNESS

    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 1.80% over
the applicable LIBOR 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 June 30, 1999, $467.5 million
of the facility was outstanding at a rate of approximately 6.4%. Of this amount,
approximately $250.0 million is fixed with interest rate swaps, which
effectively fix the rate at 6.47%. These swaps are considered hedges for federal
income tax purposes. In addition, at June 30, 1999, there were two letters of
credit totaling $10.5 million ($5.5 million of which is with Summit Bank)
outstanding at a rate of 1.40%. During 1999, the Revolving Credit Facility was
amended to allow the Company to increase its leverage from 55.0% to 60.0%. The
amendment also increased the Company's ability to enter into mortgage debt by
decreasing the ratio of total property asset value (as defined) to secured
indebtedness from 2.5 to 2.22 to 1.00.

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. 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. The Company paid
distributions of $0.30 per share/unit to all stockholders and unitholders on May
28, 1999 (to stockholders and unitholders of record as of April 30, 1999). On
July 9, 1999, the Company declared a distribution of $0.30 per share/unit to be
paid to all stockholders and unitholders on August 31, 1999 (to stockholders and
unitholders of record as of July 30, 1999).

                                       29
<PAGE>
    At the present time, the Company is current in the payment of all preferred
dividends.

LIQUIDITY

    At June 30, 1999, the Company had approximately $32.8 million in cash and
cash equivalents and approximately $9.7 million in restricted cash. Restricted
cash includes prepaid rents and 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 $77.5 million available 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 that will 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.

                                       30
<PAGE>
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.

    RECENTLY ISSUED ACCOUNTING STANDARDS

    During the first quarter of 1999, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). 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.

    During the first quarter of 1999, the Company also adopted SOP 98-5. SOP
98-5 requires that certain costs incurred in conjunction with start-up and
organizational activities be expensed. Pursuant to the requirements of SOP 98-5,
the Company has written off all unamortized organizational costs and has
recorded a cumulative effect of a change in accounting principle of $630,044.

    In addition, during the first quarter of 1999, the Company adopted Statement
of Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance on whether
the costs of computer software developed or obtained for internal use should be
capitalized or expensed. The adoption of SOP 98-1 did not have a significant
effect on the Company's financial statements.

    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, Atlanta and San Mateo ("Home Office");
(ii) compliance of information and real estate operating systems at the property
sites ("Properties"); 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 Property 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.

                                       31
<PAGE>
    COST

    The total historical and anticipated remaining costs for the Year 2000
remediation are estimated to be immaterial to the Company's financial position
and results of operations. The costs to date consist of recurring systems
upgrades and replacements, insignificant 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, Atlanta and San Mateo. 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.

    PROPERTIES

    I.  Inventory of all systems: The Company continues to inventory all
       information and real estate operating systems at its Properties. The
       information systems primarily consist of desktop and laptop computers,
       server computers, printers, phone systems, local area and wide area
       network

                                       32
<PAGE>
       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 has been identified as
       non-compliant. The Company is on schedule to replace this and all other
       accounting and property management systems starting September 1, 1999.
       This replacement was planned and is being done in the ordinary course of
       business.

    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 Properties primarily
       use COTS products and do not significantly rely on any proprietary or
       customized systems. The Company is in the process of testing real estate
       operating systems previously identified as critical to operation. The
       testing process will be completed before December 31, 1999.

    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 PROJECTS

    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. As of June 30, 1999, approximately $66.5 million has been spent on
the construction. The project is scheduled to be completed in the year 2000 and
is approximately 40.0% 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.

                                       33
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    Approximately $1.3 billion of the Company's long-term debt bears interest at
fixed rates, and therefore the fair value of these instruments is affected by
changes in market interest rates. The following table presents principal cash
flows (dollar amounts in thousands) based upon expected maturity dates of the
debt obligations and the related weighted-average interest rates by expected
maturity dates for the fixed rate debt. The interest rate on the variable rate
debt as of June 30, 1999 ranged from LIBOR plus 0.5% to LIBOR plus 2.0%.

    Annual rates on advances from the Revolving Credit 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 1.80% over the applicable LIBOR or
the Prime Rate at the Company's option. Of the total advances outstanding under
the facility at June 30, 1999, $250.0 million is fixed with interest rate swaps,
which effectively fix the rate at 6.47%.

<TABLE>
<CAPTION>
                                                                                                                 FAIR
                                  1999       2000       2001       2002       2003     THEREAFTER     TOTAL      VALUE
                                ---------  ---------  ---------  ---------  ---------  -----------  ---------  ---------
<S>                             <C>        <C>        <C>        <C>        <C>        <C>          <C>        <C>
LONG-TERM DEBT:
  Fixed rate..................      8,529     72,649         --     67,432     67,463   1,109,125   1,325,198  1,454,447
    Average interest rate.....      6.90%      7.24%         --      6.81%      7.32%       7.26%

  Variable rate...............     58,000     58,974    480,426     47,756     16,239          --     661,395    661,395

INTEREST RATE SWAPS:
  Variable to Fixed...........         --    250,000         --         --         --          --          --         --
    Average pay rate(1).......         --      5.07%         --         --         --          --          --         --
    Average receive rate(1)...         --      4.99%         --         --         --          --          --         --
</TABLE>

--------------------------

(1) As of June 30, 1999.

