<PAGE>   1
                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934 For quarterly period ended September 30, 1997

[ ] 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 0-10421

                           CORNERSTONE PROPERTIES INC.
             (Exact name of registrant as specified in its charter)

             NEVADA                                          74-2170858
 (State or other jurisdiction                              (I.R.S. Employer
of incorporation or organization)                         Identification No.)

                              126 EAST 56TH STREET
                            NEW YORK, NEW YORK 10022
                    (Address of principal executive offices)

                                 (212) 605-7100
              (Registrant's telephone number, including area code)

        Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X]  No [ ]


Number of shares of Common Stock outstanding as of November 13, 1997: 83,176,819

Total pages = 15
Exhibit Index located on page 14



<PAGE>   2
                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                                            SEPTEMBER 30,   DECEMBER 31,
                                                                                1997            1996
                                                                            ------------    -----------
                                                                             (UNAUDITED)
<S>                                                                           <C>             <C>      
ASSETS

Investments, at cost:
       Land                                                                   $  89,835       $  68,395
       Buildings and improvements                                               659,504         612,567
       Deferred lease costs                                                     126,375         118,700
                                                                              ---------       ---------
                                                                                875,714         799,662
       Less: Accumulated depreciation and amortization                          219,881         198,686
                                                                              ---------       ---------
          Total investments                                                     655,833         600,976

Cash and cash equivalents                                                       224,874         114,803
Restricted cash (Note 3)                                                         39,728           4,426
Other deferred costs, net of accumulated amortization of $1,647
and $1,140                                                                        3,795           3,562
Deferred tenant receivables                                                      36,208          34,747
Tenant and other receivables                                                      4,384           2,405
Notes receivable                                                                  2,007           2,911
Other assets                                                                      5,156           2,350
                                                                              ---------       ---------
TOTAL ASSETS                                                                  $ 971,985       $ 766,180
                                                                              =========       =========

LIABILITIES AND STOCKHOLDERS' INVESTMENT

Long-term debt (Note 4)                                                       $ 366,830       $ 400,142
Short-term debt (Note 3)                                                         35,000              --
Accrued interest payable                                                          1,522           1,082
Accrued real estate taxes payable                                                15,968          13,222
Common Stockholders' distribution payable                                        14,657          12,366
Accounts payable and accrued expenses                                             9,158           6,468
Unearned revenue and other liabilities                                            8,223           9,095
                                                                              ---------       ---------
TOTAL LIABILITIES                                                               451,358         442,375
                                                                              ---------       ---------

Minority Interest (Note 1)                                                      (17,356)        (17,478)
                                                                              ---------       ---------


Redeemable Preferred Stock, $166,500,000 redemption value (Note 6)                   --         162,743
                                                                              ---------       ---------

STOCKHOLDERS' INVESTMENT (Note 7)
7% Cumulative Convertible Preferred Stock, $16.50 stated value                   50,000          50,000
   15,000,000 shares authorized; 3,030,303 shares issued and outstanding
Common stock, no par value; 100,000,000 authorized shares;
    shares issued and outstanding (1997-48,856,742; 1996-20,609,754)
Paid-in capital                                                                 499,331         160,577
Accumulated deficit                                                              (9,123)        (30,789)
Deferred compensation                                                            (2,225)         (1,248)
                                                                              ---------       ---------
TOTAL STOCKHOLDERS' INVESTMENT                                                  537,983         178,540
                                                                              ---------       ---------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT                                $ 971,985       $ 766,180
                                                                              =========       =========
</TABLE>


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



                                  Page 2 of 15
<PAGE>   3
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)


                  CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
         FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
             (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                  THREE MONTHS   THREE MONTHS   NINE MONTHS    NINE MONTHS
                                                      ENDED         ENDED          ENDED           ENDED
                                                  SEPTEMBER 30,  SEPTEMBER 30,  SEPTEMBER 30,   SEPTEMBER 30,
                                                      1997           1996           1997            1996
                                                    --------       --------       ---------       --------
<S>                                                 <C>            <C>            <C>             <C>     
REVENUES
       Office and parking rentals                   $ 34,546       $ 27,774       $ 103,237       $ 80,687
       Interest and other income                       3,868          1,227           8,432          4,076
                                                    --------       --------       ---------       --------
           TOTAL REVENUES                             38,414         29,001         111,669         84,763
                                                    --------       --------       ---------       --------

EXPENSES
       Building operating expenses                     7,660          6,092          22,693         17,540
       Real estate taxes                               5,933          4,870          17,553         14,186
       Interest expense                                7,405          7,922          22,395         24,054
       Depreciation and amortization                   7,057          6,068          20,865         17,869
       General and administrative                      1,869          1,675           5,134          4,662
                                                    --------       --------       ---------       --------
           TOTAL EXPENSES                             29,924         26,627          88,640         78,311
                                                    --------       --------       ---------       --------
                                                       8,490          2,374          23,029          6,452
                                                    --------       --------       ---------       --------
OTHER INCOME (EXPENSES)
      Net gain on interest rate swaps (Note 1)            --            (64)             99          5,401
      Minority Interest                                 (414)          (331)         (1,408)        (1,017)
                                                    --------       --------       ---------       --------
Income before extraordinary item                       8,076          1,979          21,720         10,836

Extraordinary loss                                        --         (3,786)            (54)        (3,786)
                                                    --------       --------       ---------       --------

NET INCOME (LOSS)                                   $  8,076       $ (1,807)      $  21,666       $  7,050
                                                    ========       ========       =========       ========

NET INCOME (LOSS) APPLICABLE TO COMMON STOCK        $  7,201       $ (2,682)      $  12,381       $  4,425
                                                    ========       ========       =========       ========
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM PER COMMON SHARE (Note 1)                      $   0.18       $   0.05       $    0.37       $   0.40
                                                    ========       ========       =========       ========

NET INCOME (LOSS) PER COMMON SHARE (Note 1)         $   0.18       $  (0.13)      $    0.37       $   0.22
                                                    ========       ========       =========       ========
</TABLE>


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



                                  Page 3 of 15


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


                  CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
                          (DOLLAR AMOUNTS IN THOUSANDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                      NINE MONTHS      NINE MONTHS
                                                                                         ENDED             ENDED
                                                                                      SEPTEMBER 30,    SEPTEMBER 30,
                                                                                          1997            1996
                                                                                        ---------       ---------
<S>                                                                                     <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
        Net income                                                                      $  21,666       $   7,050
        Adjustments to reconcile net income to net cash
           provided by operating activities:
              Depreciation and amortization                                                20,865          17,869
              Deferred compensation amortization                                              661             635
              Net gain on interest rate swaps                                                 (99)         (5,401)
              Extraordinary loss                                                               54           3,786
              Unbilled rental revenue                                                        (978)         (1,482)
              Increase (decrease) in accrued interest payable                                 440          (2,226)
              Minority interest share of income                                             1,408           1,017
              Increase in tenant and other receivables and other assets                    (4,772)         (5,070)
              Increase in accounts payable, accrued expenses and other liabilities          4,227           4,243
                                                                                        ---------       ---------

              Total adjustments                                                            21,806          13,371
                                                                                        ---------       ---------

              Net cash provided by operating activities                                    43,472          20,421
                                                                                        ---------       ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
        Additions to investment property                                                  (75,064)         (6,128)
        Repayment of notes receivable                                                         903             813
        Earnest deposits                                                                       --          (4,508)
        Deferred costs incurred on investments                                                 --            (406)
                                                                                        ---------       ---------

              Net cash used in investing activities                                       (74,161)        (10,229)
                                                                                        ---------       ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
        Proceeds from common stock offering                                               225,400              --
        Borrowings under mortgage loan                                                     35,000         116,000
        Repayment of term loan                                                            (32,500)             --
        Repayments under mortgage loans                                                      (812)        (98,121)
        Proceeds from dividend reinvestment plan                                            8,586           4,016
        Net payments for swap terminations and prepayment costs                              (216)         (6,665)
        (Increase) decrease in restricted cash                                            (35,302)          4,393
        Stock/debt issue costs                                                            (18,139)           (929)
        Distribution to minority partners                                                  (1,285)         (1,422)
        Distribution to preferred stockholders                                            (10,160)             --
        Distribution to common stockholders                                               (29,812)        (15,685)
                                                                                        ---------       ---------

              Net cash provided by financing activities                                   140,760           1,587
                                                                                        ---------       ---------

INCREASE IN CASH AND CASH EQUIVALENTS                                                     110,071          11,779
CASH AND CASH EQUIVALENTS, beginning of period                                            114,803           7,740
                                                                                        ---------       ---------
CASH AND CASH EQUIVALENTS, end of period                                                $ 224,874       $  19,519
                                                                                        =========       =========
</TABLE>

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



                                  Page 4 of 15


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

                  CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997


1.  NATURE OF COMPANY'S BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

    NATURE OF THE COMPANY'S BUSINESS
    Cornerstone Properties Inc. ("Cornerstone" or the "Company") is a
    self-advised equity real estate investment trust which owns, through
    subsidiaries, interests in eight Class A office properties ("Properties")
    encompassing approximately 4.9 million rentable square feet. The Company was
    formed in May 1981 as ARICO America Realestate Investment Company, a Nevada
    corporation, to invest in major commercial real estate projects in North
    America.

    GENERAL
    The condensed consolidated financial statements included herein have been
    prepared by the Company, without audit, 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 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 month and nine month periods presented have been included. Results for
    the three and nine months ended September 30, 1997 are not necessarily
    indicative of results which may be expected for any other interim periods or
    for the year as a whole. It is suggested that these financial statements 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 subsidiaries and controlled partnerships.
    All significant intercompany balances and transactions have been eliminated
    in consolidation.