                                       34
<PAGE>
                           PART II--OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

        Reference is made to Note 6 to the Condensed Consolidated Financial
        Statements, which is specifically incorporated by reference herein.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

        On May 12, 1999, through the exercise of certain stock options, the
        Company issued 127,000 shares of Common Stock to a senior executive of
        the Company and received proceeds of $1,827,000.

        On May 28, 1999, through a dividend reinvestment plan available to all
        German shareholders, the Company issued 76,603 shares of Common Stock to
        such shareholders in lieu of paying cash dividends in the aggregate
        amount of $1,230,000. Such shares were issued and sold to persons
        outside the United States and were not registered under the Securities
        Act.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        The Company held its Annual Meeting of Stockholders on May 25, 1999. The
        following individuals were nominated and elected to serve as directors:
        Cecil D. Conlee, Rodney C. Dimock, Blake Eagle, Donald G. Fisher,
        Randall A. Hack, Dr. Karl-Ludwig Hermann, Hans C. Mautner, Dr. Lutz
        Mellinger, John S. Moody, Craig R. Stapleton, Michael J.G. Topham, Dick
        van den Bos, Jan H.W.R. van der Vlist and William Wilson III.

        The Stockholders voted as follows on the following matters:

       1.  Election of Directors. The voting result for each nominee is as
           follows:

<TABLE>
<CAPTION>
NAME                                                                 VOTES FOR    VOTES WITHHELD
------------------------------------------------------------------  ------------  --------------
<S>                                                                 <C>           <C>
Cecil D. Conlee                                                       93,378,279        119,071
Rodney C. Dimock                                                      93,289,490        207,860
Blake Eagle                                                           93,378,279        119,071
Donald G. Fisher                                                      93,378,279        119,071
Randall A. Hack                                                       93,378,279        119,071
Dr. Karl-Ludwig Hermann                                               93,376,979        120,371
Hans C. Mautner                                                       93,378,279        119,071
Dr. Lutz Mellinger                                                    88,635,860      4,861,490
John S. Moody                                                         93,373,279        124,071
Craig R. Stapleton                                                    93,378,279        119,071
Michael J.G. Topham                                                   93,378,279        119,071
Dick van den Bos                                                      92,077,431      1,419,919
Jan H.W.R. van der Vlist                                              92,076,931      1,420,419
William Wilson III                                                    93,378,279        119,071
</TABLE>

       2.  The reappointment of PricewaterhouseCoopers LLP as the Company's
           independent auditors for fiscal year 1999 was approved by a count of
           93,444,661 votes for, 19,269 votes against and 33,420 votes
           abstaining.

        For further information regarding the forgoing matters submitted to
        stockholder approval, see the Company Proxy Statement on Schedule 14A
        filed with the Securities and Exchange Commission on April 26, 1999.

                                       35
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

    1)  Exhibit 12.1: Statement of Computation of Earnings to Fixed Charges and
       Preferred Stock Dividend Requirements

    2)  For EDGAR filing purposes only, this report contains Exhibit 27,
       Financial Data Schedule

    3)  Exhibit 99.1: Second Quarter 1999 Supplemental Package

(b) Reports on Form 8-K:

    1.  Form 8-K/A dated March 1, 1999

       Item 7 -- Financial Statements, Pro Forma Information and Exhibits. Pro
                 forma financial statements regarding the Wilson Acquisition as
                 of and for the period ending September 30, 1998.

    2.  Form 8-K dated March 24, 1999

       Item 5 -- Supplemental information package distributed in conjunction
                 with the Fourth Quarter 1998 Earnings Release of Cornerstone
                 Properties Inc.

                                       36
<PAGE>
                                   SIGNATURES

    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.

<TABLE>
<S>                             <C>  <C>
                                CORNERSTONE PROPERTIES INC.
                                (Registrant)

                                By:              /s/ JOHN S. MOODY
                                     -----------------------------------------
                                                   John S. Moody
                                                  PRESIDENT & CEO

                                Date: August 16, 1999

                                By:             /s/ KEVIN P. MAHONEY
                                     -----------------------------------------
                                                  Kevin P. Mahoney
                                     SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
                                                      OFFICER
                                        (PRINCIPAL FINANCIAL AND ACCOUNTING
                                                      OFFICER)

                                Date: August 16, 1999
</TABLE>

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