    INTEREST RATE SWAP AGREEMENTS
    The Company accounts for its interest rate swap agreements as hedges in
    accordance with SFAS No. 80 "Accounting for Futures Contracts" if the swap
    is designated as a hedge and effectively reduces the exposure to the Company
    of market interest rate changes. Changes in the market value of these
    interest rate swap agreements are deferred and recognized in income at the
    expiration or termination of the underlying debt. Forward interest rate swap
    agreements that do not meet hedge criteria are accounted for using
    mark-to-market accounting, recognizing any unrealized gain or loss on the
    instrument in the period in which it is outstanding. When swaps are
    extinguished at the same time as the underlying debt instrument, the cost to
    extinguish the swap is treated as extraordinary gain or loss. When a swap
    remains in place after the underlying instrument matures, it is accounted
    for on a mark-to-market basis. The swap termination is accounted for as
    ordinary gain or loss when it is extinguished with no underlying debt
    instrument in place. Currently, the Company is not a party to interest rate
    swap agreements.

    INCOME PER SHARE
    Income per share is computed based on the weighted average number of common
    shares outstanding of 33,494,282 for 1997 and 20,344,270 for 1996. For 1997
    and 1996, dividends applicable to preferred stock of $9,285,000 and
    $2,625,000 respectively, have been deducted from the net income in computing
    income per share.

    RECLASSIFICATIONS
    Certain prior period amounts have been reclassified to conform to the
    September 30, 1997 financial statement presentation.





                                  Page 5 of 15
<PAGE>   6
    ESTIMATES
    The preparation of financial statements in conformity with generally
    accepted accounting principles 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 estimates and assumptions are related
    to the recoverability and depreciable lives of investment property and the
    recoverability of deferred tenant receivables. Actual results could differ
    from those estimates.

2.  PROPERTIES
    The following schedule summarizes Cornerstone's interest in real estate
    investments at September 30, 1997:

<TABLE>
<CAPTION>
                                                  Completed/    Net Rentable                   Ownership
 Property                  Location                Acquired     square feet      % Leased        Interest    Notes
------------------------------------------------------------------------------------------------------------------
<S>                        <C>                    <C>           <C>              <C>           <C>           <C>
 One Norwest Center        Denver, CO                   1983     1,188,000          99%           100%
 Norwest Center            Minneapolis, MN              1988     1,118,000          99%            50%
 Washington Mutual Tower   Seattle, WA                  1988     1,155,000          98%            50%
 125 Summer Street         Boston, MA              1989/1995       464,000          94%           100%
 Tower 56                  New York, NY            1983/1996       162,000          97%           100%
 One Lincoln Centre        Oakbrook  Terrace, IL   1986/1996       297,000          95%           100%
 The Frick Building        Pittsburgh, PA          1902/1996       341,000          88%           100%
 527 Madison Avenue        New York, NY            1986/1997       216,000          93%           100%        A
</TABLE>

    (A) Effective February 14, 1997, Cornerstone, through its wholly-owned
        qualified REIT subsidiary, CStone-527 Madison, Inc., purchased 527
        Madison Avenue in Midtown Manhattan, New York for approximately $67
        million. 527 Madison Avenue is a twenty-six story Class A office
        building with approximately 211,000 square feet of office space, 5,000
        square feet of first floor retail space and an underground parking
        facility for approximately 50 vehicles. The acquisition was financed
        with the proceeds from the Company's offering of Preferred Stock,
        completed in November 1996.

3.  RESTRICTED CASH
    The existing $35,000,000 mortgage on 527 Madison Avenue was kept in place
    and assigned to Bankers Trust Company as part of the purchase of the
    property. On October 27, 1997 the mortgage was repaid. Restricted cash is
    being held by escrow agents for real estate taxes and insurance on the One
    Norwest Center and Washington Mutual Tower loans.

4.  LONG-TERM DEBT

<TABLE>
<CAPTION>
         Principal Balance
    9/30/97        12/31/96  Collateral                      Interest Rate        Maturity    Amortization          Notes
  -----------------------------------------------------------------------------------------------------------------------
<S>            <C>           <C>                             <C>                  <C>         <C>                   <C>
  $12,926,000  $ 12,926,000  Rent Notes                      Lesser of 8.11%      01/01/01     None                    A
                                                             or LIBOR + 50bp
   97,018,000    97,706,000  One Norwest Center              7.50%                08/01/01     30 years
  110,000,000   110,000,000  Norwest Center                  8.74%                12/31/05     None
   79,100,000    79,100,000  Washington Mutual Tower         7.53%                11/01/05     None
   50,000,000    50,000,000  125 Summer Street               7.20%                01/01/03     25 years
                                                                                               beginning 02/01/01
   17,786,000    17,910,000  Tower 56                        7.67%                04/24/03     30 years
            -    32,500,000  Cornerstone Properties Inc.     5.0%                                                      B
 ------------  ------------
 $366,830,000  $400,142,000
</TABLE>
    

(A)     At maturity of the debt, Cornerstone has the right to redeem the note in
        exchange for common shares of the Company at the lower of market price
        or $14.30 per share.

(B)     On March 19, 1997, the $32,500,000 term loan was repaid to Deutsche Bank
        AG.




                                  Page 6 of 15
<PAGE>   7
5.  LINE OF CREDIT
    Bankers Trust Company has provided Cornerstone with a $10,000,000 revolving
    credit line which is available for general corporate and acquisition
    purposes at a rate equivalent to an Adjusted Eurodollar Rate (as defined),
    as well as for the issuance of standby letters of credit at a rate of 0.15
    percent. At September 30, 1997, none of the credit line had been drawn. The
    line of credit expired on November 7, 1997.

6.  REDEEMABLE PREFERRED STOCK

<TABLE>
<CAPTION>
                                                                            Shares        Carrying Value       Common Stock
                                         Redemption/        Shares       Outstanding       Net of Issue         Conversion
   Title                                 Stated Value      Authorized    When Redeemed   Costs When Redeemed      Price
   ------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                <C>            <C>            <C>                    <C>   
   8% Cum. Convertible                  $145.00/Share      1,034,483         689,655       $97,609,000            $14.50
   8% Cum. Convertible, Series A        $145.00/Share        458,621         458,621       $64,906,000            $14.50
                                                                                          ------------
                                                                                          $162,515,000
</TABLE>

    On July 25, 1997, the Redeemable Preferred shares were converted into
    11,482,760 common shares. The contractual conversion was based upon meeting
    a $16.00 twenty day average common share price.

7.  STOCKHOLDERS' INVESTMENT
    On April 22, 1997, Cornerstone Properties Inc. completed its initial U.S.
    public offering of 16.1 million shares of common stock at a price of $14 per
    share for gross proceeds of $225.4 million. Cornerstone's stock began
    trading on the New York Stock Exchange under the symbol CPP.

    The offering was underwritten by Merrill Lynch & Co. and included Lazard
    Freres & Co. LLC, Lehman Brothers, Morgan Stanley & Co., Inc., Smith Barney
    Inc., and BT Securities Corporation as co-managers. The Company intends to
    use the net proceeds of this offering for potential acquisitions, working
    capital and other general corporate purposes.

    The 7% Cumulative Convertible Preferred Stock is convertible into common
    stock at $16.50 per share at any time after August 4, 2000.

    The following tables summarize the long-term incentive plans for certain
    officers of the Company as of September 30, 1997:

    STOCK OPTIONS

<TABLE>
<CAPTION>
                  Options Granted  Exercise Price                      Options        Options
 Date of Grant    No. of shares)   (per share)     Vesting             Exercisable    Exercised
-----------------------------------------------------------------------------------------------
<S>               <C>              <C>             <C>                 <C>            <C>
 June, 1995       787,500          $14.30          20%/yr, 10yr term       315,000           0
 March, 1997      880,000          $14.50          20%/yr, 10yr term             0           0
</TABLE>


    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.
</TABLE>

(A) Deferred compensation of approximately $4,037,000 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' investment. Regular dividends are paid on restricted stock.



                                  Page 7 of 15
<PAGE>   8
    STOCKHOLDERS' DISTRIBUTIONS
    Dividends of $0.30 per share were declared for the first quarter of 1997,
    paid on April 30, 1997, to Common Stockholders of record as of March 21,
    1997. Dividends of $0.30 per share were declared for the second quarter of
    1997, paid on July 31, 1997, to Common Stockholders of record as of June 20,
    1997. Dividends of $0.30 per share were declared for the third quarter of
    1997, paid on October 31, 1997, to Common Stockholders of record as of
    September 19, 1997.

8.  NEW PRONOUNCEMENTS
    During 1997, the Financial Accounting Standards Board issued Statements of
    Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"),
    No. 129 "Disclosure of Information About Capital Structure" ("SFAS 129"),
    No. 130 "Reporting Comprehensive Income" ("SFAS 130"), and No. 131
    "Disclosures About Segments of an Enterprise and Related Information" ("SFAS
    131"). All of these statements are effective for fiscal years beginning
    after December 15, 1997.

    SFAS 128 specifies the computation, representation and disclosure
    requirements for earnings per share. SFAS 129 established standards for
    disclosing information about an entity's capital structure such as
    information about securities, liquidation preference of preferred stock and
    redeemable stock. SFAS 130 specifies the presentation and disclosure
    requirement for reporting comprehensive income which includes those items
    which have been formerly reported as a component of shareholders' equity.
    SFAS 131 establishes the disclosure requirements for reporting segment
    information.

    Management believes that, when adopted, SFAS 128, 129, 130 and 131 will
    not have a significant impact on the Company's financial statements.

9.  SUBSEQUENT EVENTS
    On October 27, 1997 Bankers Trust and Chase Manhattan Bank provided
    Cornerstone with a $350 million line of credit for acquisitions and general
    working capital purposes as well as the issuance of letters of credit. The
    interest rate on the line of credit depends on the Company's leverage ratio
    at the time of borrowing and will be at a spread of 1.10% to 1.40% over
    LIBOR (as defined). The letters of credit will be priced at the applicable
    Eurodollar credit spread. At November 12, 1997, $54 million of the credit
    line was outstanding at a rate of LIBOR plus 1.25%. The line of credit
    expires on October 27, 2000.

    On October 27, 1997 the Company purchased interests in nine premier office
    buildings and an undeveloped parcel of land from Dutch Institutional Holding
    Company, Inc. for up to 34,187,500 shares of Cornerstone common stock,
    $259.5 million in cash and $250 million of promissory notes.

    On October 27, 1997 the common shareholders of the Company approved an
    increase in the authorized common shares from 100,000,000 to 250,000,000.



                                  Page 8 of 15
<PAGE>   9
ITEM 2

     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997


RESULTS OF OPERATIONS

CONSOLIDATION
Cornerstone's principal source of income is rental revenues received through its
investment in six fee simple properties and two real estate partnerships held by
nine wholly-owned subsidiaries: 1700 Lincoln Limited owned 90 percent by
ARICO-Denver, Inc. and 10 percent by 1700 Lincoln Inc., NWC Limited Partnership
owned by ARICO-Minneapolis, Inc., Third and University Limited Partnership owned
by ARICO-Seattle, Inc., 125 Summer Street owned by CStone-Boston Inc., Tower 56
owned by CStone-New York Inc., One Lincoln Centre owned by CStone-Oakbrook,
Inc., 527 Madison Avenue owned by CStone-527 Madison, Inc. and the Frick
Building owned by CStone-Pittsburgh Trust, respectively. NWC Limited Partnership
and Third and University Limited Partnership have been consolidated since
Cornerstone has a majority interest in the economic benefits and has the right
to become managing general partner at its sole discretion.

PROPERTY RESULTS

For the three and nine months ended September 30, 1997 and 1996 property results
can be summarized as follows (000's):


<TABLE>
<CAPTION>
                                     For the three    For the three      For the nine    For the nine
                                      months ended     months ended      months ended    months ended
                                      September 30,    September 30,     September 30,    September 30,
                                          1997             1996              1997              1996
------------------------------------------------------------------------------------------------------
<S>                                      <C>              <C>              <C>               <C>    
Office and Parking Rentals               $34,546          $27,774          $103,237          $80,687
Less:
  Building Operating Expenses              7,660            6,092            22,693           17,540
  Real Estate Taxes                        5,933            4,870            17,553           14,186
  Depreciation and Amortization            7,057            6,068            20,865           17,869
                                         -------          -------          --------          -------

Total Operating Expenses                  20,650           17,030            61,111           49,595
                                         -------          -------          --------          -------
Total Property Income                    $13,896          $10,744          $ 42,126          $31,092
                                         =======          =======          ========          =======
</TABLE>


The increase in property income for the three months ended September 30, 1997 as
compared to the same period in 1996 of $3.1 million was due to the acquisition
of One Lincoln Centre ($1.0 million), and the Frick Building ($0.4 million)
during 1996, and 527 Madison Avenue ($1.2 million) in early 1997. At the
existing properties, property income at Norwest Center increased $0.5 million
due to the recovery of the increased real estate taxes which were incurred in
1996. Washington Mutual Tower increased $0.3 million due to increased rental
rates and higher parking revenues. The property income at 125 Summer Street
decreased $0.4 million due to the vacancy caused by the expiration of Gadsby and
Hannah and the reduction of rent in the BTM Capital Corporation lease. One
Norwest Center and Tower 56 combined property income increased by $0.1 million.

The increase in property income for the nine months ended September 30, 1997 as
compared to the same period in 1996 of $11.0 million was due to the acquisition
of Tower 56 ($1.1 million), One Lincoln Centre ($2.9 million), and the Frick
Building ($1.3 million) during 1996 and 527 Madison Avenue ($3.6 million) in
early 1997. At the existing properties, property income at One Norwest Center
increased $0.9 million due to a lease buyout of a portion of the Norwest Bank
space in order to allow for the Gulf Canada expansion. Norwest Center increased
$1.9 million due to the recovery of the increased real estate taxes which were
incurred in 1996. Washington Mutual Tower increased $0.9 million due to
increased rental rates and higher parking revenues. The property income at 125
Summer Street decreased $1.6 million due to the vacancy caused by the expiration
of Gadsby and Hannah and the reduction of rent in the BTM Capital Corporation
lease.



                                  Page 9 of 15
<PAGE>   10
INTEREST AND OTHER INCOME

Interest and other income was $3,868,000 and $1,227,000 for the three months
ended September 30, 1997 and 1996, respectively. These amounts primarily consist
of interest earned from short-term investments, notes receivable from partners,
and income from the advisory contracts in 1997 and 1996. The increase was due to
the additional cash available for short-term investment as a result of the
initial public offering.

Year to date interest and other income was $8,432,000 in 1997 and $4,076,000 in
1996. These amounts primarily consist of interest earned from short-term
investments, interest earned on the Tower 56 mortgage notes receivable in 1996,
notes receivable from partners, and income from the advisory contracts in 1997
and 1996. The increase was due to the additional cash available for short-term
investment as a result of the initial public offering.

INTEREST EXPENSE
Interest expense incurred by Cornerstone relating to its financing activities
was $7,405,000 and $7,922,000 for the three months ended September 30, 1997 and
1996, respectively. The decrease was primarily due to the refinancing of the One
Norwest Center debt resulting in savings of $217,000 and approximately $406,000
of savings resulting from the repayment of the $32.5 million term loan. These
amounts are partially offset by approximately $106,000 of increased amortization
of deferred financing costs.

Interest expense incurred by Cornerstone relating to its financing activities
was $22,395,000 and $24,054,000 for the nine months ended September 30, 1997 and
1996, respectively. The decrease was primarily due to the refinancing of the One
Norwest Center debt resulting in savings of $1,320,000, which is offset by the
$444,000 of interest expense on Tower 56 which was financed in the second
quarter of 1996 and increased financing cost amortization of $53,000.
Additionally, the Company had approximately $836,000 of savings resulting from
the repayment of the $32.5 million term loan.

INTEREST RATE SWAPS
During 1996 and 1997 the Company had the following interest rate swaps
outstanding:

The $107 million interest rate swap agreement with a maturity date of July 30,
1998, was accounted for as a hedge since it was comprised of two offsetting
swaps, resulting in a fixed payment from Cornerstone to its counterparties
through the term of the swaps. Upon the refinancing of the One Norwest Center
debt in August 1996, the swap was terminated and the cost to terminate the swap
was recorded as an extraordinary loss.

For the nine month period ended September 30, 1996, interest expense of the
Company included approximately $467,000 of expense related to interest rate swap
agreements. Since the $98 million swap was a forward swap and accounted for on a
mark to market basis, it had no effect on the reported interest expense of the
Company. This swap was terminated during the first quarter of 1997 at a gain of
$99,000 compared to the mark to market gain in the first three quarters of 1996
of $5.4 million. The Company currently is not a party to interest rate swap
agreements.

GENERAL AND ADMINISTRATIVE EXPENSES
The aggregate amount of Cornerstone's general and administrative expenses have
increased to $1,869,000 for the three months ended September 30, 1997 from
$1,675,000 for the same period in 1996. The increase in 1997 from 1996 of
$194,000 was due to increased staffing.

The aggregate amount of Cornerstone's general and administrative expenses have
increased to $5,134,000 for the nine months ended September 30, 1997 from
$4,662,000 for the same period in 1996. The increase in 1997 from 1996 of
$472,000 was due to the write off of certain expenses related to abandoned
projects of $144,000, and increased salaries and benefits due to the hiring of
additional staff of $218,000 and public relations consultants of $110,000.




                                 Page 10 of 15
<PAGE>   11
LIQUIDITY AND CAPITAL RESOURCES

CASH FLOW (000'S)

<TABLE>
<CAPTION>
                                   For the nine months                      For the nine months
Cash flow provided by (used in):   ended September 30, 1997              ended September 30, 1996
-------------------------------------------------------------------------------------------------
<S>                                <C>                                   <C>    
Operating activities                       $43,472                                $20,421
Investing activities                       (74,161)                               (10,229)
Financing activities                       140,760                                  1,587
Earnings to fixed charges ratio               1.39                                   1.17
</TABLE>

Cash provided by operating activities increased from $20.4 million for the nine
months ended September 30, 1996 to $43.5 million for the nine months ended
September 30, 1997. This increase was mainly due to the increase in net rental
revenues (before depreciation and amortization) from the properties of $14.0
million, interest expense savings of $4.3 million on a cash basis, a reduction
in unbilled rental income of $0.5 million, an increase in minority interest of
$0.4 million and increased interest income from higher cash reserves of $4.4
million; these amounts are offset by an increase of approximately $0.5 million
of general and administrative expenses.

Cash used in investing activities increased to $74.2 million for the nine months
ended September 30, 1997 from $10.3 million for the nine months ended September
30, 1996 due to the acquisition of 527 Madison Avenue during 1997 for a total
cost of $67 million.

Cash providing by financing activities increased to $140.8 million for the nine
months ended September 30, 1997 as compared to $1.6 million as of September 30,
1996. The increase was mainly due to the placement proceeds from the initial
public offering which is offset by common and preferred stockholder
distributions and the repayment of the $32.5 million term loan.

The ratio of earnings to fixed charges and dividends on preferred stock
increased to 1.39 times at September 30, 1997 from 1.17 times at September 30,
1996 due to the substantial reduction of the Company's leverage ratio and the
conversion of the 8% preferred shares into common stock.

FUNDS FROM OPERATIONS
The Company calculates Funds from Operations (FFO) based upon guidance from the
National Association of Real Estate Investment Trusts (NAREIT). FFO is defined
as net income, excluding gains or losses from debt restructuring and sales of
property, plus depreciation and amortization, and after adjustments for
unconsolidated joint ventures. The Company has adjusted FFO by the net gain on
interest rate swap previously discussed due to the non-cash nature of this item.
Since the Company is no longer a party to any interest rate swap agreements, the
adjustment in the first quarter of 1997 will be the final adjustment for this
item.

Industry analysts generally consider FFO to be an appropriate measure of
performance of an equity Real Estate Investment Trust (REIT) such as
Cornerstone. FFO does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and, therefore, should
not be considered a substitute for net income as a measure of performance or for
cash flow from operations as a measure of liquidity calculated in accordance
with generally accepted accounting principles.

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 incur and service debt and to
make capital expenditures. For cash flows from operating, financing and
investing activities, see the Consolidated Statements of Cash Flows included in
the Consolidated Financial Statements which are part of this report.

The Company no longer reports free and deferred rental income as an adjustment
to FFO since this is not part of the industry standard. Therefore, included in
FFO for the three months ended September 30, 1997 and 1996, is a reduction of
approximately $38,000 and an increase of approximately $85,000, respectively,
for free and deferred rental income (after adjustment for minority interest).
Included in FFO for the nine months ended September 30, 1997 and 1996, is
approximately $746,000 and $751,000, respectively, of free and deferred rental
income (after adjustment for minority interest).



                                 Page 11 of 15
<PAGE>   12
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 nine month periods ended
September 30, 1997 and 1996, respectively (in thousands):

<TABLE>
<CAPTION>
                                                                       FUNDS FROM OPERATIONS (A)

                                                 THREE MONTHS       THREE MONTHS        NINE MONTHS        NINE MONTHS
                                                     ENDED              ENDED               ENDED              ENDED
                                                  SEPTEMBER 30,     SEPTEMBER 30,       SEPTEMBER 30,      SEPTEMBER 30,
                                                      1997               1996               1997               1996
                                                    --------           --------           --------           --------
<S>                                                 <C>                <C>                <C>                <C>     
Net income                                          $  8,076           $ (1,807)          $ 21,666           $  7,050

NAREIT Adjustments:
   Depreciation and amortization (B)                   7,057              6,068             20,865             17,869
   Realized/Unrealized gain                                0                 64                (99)            (5,401)
   Minority adjustments                                 (307)              (372)            (1,044)            (1,393)
   Extraordinary Losses/Swap Losses                        0              3,786                 54              3,786

Other Adjustments:
   Amortization on rent notes                            346                311                903                813
   Real estate tax adjustment                              0                695                  0              2,107
                                                    --------           --------           --------           --------
FUNDS FROM OPERATIONS                                 15,172              8,745             42,345             24,831
                                                    --------           --------           --------           --------

Accrued Preferred Dividend                              (875)              (875)            (9,285)            (2,625)
                                                    --------           --------           --------           --------

FUNDS FROM OPERATIONS
AVAILABLE FOR COMMON SHARES                         $ 14,297           $  7,870           $ 33,060           $ 22,206
                                                    ========           ========           ========           ========
</TABLE>

(A) 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.

(B) 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.

The increase in FFO for the three months ended September 30, 1997 as compared to
the same period in 1996 is due to a $4.1 million increase in property net
operating income, a $2.6 million increase in interest and other income, a $0.5
million decrease in interest expense, which was offset by the $0.7 million real
estate tax adjustment in 1996 and a $0.2 million increase in general and
administrative expenses.

The increase in FFO available for common shares for the nine months ended
September 30, 1997 is due to a $14.0 million increase in property net operating
income, a $4.3 million increase in interest and other income, a $1.7 million
decrease in interest expense, and a $0.1 million increase in rent note
amortization. These amounts are offset by a $0.5 million increase in general and
administrative expenses, $2.1 million of real estate tax adjustment in 1996 and
an increase of $6.7 million of preferred dividends.

The Company will seek to continue increasing FFO and the value of its property
portfolio by acquiring additional properties that the Company believes will
produce favorable returns. As part of its ongoing business, the Company
periodically engages in discussions with public and private real estate entities
regarding possible portfolio or asset acquisitions or business combinations.

CAPITAL STOCK TRANSACTIONS
On April 22, 1997, the Company completed its initial public offering in the U.S.
of 16.1 million shares of common stock at a price of $14.00 per share. The
proceeds from the offering will be used to acquire new assets and for general
corporate purposes. The Company is listed on the New York Stock Exchange under
the symbol CPP.


                                 Page 12 of 15
<PAGE>   13
On July 25, 1997, the 1,148,276 shares of Redeemable Preferred stock were
converted into 11,482,760 common shares. The contractual conversion was based
upon meeting a $16.00 twenty day average common share price.

LONG TERM DEBT
The Company was required under the terms of its $32.5 million term loan with
Deutsche Bank AG to repay the loan upon the completion of its initial public
offering (IPO) in the United States. In anticipation of the IPO and listing on
the New York Stock Exchange, the Company repaid this loan on March 19, 1997. The
Company has no long-term debt maturing until 2001.

OTHER MATTERS
The Company is not aware of any environmental issues at any of its properties.
The Company believes it has sufficient insurance coverage at each of its
properties. A majority of the Company's leases require the tenants to pay most
operating expenses as well as increases in common area maintenance expenses,
which reduces the Company's exposure to increases in costs and operating
expenses resulting from inflation.

STOCKHOLDERS' DISTRIBUTIONS
Cornerstone intends to distribute at least 95 percent of its taxable income to
maintain its qualification as a Real Estate Investment Trust. Currently,
Cornerstone anticipates that FFO will exceed taxable income for the foreseeable
future. Cornerstone's distribution policy is to pay distributions based upon
FFO, less prudent reserves. The Company declared a dividend of $0.30 per common
share, payable to all stockholders of record as of September 19, 1997 on October
31, 1997.

At the present time the Company is current in the payment of all preferred
dividends.

LIQUIDITY
At September 30, 1997, the Company had $224,874,000 in cash and cash equivalents
and $39,728,000 in restricted cash. Restricted cash is being held by escrow
agents for the One Norwest Center, 527 Madison Avenue and Washington Mutual
Tower loans. Cornerstone also had available $10 million under its working
capital line of credit for general corporate purposes. In addition, Cornerstone
anticipates it will receive distributions from its real estate partnerships and
rental income from its fee owned properties on a monthly basis which will be
used to cover normal operating expenses and pay distributions to its
stockholders. Based upon its cash reserves and other sources of funds,
Cornerstone has sufficient liquidity to meet its cash requirements for the
foreseeable future.

NEW PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"), No.
129 "Disclosure of Information About Capital Structure" ("SFAS 129"), No. 130
"Reporting Comprehensive Income" ("SFAS 130"), and No. 131 "Disclosures About
Segments of an Enterprise and Related Information" ("SFAS 131"). All of these
statements are effective for fiscal years beginning after December 15, 1997.

SFAS 128 specifies the computation, representation and disclosure requirements
for earnings per share. SFAS 129 established standards for disclosing
information about an entity's capital structure such as information about
securities, liquidation preference of preferred stock and redeemable stock. SFAS
130 specifies the presentation and disclosure requirement for reporting
comprehensive income which includes those items which have been formerly
reported as a component of shareholders' equity. SFAS 131 establishes the
disclosure requirements for reporting segment information.

Management believes that, when adopted, SFAS 128, 129, 130 and 131 will not have
a significant impact on the Company's financial statements.



                                 Page 13 of 15
<PAGE>   14
                           PART II - OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES
On October 27, 1997, the Company purchased interests in nine office buildings
and an undeveloped parcel of land from Dutch Institutional Holding Company for
a combination of the Company's common stock, promissiry notes and cash.
$211,312,500 of the cash portion of the consideration was provided from the
Company's U.S. initial public offering of 16,100,000 shares of common stock.
The Company registered $700,000,000 of common stock on a registration
statement effective April 15,1997 (Commission number 333-18303). The gross
proceeds of the offering were $225,400,000 with fees of $14,087,500 for net
proceeds of $211,312,500. The offering was underwritten by Merrill Lynch & Co.
and included Lazard Freres & Co. LLC, Lehman Brothers, Morgan Stanley & Co.,
Inc., and BT Securities Corporation as co-managers. The net proceeds were
utilized as provided in the Company's prospectus.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)     Exhibits:
           1)  Exhibit 11.1: Statement of Computation of Earnings Per Share

           2)  Exhibit 12.1: Statement of Computation of Earnings to Fixed 
               Charges

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

           4)  Exhibit 99.1: Supplemental Information to Quarterly Earnings 
               Release

(b)     Reports on Form 8-K:

           1)  Form 8-K/A dated January 22, 1997
               Item 7 - Financial Statements 
               and Exhibits:   Financial statements reflecting the acquisition 
                               of Tower 56 and One Lincoln Centre

           2) Form 8-K dated January 29, 1997
               Item 5 - Other Events: 
                               Board of Directors approval to acquire 527
                               Madison Avenue for approximately $67 
                               million 
               Item 7 - Financial Statements 
               and Exhibits:   Agreement of Sale and Purchase of 527 
                               Madison Avenue


           3) Form 8-K/A dated February 21, 1997
               Item 2 - Acquisition or Disposition 
                of Assets:     Clarification on the Frick Building acquisition.
               Item 7 - Financial Statements 
               and Exhibits:   Clarification on the pro forma financial 
                               statements of One Lincoln Centre and Tower 56.

           4)  Form 8-K/A dated February 24, 1997
               Item 7 - Financial Statements 
               and Exhibits:   Financial statements reflecting the acquisition
                               of 527 Madison Avenue

           5)  Form 8-K dated July 28, 1997
               Item 5 - Other Events: 
                               Conversion of NYSTERS and RODAMCO preferred 
                               stock.
               Item 7 - Financial Statements 
               and Exhibits:   Press release announcing conversion of NYSTERS 
                               and RODAMCO preferred stock.

           6)  Form 8-K dated October 30, 1997
               Item 2 - Acquisition or Disposition 
               of Assets:      Shareholder approval of Dutch Institutional 
                               Holding Company, Inc. Acquisition and Acquisition
                               of Dutch Institutional Holding Company, Inc. 
                               Portfolio
               Item 7 - Financial Statements 
               and Exhibits:   Press releases announcing shareholder approval 
                               of Dutch Institutional Holding Company, Inc. 
                               Acquisition and Acquisition of Dutch 
                               Institutional Holding Company, Inc. Portfolio



                                 Page 14 of 15
<PAGE>   15
                                   SIGNATURES


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


                                       CORNERSTONE PROPERTIES INC.
                                       (Registrant)


                                       By: /s/ John S. Moody
                                           ----------------------------------
                                           John S. Moody, President and CEO

                                       Date:  November 13, 1997


                                       By: /s/ Thomas P. Loftus
                                           ----------------------------------
                                           Thomas P. Loftus, Vice President 
                                           and Controller
                                           (Principal Accounting Officer)

                                       Date:  November 13, 1997


                                       By: /s/ Kevin P. Mahoney
                                           ----------------------------------
                                           Kevin P. Mahoney, Vice President 
                                           and Treasurer
                                           (Principal Financial Officer)

                                        Date:  November 13, 1997


                                 Page 15 of 15